You are on page 1of 76

[COMM 103] Business Management &

Communications
Chapter 1 What is Business?
3 Fundamental Characteristics of a Business -> Business Foundation
Commercial Endeavours: market business serves, goods/services it offers, and needs business
meets
Employee Interaction: skills of staff
Organizational Efficiency & Structure: culture of business and its command infrastructure
Business: firm that identifies needs of a particular market, delivering goods/services to
consumers for quantitative/qualitative profit
--------------------------------------------------------------------------------------------------------------------Assets: resources, raw/buildings of an organization
+
Labour: human resources of a firm
+
Capital: money needed to support ventures, innovations and operations of a firm
+
Managerial Acumen: ingenuity and intelligence of top level managers
=
Business Model: operational structure on which business uses to generate revenue
--------------------------------------------------------------------------------------------------------------------Business Planning Cycle
1) Strategy (objectives of firm) and 3C Assessment (capability, competency, capacity) ->
2) Development -> 3) Execution -> 4) Performance and Profitability -> 5) Growth and Reinvention
Competitive Advantage: firm offers service that is more valuable than similar ones offered by rivals

-businesses grow by executing new planning cycles to reposition firm as dynamic marketplace
changes, in order to link mission and vision of organization in line with profitability and success

Such objectives should be -> Specific, Measurable, Actionable, Controllable


-failure to meet objectives of planning cycle can be a result of poor execution or poor positioning
--------------------------------------------------------------------------------------------------------------------Fundamental Objectives of Business
1) Short-Term Profit
2) Long Term Growth and Profitability
3) Social and Environmental Responsibility
stakeholders: those who have direct/indirect stake in firms success/policies
stockholders: those who have at least a share of stock in a company
profit: Total Revenue Total Expenses = Profit
profitability: efficiency of assets used over a period of time, benchmarked against competitors
--------------------------------------------------------------------------------------------------------------------value proposition: statement stating who the service/product is for, and the benefits of such
->how the product is different from rival products
->Service Benefits + Product Benefits + Brand Benefits + Cost Benefits + Emotional
Benefits -higher quality of the product, better pricing it will display
-> quality also depends on brand recognition, loyalty and emotional value to consumers
market segment: unique niche in which a business can target customers
--------------------------------------------------------------------------------------------------------------------asset-based costs: costs incurred from start-up or
expansion operating costs: costs from day-to-day
operations strategy: long-term decisions and plans of a firm
tactics: immediate actions which a firm executes to meet concurrent objectives
---------------------------------------------------------------------------------------------------------------------

Business Decision-Making Model


1) visualize business opportunity -> 2) check market size and profitability potential -> 3)
determine position in market, approach and sustainability -> 4) assess firms resources and
capability -> 5) execute strategy and tactics
business is not about producing and distributing goods, but about meeting desires/needs
of consumers
--------------------------------------------------------------------------------------------------------------------Case For Discussion
1. Manufacturers have been marketing to consumers largely on the basis of pricing
differences from competitors. What businesses in this particular market have failed to do
is differentiate their particular product or model in a fashion that would take consumer
focus away from pricing. In essence, no firm or business in this market has ensured
profitability, and will have to incessantly lower prices to remain competitive.
2. Sylvie must be able to present Cruiser Laptops Inc. with a value proposition that has a
unique selling point, or competitive advantage over all the other firms in the marketplace.
There must be a distinctive form of differentiation her firms laptops hold over rivals.
This change does not have to be cost benefits, as everyone has been focussing on. Rather,
this distinction can be based on service benefits and improved software that no one else
has. If this initial proposition is taken with success, other benefits such as emotional
attachments and brand recognition will continue to give Cruiser an edge in the market.
3. cut costs by using cheaper suppliers, and then reducing prices to remain competitive
-engage in a highly focussed marketing campaign that will increase consumers perceived
benefits of Cruiser brand
-employ CSR and communicate such to consumers (proceeds of profits will go towards charity)

Chapter 4 The Environment and Sustainable Business Practices


environmental stewardship: integration environmental practices into business operations
degradation: continued deterioration of environment through depletion of resources
and destruction of ecosystems
the goal is to design businesses in a way that incorporates sustainability of this earth into
practices that will mean profitability and a competitive advantage

Five Great Sustainability Challenges


1)Resource Depletion 2)Energy Crunch 3)Climate Change 4)Pollution & Health
5)Capital Squeeze
Kyoto Protocol: 1997-2005 binding agreement to participating nations into reducing emissions
--------------------------------------------------------------------------------------------------------------------Resource Availability
peak model theory: resources are finite, and eventually maximum production point will decline
7 Factors of Demand/Supply
Current Supply Development Constraints: rate at which existing known resources can be developed

Political impact factors: legal barriers to carry out business productions (taxes and tariffs)
Rate of new Discoveries: discovery of new fossil fuel reserves
Declines in current production: reduction in current supply of resources
Immediate access to additional capacity: ability of suppliers to tap into excess capacity of resources

Geopolitical instability: instability of regions that supply global energy needs


Development speed of alternate energy sources: rate at which alternate energies can be made
applicable to mass consumers
------------------------------------------------------------------------------------------------------------------------------------------

Resource Depletion
resource management: to actively managed existing supplies and minimize waste
sovereign wealth funds: state-owned investments
-resource depletion in developed nations has led to exploitative activities in third world nations rich in
natural resources
Mass capital squeeze leads to
->lack of access to capital for developed nations
->reduction of savings in developing states

-> cost of capital will increase, and thus increase debts worldwide
->financial protectionism could creep up, which would slow down the global markets

Trade Management
1) participants in any economic or trade bloc must all pay for costs of environment
degradations (no-opt outs): binding for ALL
2) global markets must accept pricing that includes costs of environmental sustainability
3) participants in any economic bloc must adhere to regulations and subscribe to green
initiative, including shunning those who would attempt to circumnavigate such
restrictions
Eco-efficiency management: tactical shift in businesses to maximize efficiency of resources
and eliminate degradation of planet
--------------------------------------------------------------------------------------------------------------------Benefits of Environmental Sustainability
-improved corporate image; consumer loyalty
-less negative legal interaction
-stronger brand image leads to pricing power
-enhanced greener processes leads to lower overall cost in the long run
-stronger employee base with a conscience
-responsible businesses are granted more open doors and can lead to new options

Chapter 5 Ethics and Corporate Social Responsibility


ethics: moral beliefs of what is right and wrong
-companies may get caught up in competitive rivalries and changing market conditions, but they
should not get caught up in unethical behaviours that would demoralize employees or destroy
brand loyalty
whistleblowing: process through which employee reports another of unethical behaviour
-board of directors and upper management must take control and lead the initiative for the firm to
run things that are clearly conscientious
forensic accounting: integration of accounting, auditing and other investigative skills
->used to uncover any hidden unethical practices within a firm, and extent of damage it

has

corporate social responsibility: understanding that a business is a partnership between the firm
and the society it affects, and that the objectives of both should be met
-the importance of CSR lies in the fact that in a realm of growing competitiveness and drive to be
distinctive, the ability for a business to call themselves socially responsible may be the difference
factor for consumers
-> consumers are paying attention to CSR, and are starting to realize more than pricing
when it comes to decision purchases

