CRITICAL SUCCESS FACTORS & ENVIRONMENTAL ANALYSIS ...
CRITICAL SUCCESS FACTORS & ENVIRONMENTAL ANALYSIS MODELS Critical success Factors Achieving financial performances
Concept of cash flow
Profit
IMPORTANCE
It is important because without cash flow and profit it is important for survival
Trying to prevent being in debt
For the company to grow, and being able to at least cover the cost
Being able to pay employees
Paying for searching and development
Meeting customers needs
Try to satisfy expectations
IMPORTANCE
Without a happy customer, you wont be able to achieve financial performance
Good experience tells one person, but bad experience tells ten people
Negative comments tend to stick out more then positive comments
Building quality products and services
High quality or not?
IMPORTANCE
The expected level to customers
It creates repeat purchases and leads to loyal customers
With quality products you need customer needs
With loyal customers you are bringing in more revenue
Encouraging innovation and creativity
Exceeding customers expectations
To keep up in the market it is important to be innovated and creative
IMPORTANCE
It keeps customers drawn in and meeting their needs in advance
If not meeting customers expectations, they might go to the competitive business
It can risk losing the business
Gaining employee commitment
Happy employees are productive employees
The fringe benefits affects their decision on staying or leaving
IMPORTANCE
It is important it helps employees stay
They are more likely to market the place and protect the company’s image
Represent the company in a positive way
If you have unhappy employees the service and the product will be poor
Do it minimum work, and do the work that just need to get by
Happy employees are more likely to innovate and be more motivated
Creating a distinctive competitive advantage
Something different and special that no other company is able to deliver
Ex. Canadian Lumber has more advantage than other countries because we have so much of it, it comes easy and it is a natural resource
Is it high on demand?
The customers value
IMPORTANCE
It has to be different in value
Lose customers and profit if we do not have that competitive advantage
Without a competitive advantage customers can find better options elsewhere
Risk competing on price
VISION Communication purpose and values should be:
Memorable and engaging
Aligned with organizational values and culture
MISSION
Talks about HOW you will achieve vision present to future
How to steer towards something you will like to achieve
Effective mission statement answers: what do we do? Who do we do it for? Why do we do what we do? How do we do it? What makes us different? What is the benefit?
BU111 LECTURE 3 DiamondE Framework
Identifies key variables to be considered in strategic analysis
The strategic helps us understand the strategic plan
The resources we have can drive or constrain the strategy
Resources human, capital, & financial
Organization culture of the company, structure & leadership, and capability
Management preferences managers are human and there might be a bias decision
Strategy involves the opportunities you chose to pursue
All the internal variables effect the strategy
Strategy and its Importance Strategy: the plan the business uses to pursue opportunities & achieve CSF
Determines and is determined by internal qualities
Any variable can either drive or constrain
•
The critical linking variable in the model
The linkage is between strategy and environment because strategy is shaped by everything internal but being linked on the outside is very critical
How are those social trends ideas going to impact my idea
Strategy Environment Linkage
First task: Deal with strategyenvironment linkage
Assess forces at work and their implications
Examples:
Digital Camera Market: Canon vs. Kodak
The key is to try and asses the environment and one risk willing to take
As Canon invested in digital cameras, Kodak decided not to and went bankrupt recently
DiamondE – Principal Logic Principal logic – consistency or alignment
Consistency internally leads to performance (Ability to carry out the strategy) Each variable impacts and is impacted by the rest
Alignment externally ensures strategy right for the given environment
Warning: environment always changing is strategy in alignment with environment? is strategy consistent with internal variables?