Chapter 13 Introduction to Capital and Financial Markets


5 key factors influencing start-up of business
1) Ease of set-up and operations; legal barriers
2) degree of control owners get
3) amount of risk owners willing to take on
4) financial capacity for start-up costs
5) anticipated skills required for success
-these factors will need to be reviewed at many points in organizations life cycle
-as managers/owners, one must be continually aware of firms financial capacity, liability
exposure, risks, and skills necessary for operations
capital structure: an organizations use of its assets, including debt, internal cash reserves, and
external equity investments, to carry out operations
operating profit: total revenue minus total operating expenses
retained earnings: amount of net earnings accumulated over history of organization
credit facilities: debt organization taken on to support business operations
->short-term credit facility is debt taken on for one year or less
accounts payable: money owed by firm to suppliers and short-term loaners
accounts receivable: money owed by consumers to firm for products / services
line of credit: arrangement with loaner for firm to take out borrowed money anytime (with
a ceiling)

collateral: capital / monetary assets used to secure a loan


->long-term credit facility is debt taken on for more than a year
cost of borrowing: total sum of money owed to credit facility, including interest and loan startup costs
bond: organizations borrow money and pays holder of bond interest over regular
intervals, during the time that the money is borrowed
rating agency: firms that offer objective and independent assessment of a business solvency,
liquidity and long-term health
junk bond: bond with high probability of default (will require high interest rate for firm
to acquire)
mortgage: loan backed by real estate collateral, sets schedule of periodic payments,
totalling the full debt plus interest
principal: amount of money actually being borrowed, separate from interest
amortization period: specified length of time over which loan will be paid off

long-term note: similar structure to mortgage, except they are usually shorter periods of
time
prime lending rate: base lending rate issued by banks, reserved for most trusted clients
lease obligation: loan issued with periodic payments, for use of equipment and
property Impact of Credit Facilities
-when making decisions to use credit facilities as source of funds, must ensure repayment
obligations do not jeopardize liquidity and solvency of business in its operations
debt leverage: use of debt to finance organizations asset base
--------------------------------------------------------------------------------------------------------------------Equity Options
private equity: funds obtained by firm from private hands
->can be direct investment into company, or purchase of company shares
public equity: funds acquired through publicly traded shares (Initial Public Offerings) or
secondary offering of shares (Additional Public Offering) <- say another IPO instead

price dilution: price of existing shares of stock may fall due to larger number of shares made to
exist
market capitalization value: current market value of an organization (# shares x current share
value)
-firm must be sure that at the time of issuing IPO/APO, firm will receive
maximum benefit, as it will only benefit from the initial sale of shares
prospectus: legal document filed to securities commission regarding fiscal stability of company
and its intent in issuing shares; allows potential investors to assess risk
--------------------------------------------------------------------------------------------------------------------3 Funding Sources
1) Profits from business operations
2) credit facilities (lending institutions)
3) equity options (private and public)
Source of Funds
Funds From Operations

Credit Facilities

Equity Financing

Advantage
-no external funding needed
-no dilution of ownership
-no repayment / interest
required

Disadvantage
-money available may not
fulfill firms needs
-money available now and in
the future has uncertainty
-cannot be distributed to
owners as return on
investment
-no dilution of ownership
-must be paid back in full,
-large inflows of capital,
regardless of conditions of
payments spread out over long company
periods of time
-collateral usually required;
-use someone elses money to limits asset use
fund firm
-interest payments
-interest considered
operational expense
-no repayment needed
-dilutes ownership
-raises money without
-public; control lies with
incurring debt
majority ownership
-does not drain firms
-mgmt decisions influenced by
operational funds to meet
shareholder demands
organizations needs

-non-profit organizations are not allowed to use equity investments (ownership via shares) to raise
capital -> can pursue fundraising options

philanthropy: donation of funds to a person / organization to enhance lives of others

Chapter 14 Understanding Financial Statements


-analyzing and interpreting financial statements allows mgmt team to keep fingers on the pulse
of organization
gross profit margin: revenue left after direct costs (wages + materials) are paid
profitability margin: portion of revenue that is left after all operating expenses are paid
managers rely on analyzing three main financial statements
1) balance sheet

2) income statement 3) cash flow statement

--------------------------------------------------------------------------------------------------------------------Two Fundamental Types of Business Transactions


operational transactions: flow of money to do with day-to-day operations (revenue
and recurring expenses)
capital asset transactions: decisions managers make in terms of investment and handling of
capital assets (land and equipment)
-> although these assets are not directly related to current year profits, they do
impact cash flow in the long term
--------------------------------------------------------------------------------------------------------------------Liquidity, Solvency, Efficiency, and Financial Capacity
liquidity: # assets business can turn easily into cash
capacity: ability of firm to generate revenue and grow its sources of revenue solvency:
ability of firm to pay off long-term fixed expenses and fund future growth efficiency:
ability of business to effectively manage operations and allocate resources

-important role of managers when conducting financial analysis, is to make conclusions about
firms current and future liquidity and solvency
--------------------------------------------------------------------------------------------------------------------Income Statement

income statement: shows whether or not business is earning a profit from sales, minus expenses
-> summarizes operational transactions
-> measures firms efficiency
->shows firms profit over a period of time after taxes
Sales Revenue COGS = Gross Profit Margin
Gross Profit Margin General Operating Expenses Interest Tax = Net Profit
--------------------------------------------------------------------------------------------------------------------Balance Sheet
balance sheet: shows resources business has at a certain time, and the costs it has incurred from
getting these resources
->measures firms capacity and liquidity
Assets = Liabilities + Owners Equity
Owners Equity = Retained Earnings + Owners Capital Invested
--------------------------------------------------------------------------------------------------------------------Statement of Cash Flows
cash flow statement: shows the total movement of cash (from all sources) into and out of
the business
->summarizes sources and uses of business cash flow
->provides insight into current and projected liquidity of firm
Income Statement + Cash from Operational Activities + Cash from Investing Activities +
Cash from Financing Activities = CHANGES TO CASH POSITION
Cash from Financing Activities: cash flowing into firm from non-operating activities
Cash from Investing Activities: uses of cash flowing out from non-operating activities
Cash from Operational Activities: adjustments to net income to reflect actual cash from
operating activities
--------------------------------------------------------------------------------------------------------------------Analyzing and Interpreting Financial Information

1. ratio analysis: assessing relationships among financial statements


2. leverage analysis: assessing impact of debt accrued by firm in order to finance its assets
3. trend/comparative analysis: look for trends by assessing financial statements over
multiple periods of time
4. absolute analysis: specific dollar amount of financial resources available
-only by using all 4 methods are managers able to get a real sense of financial position and
health of firm
--------------------------------------------------------------------------------------------------------------------Ratio Analysis
-ratios although useful, are by themselves not always indicative of firms fiscal health
profitability ratios: assessing amount of income firm has earned in comparison to operating
activity and assets used to generate such income
Return on Sales: % sales that actually generated profit for business
Return on Sales = Net Income / Net Sales

Return on Assets: productivity of assets in producing income for firm


Return on Assets: Net Income / Total Assets

Return on Equity: net income earned on each dollar invested by shareholders


Return on Equity: Net Income / Total Equity

Earnings Per Share: return on investment for each share purchased by investor
Earnings Per Share: Net Income / # Shares Outstanding
-> note that this does not mean shareholders actually get this money, as firm may not pay out
dividends
solvency and liquidity ratios: assessing financial obligations against firms financial resources
do determine if firm has enough capital to meet its upcoming needs

Current Ratio: relationship between firms current assets and current liabilities
Current Ratio: Current Assets / Current Liabilities

Quick Ratio: quick assets (ability to be turned immediately into cash) against
current liabilities
Quick Ratio: Cash + Marketable Securities + Accounts Receivable / Current
Liabilities
->also known as acid-test ratio, this is used when firm is extremely concerned about its current
liquidity position

Solvency Ratio: ability of firm to meet long-term financial obligations


Solvency Ratio: Net Income + Depreciation / Total Liabilities
->general rule is that solvency ratio should be equal or greater than 0.20

Debt ratios: assess relationship of debt value against firms total asset base, and ability of firm
to meet its debt obligations
Debt to Asset Ratio: relationship between value of debt and value of firms assets
Debt to Asset Ratio: Total Liabilities / Total Assets
->higher the ratio, the greater the potential solvency issues

Debt to Equity Ratio: relationship between money raised via borrowing and money
raised that investors have provided
Debt to Equity Ratio: Total Liabilities / Total Equity

Times Interest Earned Ratio: assesses ability of firm to meet its interest expenses
Times Interest Earned Ratio: Earnings Before Interest and Tax / Interest Expense

->shows lenders that at the very least, firm will be able to pay back interest on loans

activity ratios: assesses efficiency and effectiveness of key components of firms operations;
shows mgmt how effectively firm is using asset base for operations
Days Receivable: ability to convert money owed to firm into cash
Average Days Sales: Net Annual Sales / 365 Days
Days Receivable: Accounts Receivable / Average Days Sales
->if this ratio is high, then firm could face short-term liquidity issues

Inventory Turnover: ability to turn inventory into cash


Inventory Turnover: Cost of Goods Sold / Average Inventory
Days Inventory: 365 / Inventory Turnover
->note that longer inventory remains unsold, greater the concern that it will not be sold for full
price, and greater strain it places on firms cash flow
--------------------------------------------------------------------------------------------------------------------Leverage Analysis
leverage: amount of debt firm uses to acquire / maintain its asset base
Benefits of Leverage
-in profitable situations, where firms earnings are enough to cover interest expenses, better to
use external funding rather than use up profits of past years
Risks of Leverage
-in unprofitable situations, where firms earnings are not enough to cover interest expenses,
better to have used internal sources rather than to have sought loans
Managers need to recognize risks of leverage, and try to use debt in a way that enhances
growth rather than exposing it to liquidity and solvency issues.
Trend / Comparative Analysis

-by comparing financial statements and ratios against projected goals or historical performance,
we can assess whether liquidity and solvency positions are being improved, and if organization is
improving overall efficiency
--------------------------------------------------------------------------------------------------------------------Absolute Analysis
absolute analysis: specific dollar amount of financial resources available
->ratios are important to understand efficiency, but absolute dollar value accurately gauges the
potential dollars a firm stands to generate
--------------------------------------------------------------------------------------------------------------------Forecasting and Budgeting
forecasting and budgeting: mgmts ability to anticipate organizations financial position
->requires benchmarking in firms market/niche, anticipate how its products/services will
perform
->set specific operational targets for various departments, to keep on track in terms
of operational efficiency and effectiveness
->provides process in which scarce resources can be allocated to projects and
initiatives anticipated to yield best results
->forecasts/budgets become targets against which actual results can be measured,
enabling managers to make proactive decisions to rectify business activities mid-period
-in essence, accuracy of sales forecasts underlies decisions regarding production, inventory,
mgmt, and infrastructure spending
designated restricted assets: assets set for a specific purpose, and not available for managers to
use elsewhere

Chapter 2 The Canadian Economic Environment


->in recent years, Canada has been known more and more as a petro economy (growing
dependency on the energy sector to drive the value of the currency
->Canada should realize a balance of trade surplus (imports) and exports

G7/8: quasi-organization with full membership from worlds most developed economies in the
world, with temporary representatives from major developing economies -> goal is to discuss
major economic, political and societal issues challenging global marketplace
-over the past 200 years, Canada has transitioned from an agricultural economy to a
diversified system with systems and products alike being sought by consumers of the world
-driving products are oil and petroleum gases, agricultural products, minerals, forestry products
-driving services are telecommunications, aerospace, energy support
--------------------------------------------------------------------------------------------------------------------Contributing Factors to Economic Development
-key to stability and growth of nations economy lies in its ability to provide a stable
environment, and to ensure required mgmt systems are in place to support future
economic growth

Manageable
Levels of
National Debt
Sufficient
Levels of
Investment

Low Inflation

Political
Stability
Established
Factors of
Production
Absence of
Corruption

National
Monetary
Policy and
Banking System
Effective Legal
System

Comparative
Advantage

comparative advantage: ability of nation to produce/supply goods/services at a lower cost than


others, OR to have unique resources and services that arent available anywhere else
Foreign Direct Investment (FDI): company/individual from foreign nation invests in a
business from another country
->increased FDI occurs when investors view nation as a safe and lucrative place to do
business
--------------------------------------------------------------------------------------------------------------------The Underlying Economic Model
Three Fundamental Principles
1. Law of Supply and Demand
2. Allowance of private ownership, entrepreneurship and creation of wealth