Always consider the internal and external environment equally
External environment is important to be able to have a competitive advantage and being able to be innovated and creative
For internal alignment is it important to know your own resources and being able to use them to the fullest and being able to carry out the strategy
Principal Logic
Importance of Consistency between variables
Examples: o P&G strategy in 2000 (inconsistency) o IKEA Strategy (consistency)
P&G
P&G decided to launch aggressively and launch all products at once
P&G inconsistency is because the resources weren’t enough to keep all the products at once, and cannot support, and more failures
Also, the demand was not met to launch all the products
IKEA
IKEA motive was to design affordable and decent furniture
IKEA’s strategy was proved to be an external strategy
•
Note: absolute alignment is not realistic
External Analysis
Process of scanning and evaluating the external environment
How managers determine opportunities (positive external trends or changes) and threats (negative external trends or changes)
Firms face multiple environments: o General environment; affects all businesses o Specific environment; affects industry participants
How to do an external analysis
General environment o PEST model o Identifies general trends and changes
Specific environment o Porter’s Five Forces – analyzes competitive pressure; predicts industry profitability
PEST – PoliticalLegal Environment Goals: protection of consumers, support for and protection of domestic businesses, opportunity creation in foreign markets Elements:
Laws, regulations
Regulations Banking and industry is regulated
Safety laws work place, construction, food related
Taxes
Trade agreements or conditions free flow in countries, countries that produce things more effectively are able to do so
Political System it is that attractive for you to operate
Political stability being able to know the surroundings, and knowing that when the product is launch the business is able to maintain it
However, the political stability can be an opportunity because the whole industry depends on it
It can be an opportunity for one party but a threat for somebody else
Customs, values, attitudes, and demographic characteristics
Influences customer’s preferences Influences worker attitudes and behaviour Influences standards of business conduct, ethics, corporate social responsibility. Affects how we live, work, consume and produce. Government can create incentives, constrains or support/bail out when needed. Affects uncertainly, risk, and constraints/cost faced by firm Economic elements that influence business 1. Balance of Trade 2. Exchange Rates
Is based on the value of local currency, relative to other currency
Based on the value the dollar has, strong or weak, it is the level of demand
3. Productivity
When growth is good that means the economy is more right to grow
Goals of economic system that elements achieve Economics Growth (measure: aggregate output, GDP, GNP) Growth domestic product, and that is a measure or productivity but also growth. If there is a higher growth there are better rates of employment
your business 1. Inflation/Deflation
Inflation is a rise in prices
Deflation is decrease in prices
When prices rise too much, we have much less purchasing power
Stability and employment
2. Interest Rates 3. Employment if there is a high rate in employment is a good thing, however if it is low it impacts the economy in a negative way Employment rates and measures
Employment
Affect costs, sales, financial uncertainly Elements:
Internet affects buying, selling, communication
Information technologies affect information access, interfirm cooperation, cycle times (how long does it take)
Not limited to computers and information (transportation)
•
Affects what we produce/what it can do/affects how we produce and how we sell
•
Demands constant learning and scanning
Porter’s Five Forces INDUSTRY COMPETITORS (rivalry among existing firms) Potential Entrants
Those who are considering entry in the industry
The force measure the threat of other new entrants
Can cause big changes
Ease of entry = more intense competitionhiiiiii
Solutions: create or use barriers = capital intensity, technology, knowhow, regulatory approval, brand loyalty, access to distribution Suppliers
Suppliers is input, who in providing input to your supplies
Fewer suppliers, high switching costs, low attractiveness of substitute supplies, high threat of forward integration means = increased bargaining power of supplier
Bargaining power increases costs of inputs
Solution: use strategic alliance of internal supply Buyers
Buyers are not always end consumers
Whoever is buying your products and goods
Few or concentrated buyers, standardized products, love switching costs, discretionary, purchases o Increased bargaining power for buyer o Intensifies competition o Reduces price that you can demand
Solution: Alliance with other firms; strong marketing; lock inhi Substitutes
Product that is similar but not in the same industry
Substitutes that provide similar benefits and do the same job in a slightly different way
They are affect rivalry and profitability
Many substitutes = increased competition
Puts ceiling on price that can be charged
Pressure increases as pride of substitutes and switching costs decline
Solution: make buyers believe you are unique; lock them in Caveat power and influence of each force will vary by industry Rivalry
Rivalry among existing firms o Results in price competition and increased costs o Most powerful of five forces o Causes: many competitors of equal size/capability, growth rate of industry/ capacity of competitors, consumers’ switching costs (moving from one provider to another), products are commodities or are perishable
Value of Five Forces Models
It help to predicts industry profitability
Helps determine whether a firm should enter a particular industry
Helps determine whether and/or how firm can carve out an attractive position in that industry
Questions to think about Critical success factors:
What is each one, why is it important, how is it connected with the rest?
What happens over time if a firm does not meet all 6 factors?
DiamondE:
What are the components?
How does each component affect the others How is it affected by the others?
What is strategy and why is it important?
What is the principal logic behind the DiamondE and what happens if it is violated?
What role does the environment play in the DiamondE?
PEST Factors
What are the elements for each? Can you tin k of an example for each one?
How do they affect business? What is the significance of each?
Can you provide an example of each element that would represent a threat for a particular industry or business and/or an opportunity for another?