3. Extent of govt involvement in influencing economic activity and direction


--------------------------------------------------------------------------------------------------------------------Law of Supply and Demand
-ability of the market (free of external influence) to determine the price for which
a product/service will be sold
-demand reflects the number of purchasers who are willing to pay for said service/product, at
different price points
-demand can be elastic or inelastic (demand reaction to changes in price)
-supply reflects quantity of product/service producers are willing to present to the market at
different price points
->suppliers consider cost of production versus potential revenue from selling product
at certain times
-together, demand and supply form the basis for the relationship between quantity demanded and
quantity supplied
->at an equilibrium point, quantity supplied equals quantity demanded, and thus there is no
shortage or surplus of goods, with the price point being at equilibrium
-price may also be influenced by external mechanisms such as duties, tariffs, subsidies or other
regulatory practices
--------------------------------------------------------------------------------------------------------------------Allowance for Private Ownership, Entrepreneurship, and Wealth Creation
-refers to level of freedom/openness of market to encourage and promote private enterprise and
personal ownership
-developed economies tend to fully support this notion
-developing economies are gradually allowing more access to these fundamentals
-command economies restrict entirely these capitalistic principles
--------------------------------------------------------------------------------------------------------------------Govt Involvement in Influencing Economic Activity and Direction
-various roles govt can play with day-to-day economic activities

-govt can act as consumer purchasing goods/services


-govt can at as regulator by restricting access or determining level of competition
-govt can act as manager by running crown corporations in competition to private sector
-govt can act as a taxation agent
-govt can act as economic stimulant by providing grants/subsidies and building infrastructure

open system: economic system that adheres to principles of capitalism and private ownership
controlled system: economic system where fundamentals of supply and demand are largely
restricted or absent; govt fully controls economic activity
mixed system: economic system that is a mixture of both open and controlled systems; includes
core principles of economic freedom, with certain degree of centralized planning and govt
regulation (most developed nations are this type)
--------------------------------------------------------------------------------------------------------------------The Economy in Simple Terms
1. Expenditures: purchases to meet day-to-day economic activity and improving overall
quality of life
2. Savings: money set aside for wealth creation in the future (RRSPs)
3. Capital Asset Investments: investments made today to expand economic capacity in future
(real estate + buildings / operating equipment)
4. Credit: borrowing of money to support expenditures/investments
Economic Activity = Expenditures + Savings + Investment + Credit
--------------------------------------------------------------------------------------------------------------------Economic Growth Cycle
Gross Domestic Product (GDP): total market value of goods/services national produces
domestically over a period of time (usually one year)
->goods/services purchased domestically
->business investments in economy
->goods produced for export

->govt spending
-economists track movement of GDP over period of time to determine growth/contraction
of nations economy
recession: period of time in which economy is contracting (when economy has two or
more quarters of negative GDP movement)
1. Growth in economy via consumer spending leads to increased corporate revenue and
govt taxation revenue
2. Due to increase in corporate profits and govt taxation revenue, both parties now
have increased capacity to invest in new products / services and new
infrastructure
3. Increased business activity requires more employees and increases employment opportunities
4. With increase in need for workers, employers are forced to provide higher wages, and
this thus entices workers to spend more. This then stimulates more growth in the national
economy.
This process reverses during periods of economic contraction.
--------------------------------------------------------------------------------------------------------------------Managing the Movement in the Economy
-growth in economic activity is desired, but needs to be controlled in a way that
generates investment but maintains level in prices of goods to prevent inflation
inflation: rise in level of prices of goods/services within economy over period of time (devalues
value of domestic currency)
-geographical distribution of resources and manufacturing plants may also lead to
regional disparity in growth rates within one country
--------------------------------------------------------------------------------------------------------------------Trends Impacting the Canadian Market
Inflation
-robs economy of true growth and creates negative psychological impact on confidence levels
of consumers
->commodities that are growing scarce such as fossil fuels will see prices
continually spiralling upwards, unless alternative sources can be found

Geographic Clustering
-occurs when regional economies develop distinctively until interdependency is minimized;
inability of govt to effectively introduce national-based economic mgmt. actions

Currency Exchange Rate Impact


-appreciation of Canadian currency value against other currencies has advantages
and disadvantages
+ -> reducing price of goods imported into country and profits in export of commodities
- -> negatively impacted tourism and manufacturing export sectors, as Canadian
products being exported have risen in price
Branch Market Impact
purchasing power parity (PPP): measurement taking into account relative cost of living and
inflation rates of each country
->high demand for Canadian resources and natural commodities has resulted in
foreign acquisitions of Canadian companies; could run the risk of having Canada simply
become a branch market economy
->Canadian govt tightening regulations of foreign acquisitions and harshly assessing if
such moves will be in the interest of Canada
hostile takeover: when attempt to take over a company whose mgmt + board of directors
are unwilling to agree to takeover/merger
Sustainability and Green Initiatives
-businesses will seek to achieve market positioning advantages and cost advantages to
improve company perception and protect the environment
Aging Workforce, Immigration and Multi-Culturalism
-developed economies face risk of experienced workers in key industries retiring and
a significant natural brain-drain
-need for skilled workers in intellectual capital resolved by immigration and recruiting welleducated workers
Long-Term Competitiveness

-with the rise of developing nations with huge levels of manpower and consuming / production
capacity, developed economies will be challenged to maintain competitive advantages in the
global marketplace
Small Business Emphasis
-small businesses and entrepreneurships are integral to nations growth in terms domestic market
growth and global niche markets
-with more and more business starting up on the internet, small sized firms will continue
to thrive
Globalization
-businesses need to become more efficient in operational processes and productivity, and
adapting to demands of the global markets
-as world becomes more interconnected, there is increasing competition and
continued innovation -> leading to shorter product life cycles
--------------------------------------------------------------------------------------------------------------------Managing in Challenging Times
-for managers, it is critical that they understand the domestic economy as well as global
economies that influence domestic prosperity
Primary Economic Indicators
-unemployment rate
-inflation rate
-Consumer Price Index
-new housing projects
-manufacturing inventory
-Consumer Confidence Index
-price of crude oil
-stock market indexes
-currency exchange rate
-retail sales figures

PESTEL Analysis: macro-level assessment of political, economic, social,


technological, environmental and legal trends that impact markets
protectionism: economic policies put in place to improve competitiveness of local/domestic
businesses; restricting access to foreign firms through use of tariffs / quotas etc.
--------------------------------------------------------------------------------------------------------------------Understanding Competitive Models
-understanding competitive environment business is in is critical to creating a strategy as to how
to allocate resources in support product positioning and marketing efforts
Purely Competitive Markets
-products with little differentiation
-lack of dominant market leader
-few barriers to entry
-price is key decision
->e.g. commodity-based markets
Monopoly-Based Markets
-single product / single supplier
-govt regulated, due to belief that single entity
providing product/service is more efficient and
provides better pricing
->e.g. supply of electricity/natural gas

Monopolistic Markets
-different suppliers
-large number of small firms
-nature of industry, along with marketing
effort, has enabled true differentiation
-distinction, brand value, quality and price all
factors
->e.g. cell-phone manufacturer
Oligopoly-Based Markets
-small number of suppliers that control large
portion of market share
-firms compete on the bases of distinguishing
products/services from competitors
-major players find success as a result of huge
capital investment and great economies of
scale
->Boeing in airline manufacturing business

-in addition to assessing current status of competitive market, managers must recognize that
market composition will not remain static
--------------------------------------------------------------------------------------------------------------------Sensing Market Change
Porters Five Forces Analysis
Bargaining Power of
Suppliers

Threat of New Entrants


Rivalry Among Existing
Competitors
Threat of Substitute
Products/Services

Bargaining Power of Buyers

-managers must constantly step back and assess the industry and predict potential disruptive
changes that will render products obsolete or negatively affect customer base

Chapter 3 The Global Marketplace


-although US economic capacity still carrying the load, developing nations (BRIC) that are
maturing and benefitting from FDI are starting to enter the picture of the big economic players

-with operations becoming increasingly globally distributed, managers are challenged to


maintain coordination and control over their strategies and goals
--------------------------------------------------------------------------------------------------------------------Why Go Global?
New Market Opportunities
-as domestic markets get saturated and local opportunities decrease, new market potential is on
the international stage in foreign states
-searching for new markets is an option for both developed economies and developing ones
Cost Reduction Opportunity
-firms look for nations where labour costs are low relative to occupation skills
-as competition intensifies and differentiation becomes harder, price becomes more important
offshoring: transferring a component of business to another country to reduce costs
outsourcing: contracting out component of business to reduce costs
Resource Base Control
-key to resource acquisition strategy lies in controlling supply sources and generating lower costs
Closeness to Markets
-establishing businesses within emerging economic regions enable firms to react faster to
growing trends and opportunities
Economies of Scale
-reductions in cost base of a business due to greater size, greater process standardization
and enhance efficiencies
-globally focussed businesses are more flexible with producing parts and thus can trade
products around the world

--------------------------------------------------------------------------------------------------------------------Global Market Stability: The Role of Government


-global recession in 2008 came from free flow of debt services and crediting without any
unified regulatory system for global markets
Ongoing Commitment to International Trade System
-need for countries to adhere to trade policies and intl agreements set by WTO
-WTO provides regulatory and policy guidance on issues relating to flow of goods, IPRs and
dispute resolutions
Market Openness
-willingness of countries to open their borders to competitive goods and services to maximize
benefits for citizens
->work towards abolition of tariffs and taxes, minimization of trade disputes,
resistance to nationalization of economic sectors
Absence of Protectionism
-resist urges to protect domestic industries by restricting openness of markets to
foreign competitors
Adherence to the Fundamentals of Fair Trade
-commitment of govts to support IPRs and patents of companies, accepted labour practices, and
environmental standards set by global marketplace
black market: illegal market that arises where goods are scarce, taxes are high, or prices
of legitimate product too high for general population
Balanced Economic Development
-govts must ensure that total focus of economy is not export, so that nation is not totally reliant
on external sources
-domestic growth leads to stronger economic base and creates stability for the nation
Responsible Sovereign Debt Management
sovereign debt: debt issued or borrowed by a national government
-nations will carry deficits to manage economic volatility and meet the needs of citizens

-emerging economies require significant economic support (World Bank, IMF) to get economy
off the ground
-countries must try to develop stable economic platforms that result in long-term wealth
balance of trade: relationship between imports and exports over a defined period of time
-> trade surplus (national export exceeds imports)
->trade deficit (national imports exceed exports)

current account: countrys net trade in goods and services, plus net earnings from interest and
investments
--------------------------------------------------------------------------------------------------------------------Global Market Trends
1. Global marketplace will continue to grow, with developing nations growing at twice
the rate of developed economies; domestic growth along with increased govt
investment in infrastructure and social benefits will be key
2. Economic specialization will continue to increase as free trade improves from nation to nation
3. Global recession in 2008 will continue to impact the world in the short term; more
fiscal regulation is needed, and the slow recovery of the EU will create slower
pace of economic growth
4. Energy prices will continue to have strong influence on cost bases of
businesses, and alternative energies will be highly sought after.
5. Trade relations between US and China will be critical, as growing concerns of lowvalued yuan against strong American dollar persist
6. Demographics will continue to influence economic decisions; aging developed
economies will need to loosen immigration policies to meet domestic needs, while
younger developing economies need to meet employment needs of their youths
7. Agricultural subsidy programs will remain focal point; developed nations use subsidies
to keep prices artificially low, but developing economies with agriculture as a main
industry lobby for these subsidies to be abolished so they can penetrate these markets
8. Inflation could become great problem in the coming years, debt accrued from response to
2008 recession could pose great pressure on interest rates; govts and banks must manage credit
policy better

9. Nations need to work together on growing environmental concerns and learn to


promote sustainable business practices
10. Interdependence between countries will continue to grow, and as trade growth
exceeds infrastructure capabilities, bottlenecks will occur
free trade agreements: facilitate international trade between companies of transnational borders,
not impacted by any tariffs or restrictions
--------------------------------------------------------------------------------------------------------------------The Concept of International Trade
-what has allowed trade to flourish is willingness for marketplace to engage in specialization so
everything so that efficiency is improved
--------------------------------------------------------------------------------------------------------------------Evolution of a Global Presence
-shifting to a global presence for a business is a strategic decision that requires thought as to
where and how to compete
Currency Exchange Rates
Value of nations currency influenced by six predominant factors
1. GDP Movement: economic contraction / expansion of country
2. Governmental Budget Surplus/Deficit: ability of nation to stick to realistic
budgets and control sovereign debt levels
3. Trade Balance: ability of nation to operate within acceptable balance range, avoiding
huge deficits from borrowing
4. Consumer Price Movements (PPP): ability of nation to maintain rate of inflation,
ensuring real growth and increasing purchasing power of the currency
5. Capital Mobility and Supply: supply of capital and ability to use credit by a nation/business
6. Movement in Domestic Income Level: Growth / contraction of income of domestic
citizens, resulting in changes in standards of living
-strong economic growth, balanced domestically and internationally, improves living standards
and developed without increasing levels of govt debt and controlled inflation ; results in upward
value of nations currency relative to other nations currencies

Chapter 6 Developing a Business Strategy


The Concept of Business Strategy
Well-positioned and directed Strategy + Efficient and Effective Tactics Execution =
Business Growth and Profitability
-the above equation is key to long term success for affirm
--------------------------------------------------------------------------------------------------------------------Core Elements for Assessing Business Strategy
1. Purpose
-> mission of the firm and vision of mgmt. for the business
mission: organizations reason for existence
vision: what an organization wants to become / direction it is headed
-> review of these two statements critical to deciding where and how to compete in the
markets
2. Markets
-> specific markets / market segments business wants to target
-> mgmt. must assess current profitability in existing markets and growth potential in
other possible segments / demographics
harvesting: strategy that involves reduced commitment to certain market due to perceived
weak future growth potential
3. Products and Services
-> review of current products/services and potential new products that can be added
to firms product portfolio
-> inevitable that products can become obsolete due to technological innovations,
changing trends and tastes, or more competitive substitutes
-> critical part of strategy development is to determine which goods are worth spending
extra R&D into, and which ones should be added to portfolio
4. Resources