How is porters connected to the diamondE? What role and influenced does the Porter’s model have Porter’s also considers the “E” of the DiamondA specific to an industry
Identify two elements of the economic part of the environment (E in PEST). Give a specific example of the element and explain how it creates an opportunity or threat for a company
Concept of cash flow
Profit
IMPORTANCE
It is important because without cash flow and profit it is important for survival
Trying to prevent being in debt
For the company to grow, and being able to at least cover the cost
Being able to pay employees
Paying for searching and development
Meeting customers needs
Try to satisfy expectations
IMPORTANCE
Without a happy customer, you wont be able to achieve financial performance
Good experience tells one person, but bad experience tells ten people
Negative comments tend to stick out more then positive comments
Building quality products and services
High quality or not?
IMPORTANCE
The expected level to customers
It creates repeat purchases and leads to loyal customers
With quality products you need customer needs
With loyal customers you are bringing in more revenue
Encouraging innovation and creativity
Exceeding customers expectations
To keep up in the market it is important to be innovated and creative
IMPORTANCE
It keeps customers drawn in and meeting their needs in advance
If not meeting customers expectations, they might go to the competitive business
It can risk losing the business
Gaining employee commitment
Happy employees are productive employees
The fringe benefits affects their decision on staying or leaving
IMPORTANCE
It is important it helps employees stay
They are more likely to market the place and protect the company’s image
Represent the company in a positive way
If you have unhappy employees the service and the product will be poor
Do it minimum work, and do the work that just need to get by
Happy employees are more likely to innovate and be more motivated
Creating a distinctive competitive advantage
Something different and special that no other company is able to deliver
Ex. Canadian Lumber has more advantage than other countries because we have so much of it, it comes easy and it is a natural resource
Is it high on demand?
The customers value
IMPORTANCE
It has to be different in value
Lose customers and profit if we do not have that competitive advantage
Without a competitive advantage customers can find better options elsewhere
Risk competing on price
VISION Communication purpose and values should be:
Memorable and engaging
Aligned with organizational values and culture
MISSION
Talks about HOW you will achieve vision present to future
How to steer towards something you will like to achieve
Effective mission statement answers: what do we do? Who do we do it for? Why do we do what we do? How do we do it? What makes us different? What is the benefit?
BU111 LECTURE 3 DiamondE Framework
Identifies key variables to be considered in strategic analysis
The strategic helps us understand the strategic plan
The resources we have can drive or constrain the strategy
Resources human, capital, & financial
Organization culture of the company, structure & leadership, and capability
Management preferences managers are human and there might be a bias decision
Strategy involves the opportunities you chose to pursue
All the internal variables effect the strategy
Strategy and its Importance Strategy: the plan the business uses to pursue opportunities & achieve CSF
Determines and is determined by internal qualities
Any variable can either drive or constrain
•
The critical linking variable in the model
The linkage is between strategy and environment because strategy is shaped by everything internal but being linked on the outside is very critical
How are those social trends ideas going to impact my idea
Strategy Environment Linkage
First task: Deal with strategyenvironment linkage
Assess forces at work and their implications
Examples:
Digital Camera Market: Canon vs. Kodak
The key is to try and asses the environment and one risk willing to take
As Canon invested in digital cameras, Kodak decided not to and went bankrupt recently
DiamondE – Principal Logic Principal logic – consistency or alignment
Consistency internally leads to performance (Ability to carry out the strategy) Each variable impacts and is impacted by the rest
Alignment externally ensures strategy right for the given environment
Warning: environment always changing is strategy in alignment with environment? is strategy consistent with internal variables?