-> important to identify parts of firm that are most profitable both short term and long,
and divest the most resources into
5. Business System Configuration
-> researching and updating firms distribution outlets, warehousing, production facilities,
and marketing campaigns
6. Responsibility and Accountability
-> identifying key objectives to be achieved and who will be responsible for
each objective (should also include clearly how success will be measured; SMAC)
SMAC: Specific, Measurable, Actionable, Controllable
-a strategic plan provides a specific route to undertake, allots benchmarks to measure
success periodically, and identifies where and how business will interact with consumers to
meet its mission and vision
--------------------------------------------------------------------------------------------------------------------The Strategic Planning Process
Company
Analysis
Customer
Analysis
Revisit Our
Purpose

Identify
Define Our
Opportunities Objectives
& Threats

Develop
Our Plan

Execute
Our Plan

Macroeconomic
Analysis
Competitor
Analysis
Revisit Our Purpose: Assessing fit of current mission & vision statements of firm
Undertake Internal/External Analysis to Understand Our Environment: changes / shifts in
market that threaten us / provide extra opportunities
Assess Our View of the World: what are our choices going forward?
Choose a Direction: given our competencies/capabilities/competitive advantages what
strategic decisions should we make? What threats do we have to face?
Implement our Strategy: How will we achieve our objectives and successfully execute the plan?
---------------------------------------------------------------------------------------------------------------------

Internal / External Analysis


-all about assessing business risk and change in four key areas; macroeconomic, industry,
competitor, company
-external analysis focusses on factors influencing markets today, and what will influence them in
the future
Business Model
PESTEL

Focus of Analysis
-understanding of macroeconomic environment
-political, economic, social, technological,
environmental, legal
-understanding dynamics of competitive
industry
-concurrent rivalry within industry
-threat of new substitutes
-threat of new entrants into industry
-power of suppliers
-power of buyers
-understanding nature of industrys
competitive landscape
-perfect competition
-monopolistic competition
-oligopoly
-monopoly
-assess company capabilities and the
environment it functions in
-strengths, weaknesses, opportunities, threats
-assessment of firms competencies,
capabilities, and capacity in resources

Porters Five Forces

Types of Competition

SWOT Analysis
3C Analysis

--------------------------------------------------------------------------------------------------------------------Competitive Advantage Identification


Innovation

Customer Responsiveness
Competitive Advantage
Opportunity

Quality

Efficiency

Strategy Development
corporate-level strategy: what firm intends to accomplish and where it plans to compete

business-level strategy: specific objectives firm wants to achieve for each of its initiatives
and units; how the corporate-level strategy will be achieved
operating plan: detailed and immediate-term set of objectives and tactics to achieve
one business initiative
Fundamentals to Operating Plan Formulation
Market Opportunity Identification -> Value Proposition & Positioning Analysis ->
Revenue Driver Identification and Sales Forecasts -> Upfront and Ongoing Cost
Commitment Requirements -> Staffing, Infrastructure & Process Realignment
Requirements
-prior to execution of strategic plan, managers should review the plan details including
1. Operational activities properly aligned to achieve objectives
2. Budgets established and projected earnings are realistic
3. Resources needed to execute plan are available and can be acquired with ease
4. Series of performance indicators along the way will enable mgmt. team to effectively
monitor progress (or lack thereof)
Strategy Execution
directional lock-in: level of financial & operational commitment as a result of implementing
firms strategies
-> equates directly to riskiness of plan with firms well-being
-during execution phase, firms commit their capital resources for building plants, new equipment,
R&D, and marketing campaigns, as well as additional hiring of staff
-> amount of investment in such operations depends on level of directional lock-in
organization commits to
--------------------------------------------------------------------------------------------------------------------Strategy Challenges in the SME (Small and Medium-Size Enterprises Sector)
-SMEs do not possess great amounts of managerial resources, and strategy is often geared
towards short-term initiatives
-effective strategic planning will allow SMEs to maximize return on advertising and production
expenditures
---------------------------------------------------------------------------------------------------------------------

Strategic Planning in the NFP (Not-For-Profit) Sector (Social Economy)


-difference in planning for NFP and FP businesses is the overall mission of the firm, and the
demographic the mgmt team needs to please or respond to
->NFP strategy involve stronger inclusion of social goals and mgmt. must please
collective board of philanthropic donors and the govt
Overarching Objective
Influences
Financing
Predominant Revenue
Model

Private Sector
Profitability + Maximizing
Gains
Mgmt + Shareholders
Debt/Equity Financing +
Internal Reserves
Sales of Goods + Services

Social Economy
Needs Delivery via Social
Interest + Goals
Democratic Foundation +
Organized Collective
Members of firm + govt +
community
govt + donor sponsorship +
sales of goods and services

1. Mission Balance: maintaining balance between creating effective economic base


while ensuring CSR and social goals are met
2. Vitality: enhance vitality of firm through growth of its membership + community support base
vitality: ability of NFP to grow and sustain membership and donor base
3. Collective Entrepreneurship: ensuring involvement of community is reflected in carrying
out strategy
4. Rootedness: enhance rootedness of firm by strengthening NFP networks and
influential members that are supportive of the work of NFP
rootedness: extent to which NFP is interwoven into community and base of support it has from
various sources
5. Operational Effectiveness: operate in a manner that demonstrates products offered by NFP
ensure accessibility targeted to social audience, and support those who have no means to pay

Chapter 7 Developing Your Business Structure and Culture


Business System Design
1) Organizational Structure, Culture + Mgmt. Approach

-formal hierarchy / structure of firm and how communication and sharing of ideas is
carried forward
-social environment at workplace, and how tasks get delegated
2) Control Systems to Manage Strategic Intent
-> evaluations to gauge success of organization in meeting its strategic objectives
and operational goals
-> in place to guide managers and employees to support overall corporate vision and
mission
3) Mechanisms to Manage Skills / Talents
-> decision-making hierarchy, span of control and allocation of executive power
4) Market Alignment with Operational Processes
-> processes and initiatives to support and direct product development, creation of value
propositions, and the supply chain
-> includes distribution of marketing sales and service
value chain: processes required to support / direct the product / service transformation, creation
of value propositions for said products, as well as distribution, marketing, sales and service
-firms business system should be developed in a way that ensures day-to-day functions, and also
ensures processes are aligned with strategic intent in the mid-to-long term
--------------------------------------------------------------------------------------------------------------------Developing the Organizational Framework
-when developing organizational framework, managers need to consider three questions
1) Best structure that will connect and construct relationships with current and potential
consumer base and ensure products/services in the marketplace are on par with tastes?
structure: formal framework around which tasks are organized and responsibilities allocated
2) What culture or environment is required to meet projected market position, and
facilitate development of high-performance work units within the firm?
3) What mgmt. approach will best support interactions within organization to achieve
goals and objectives as outlined in strategic plan?

Structure
-development of structure not static, but requires constant monitoring to ensure it meets needs
of organization, and that they remain relevant to desired markets
-structure is about driving efficiency; delivering services or products in a competitive fashion,
and meet stakeholder needs
Types of Structure
Simple Structure- during infancy stage, organizational structure flat and simple
Functional Structure- as organization grows, may be need to departmentalize into specific roles
Customer Structure- as company grows larger, may even require splitting up into specific cells /
operational units responsible for a respective target consumer group; within each cell are also
departments
Divisional Structure- as company grows successful, may need to restructure along products lines
and divisions
Geographic Structure-as organization evolves, may grow into national / international player,
wherein structure is determined based on geographical location
-should be noted that departmentalized approaches to structure fit best when there are different
tasks to be specialized in a firms industry
-in an industry where most tasks are completed through a series of projects, people from different
departments need to work in a cross-functional environment, thereby requiring a matrix structure
Best organizational structure for a firm will depend on these factors:
-size, geographic dispersion, range of business undertakings, task specializations, nature
of industry, and perceived best way to connect with consumers
Building Blocks of Structure
customer intimacy: interactions and degree of connectivity firms seek to have with consumers
in order to provide optimal service / support
work efficiencies: alignment of tasks required to support design, development, marketing,
distribution and sale of the firms product / service most efficiently and effectively

-could include continuous improvement packages, quality assurance protocols etc.


departmentalization: dividing organizations work units into well-defined functional areas

-division of employees with different skill sets to maximize efficiency and effectiveness
-could also result in narrow-mindedness and lack of big picture and stakeholder needs
Culture and Environment
culture: how individuals within firm behave and how the firm as a whole reacts to
internal / external changes
-how all layers of organization interact and communicate with one another
-underlying values / attitudes mgmt. wants to employees to work with
High Power Distance <---------------------------------

> Low Power Distance

Individualist <------------------------------------ > Collectivist


Masculinity <--------------------------------------- > Femininity
Strong Uncertainty Avoidance <
Long-Term Orientation <------------------------------------

------------------------------> Weak Uncertainty Avoidance


> Short-Term Orientation

Hofstede Cultural Dimensions Model


Employee Interaction
-degree of interaction between
employees and mgmt. teams
-defines participatory nature
of work environment, and
sense of teamwork and
developing each others skills

Risk Allowance
-degree of entrepreneurship /
creativity embedded into firm
-measures extent to which
firm encourages taking risks
and being flexible in making
decisions
CulturalFramework
-allabout attaining the
mission
andvision of the organization
fromthese 4 points

Control Protocols
Competitive Emphasis
-adherence to rules & policies
-extent to which firm
within organization
encourages competitiveness
-degree of rigidity and
and rewards employees based
emphasis on work conduct
on goal achievement
-reward systems and quality
control systems are examples
of control protocols
-organizations that benefit from positive work culture encourage flow of information horizontally
as well as vertically, resist narrow-mindedness by creating teams with cross-functional mix of
employees

Management Approach
managerial hierarchy: number of levels (vertical) mgmt. deems necessary to manage
organization -> also called chain of command
decision-making control: level of authority transferred down from each managerial position
-centralized authority retains managerial control at the top of the firm
-> supporters call this most efficient and aligned with overall objectives and vision ->
detractors say lower-levels of command feel less empowered and less motivated

-decentralized authority allows lower-level managers to have some share of decision-making


-> supporters say faster response mechanism, higher morale for lower level chains ->
detractors point to potentially bad decisions and inconsistency across the board
span of control: number of subordinates one manager has reporting to him (width)
coordination of work effort: allocation of collaborative efforts between departments to ensure
designs, development, distributions etc. are maximized
nature of work: specific tasks required at the individual job level within a firm
The Concept of Restructuring
restructuring: need to change organizational structure or desired position in marketplace
-generally occurs when mgmt. finds a disconnect from their intended strategy as a result
of external / internal changes
structural design: adjustments to organizational structure to ensure success
execution: how will restructuring be implemented; subtle change or drastic
moving communication: how this will be messaged to stakeholders involved

Chapter 8 Managing and Leading the Organizations Talent


-establish direction, mobilize action, and focus on development of the team
market assessment and strategy development: determining a route / direction and
implementing exactly how to follow that path
business system design and development: determining maintaining inventory, stock maintenance

financial resource management: establishing budget, allocating financial resources and ensuring
all obligations / debt are met
talent responsibility: interpreting the overall vision and mission, and ensuring everything
happens according to schedule
-managers must spend more time ensuring culture of collaboration and communication within
organization ->ensures maximized motivation and thus production
--------------------------------------------------------------------------------------------------------------------The Employee Transformation Process
-employees should feel valued and given opportunity to grow and excel, held accountable for
their responsibilities and rewarded appropriately
Investments into employees take the form of costs associated with:
-preparing job specifications
-hiring advertising agencies
-interview and aptitude tests
-orientation and training of employees, as well as relocation
-hiring bonuses and job-related expenses (not to mention wages)
-failure to provided right work environment, rewards, and recognition-based rewards will result
in low motivation -> low productivity -> high employee turnover -> detraction from investment
firm made

Perceived Quality of Company


-employees want to be part of
an innovative and industry
leader, that offers exciting
challenges for the future
-whenever firm undergoes
victory, need to translate that
into a win for the employees > to instil pride and
motivation
Positive Work Environment
Key Attributes of Position
-key for employees to
understand how their role fits

Fit with Employees Lifestyle


and Reward Requirements
-employees need to

into big picture of firm, to


understand that personal level
deliver a sense of purpose
of compensation dependent on
-feel job is a challenge for
level of success company as a
their current skills -> job
whole enjoys
enrichment / enhancement
-benefits include wages, stock
-good fit with superiors ->
options, signing bonuses, and
approval and recognition in a
longevity bonuses
positive manner
-------------------------------------------------------------------------------------------------------------------The Motivational Tool Kit
T = Trust and Respect
-employees need to feel valued and trusted in their tasks
A = Approval, Praise, and Recognition
-non-financial motivators are extremely in keeping employees motivated and eager to start
new projects
L = Lead by Example
-willingness of mgmt. to work hard in the trenches with regular employees will create
stronger bonds and relationships between levels of authority
E = Enrichment
-offering new projects and challenges for employees makes them feel valued and
helps contribute more to meeting overall vision and goal
N = Negotiation Skills