Always consider the internal and external environment equally
External environment is important to be able to have a competitive advantage and being able to be innovated and creative
For internal alignment is it important to know your own resources and being able to use them to the fullest and being able to carry out the strategy
Principal Logic
Importance of Consistency between variables
Examples: o P&G strategy in 2000 (inconsistency) o IKEA Strategy (consistency)
P&G
P&G decided to launch aggressively and launch all products at once
P&G inconsistency is because the resources weren’t enough to keep all the products at once, and cannot support, and more failures
Also, the demand was not met to launch all the products
IKEA
IKEA motive was to design affordable and decent furniture
IKEA’s strategy was proved to be an external strategy
•
Note: absolute alignment is not realistic
External Analysis
Process of scanning and evaluating the external environment
How managers determine opportunities (positive external trends or changes) and threats (negative external trends or changes)
Firms face multiple environments: o General environment; affects all businesses o Specific environment; affects industry participants
How to do an external analysis
General environment o PEST model o Identifies general trends and changes
Specific environment o Porter’s Five Forces – analyzes competitive pressure; predicts industry profitability
PEST – PoliticalLegal Environment Goals: protection of consumers, support for and protection of domestic businesses, opportunity creation in foreign markets Elements:
Laws, regulations
Regulations Banking and industry is regulated
Safety laws work place, construction, food related
Taxes
Trade agreements or conditions free flow in countries, countries that produce things more effectively are able to do so
Political System it is that attractive for you to operate
Political stability being able to know the surroundings, and knowing that when the product is launch the business is able to maintain it
However, the political stability can be an opportunity because the whole industry depends on it
It can be an opportunity for one party but a threat for somebody else
Customs, values, attitudes, and demographic characteristics
Influences customer’s preferences Influences worker attitudes and behaviour Influences standards of business conduct, ethics, corporate social responsibility. Affects how we live, work, consume and produce. Government can create incentives, constrains or support/bail out when needed. Affects uncertainly, risk, and constraints/cost faced by firm Economic elements that influence business 1. Balance of Trade 2. Exchange Rates
Is based on the value of local currency, relative to other currency
Based on the value the dollar has, strong or weak, it is the level of demand
3. Productivity
When growth is good that means the economy is more right to grow
Goals of economic system that elements achieve Economics Growth (measure: aggregate output, GDP, GNP) Growth domestic product, and that is a measure or productivity but also growth. If there is a higher growth there are better rates of employment
your business 1. Inflation/Deflation
Inflation is a rise in prices
Deflation is decrease in prices
When prices rise too much, we have much less purchasing power
Stability and employment
2. Interest Rates 3. Employment if there is a high rate in employment is a good thing, however if it is low it impacts the economy in a negative way Employment rates and measures
Employment
Affect costs, sales, financial uncertainly Elements:
Internet affects buying, selling, communication
Information technologies affect information access, interfirm cooperation, cycle times (how long does it take)
Not limited to computers and information (transportation)
•
Affects what we produce/what it can do/affects how we produce and how we sell
•
Demands constant learning and scanning
Porter’s Five Forces INDUSTRY COMPETITORS (rivalry among existing firms) Potential Entrants
Those who are considering entry in the industry
The force measure the threat of other new entrants
Can cause big changes
Ease of entry = more intense competitionhiiiiii
Solutions: create or use barriers = capital intensity, technology, knowhow, regulatory approval, brand loyalty, access to distribution Suppliers
Suppliers is input, who in providing input to your supplies
Fewer suppliers, high switching costs, low attractiveness of substitute supplies, high threat of forward integration means = increased bargaining power of supplier
Bargaining power increases costs of inputs
Solution: use strategic alliance of internal supply Buyers
Buyers are not always end consumers
Whoever is buying your products and goods
Few or concentrated buyers, standardized products, love switching costs, discretionary, purchases o Increased bargaining power for buyer o Intensifies competition o Reduces price that you can demand
Solution: Alliance with other firms; strong marketing; lock inhi Substitutes
Product that is similar but not in the same industry
Substitutes that provide similar benefits and do the same job in a slightly different way
They are affect rivalry and profitability
Many substitutes = increased competition
Puts ceiling on price that can be charged
Pressure increases as pride of substitutes and switching costs decline
Solution: make buyers believe you are unique; lock them in Caveat power and influence of each force will vary by industry Rivalry
Rivalry among existing firms o Results in price competition and increased costs o Most powerful of five forces o Causes: many competitors of equal size/capability, growth rate of industry/ capacity of competitors, consumers’ switching costs (moving from one provider to another), products are commodities or are perishable
Value of Five Forces Models
It help to predicts industry profitability
Helps determine whether a firm should enter a particular industry
Helps determine whether and/or how firm can carve out an attractive position in that industry
Questions to think about Critical success factors:
What is each one, why is it important, how is it connected with the rest?
What happens over time if a firm does not meet all 6 factors?
DiamondE:
What are the components?
How does each component affect the others How is it affected by the others?
What is strategy and why is it important?
What is the principal logic behind the DiamondE and what happens if it is violated?
What role does the environment play in the DiamondE?
PEST Factors
What are the elements for each? Can you tin k of an example for each one?
How do they affect business? What is the significance of each?
Can you provide an example of each element that would represent a threat for a particular industry or business and/or an opportunity for another?
How is porters connected to the diamondE? What role and influenced does the Porter’s model have Porter’s also considers the “E” of the DiamondA specific to an industry
Identify two elements of the economic part of the environment (E in PEST). Give a specific example of the element and explain how it creates an opportunity or threat for a company