-ability of mgmt. of creating environment that supports success


-ability of mgmt. to communicate desired level of expectations for each employee to
promote accountability and sense of teamwork
T = Treasure
-financial bonuses and performance-based bonuses will maximize productivity and tie
employee wealth with success of the firm
Frederick Taylor Principles of Scientific Mgmt
-finding most efficient techniques of labouring, and regulating that across the whole organization
Abraham Maslow Hierarchy of Needs
physiological -> safety -> love -> self-esteem -> self-actualization
Frederick Herzberg Hygiene & Motivation Factors
Hygiene general working conditions (salary, job security), didnt motivate, but if not evident ->
would lead to dissatisfaction -> lower productivity level
Motivators achievement, recognition and level of interest in task -> true motivation ->
higher productivity level
Douglas MacGregor Theory X and Theory Y
Theory X people inherently dislike work and will try to slack, prompting coercion and
financial motivators
Theory Y workers are motivated beyond money, and will commit themselves if they feel
valued by employers
Rensis Likert The Human Organization
-firms must have confidence in employees
-provide employees opportunity to partake in goal-setting process
-grant employees truly cooperative environment where communication is consistent
Victor Vroom- Expectancy Theory
-if employees see meaningful outcome for their efforts, then they will work that much harder
to achieve that goal, and receive appropriate level of reward
---------------------------------------------------------------------------------------------------------------------

Managing Your Workforce


-to be able to successfully organize, plan, develop, direct and lead the firm, mgmt. needs to fully
understand the direction the organization is pursuing and the competitive advantages it hopes to
achieve
1) Determine managerial style required to lead and achieve results
2) Understand what needs to be done (plan)
3) Identify focus of task and allocate resources accordingly (organize)
4) Identify competencies and capabilities team needs to improve (develop)
5) Use performance metrics to keep on track and measure objectives (direct)
conceptual skills: visualize and communicate the big picture -> make employees
understand their role in the big picture, and continually reinforce that message
leadership skills: building system that encourages innovation and creativity, oozing charisma
and leading by example -> placing organizations needs above persona needs
technical & analytical skills: mgmt. must have solid understanding of work needed to be done,
and thus provide quantitative measurement metrics for performance -> show employees that you
have technical skill to work on a day-to-day basis
human relations skills: ability to communicate expectations in a motivational way
Managers possess two bases of power
personal power: authority gained from leadership talent; to motivate, to empathize and to
collaborate with employees
position power: authority held as legitimate position; basis of expertise, rank and ability to
discipline / reward employees
--------------------------------------------------------------------------------------------------------------------The Danger of Short-Term Pressure
-managers constantly challenged by market uncertainty and tide of information that could
change goals and objectives
-> danger is that managers tend to get short-sighted and forget about leading and
development of organizational behaviour to ensure long-term sustainability and health

silo mentality: managerial decision that do not take into consideration cross-organizational
impact
Short-Term Loop : A Vicious Circle
1) Lack of growth / desire to enhance immediate returns increases pressure on
short-term operations
2) top mgmt. responds with short-term financial reaction (cutting HR spending)
3) migration towards reactive HR strategy (hiring only at the last minute)
4) reactive strategy results in lack of talent to meet future needs
5) lack of talent inhibits growth of firm in the long-term
-successful firms balance needs of all stakeholders, and manage organization so that it is
successful both short-term and long-term
--------------------------------------------------------------------------------------------------------------------Putting It All Together
-managers must build continuous momentum and inspire high levels of performance, inspiring
employees to buy in on the overall vision of the organization
--------------------------------------------------------------------------------------------------------------------HR Management in the Small Business Setting
-challenge for small businesses is to get employees to feel committed and motivated without
the support of an HR department
-key is to create a positive work environment and grant greater responsibility to employees so
that they feel valued
-perhaps even more than big firms, culture is everything for small businesses

Chapter 9 Operations and Supply Chain Management


Operations Mgmt: Fitting into the Big Picture
-operations mgmt. is all about ability of firm to control and improve on business processes
-successful firms integrate strategy, structure and operations to support strategic intent

Strategic Intent
Business System
Business Structure
Business Strategy Execution
Operations
-operations/processes carried out with organizations capital assets, enable strategic outcomes
to be completed
-business structure provides controls and communication/responsibility framework to
guide company in reaching its strategy
-successful businesses look to establish competitive advantages through effective
brand marketing, more efficient processes, pure cost advantages
1) Mission, Vision and Corporate Strategy
2) Business Strategies and Tactics
3) Business System Development
4) Operations Execution
5) Customer Interaction and Sales
-------------------------------------------------------------------------------------------------------------------Responsibilities of Operations Managers
operations mgmt: effective design, development and management of processes, procedures
and practices within firms business system to achieve strategic intent
Three categories of responsibility
-Process Management
-Supply Chain Management
-Product/Service Management
process mgmt: design and development of work flow and connectivity of processes,
ensuring firms products and services are efficiently produced and delivered
->looks at specific tasks to be achieved and orders them in the most efficient way
->assessed with respect to time, quality and cost restraints
supply chain mgmt: management of interdependency among suppliers, manufacturers
and distributors

->develops terms/conditions to enable all parties to effectively meet respective


obligations to each other in their relationships
->also considers inventory practices and distribution channels
product/service mgmt: activities that begin with R&D and extends to post-purchase
customer service
-> enhancements and modifications made throughout product life cycle
->decision trade-offs between cost and quality (durability, functionality etc.)
->consumer wants and competitor adjustments and disruptive technologies identified; and
components of firms own product adjusted accordingly
--------------------------------------------------------------------------------------------------------------------The Organizations Value Chain
-benefits of a decision would contribute positively to overall value chain, outweighing
the relative costs associated with it
value maximization: maximizing benefits consumers realize from using
product/service Value Chain Analysis: Primary Activities
primary activities: specific activities through which development of product occurs as it get
s delivered to consumers
-Inbound Logistics
-Operations
-Outbound Logistics
-Marketing and Sales
-Customer Service

inbound logistics: mgmt. of supplier relationships (finished products or components)


->relates to scheduling, shipping and warehousing
->suppliers help keep an eye on innovations and trends in the market
operations: manufacturing and product change processes established to ensure final product is
ready for consumers

->different packaging and branding labels to meet national regulations or target different
transnational demographics
outbound logistics: distributing finished product to consumers in accessible and convenient way
->focus on inventory and distribution needs of various markets
marketing and sales: activities that create profile and awareness for firms brand and products,
and the benefits gained from purchasing said products and services
->focus on marketing to communicate value proposition of products and
services ->mass media, sales promotion, packaging, word of mouth etc.
customer service: support provided to consumers before, during and after purchasing
process ->technical support, warranty service, upgrades and replacement of parts
->key goal is to enhance value of product purchased, resulting in higher consumer loyalty
Value Chain Analysis: Support Activities
support activities: areas within firm not directly associated with processes of producing and
delivering products + services, but integral for primary activities to rely on to execute strategy
-IT Department: new technologies in the value chain processes
-R&D + Engineering Departments: new product development, existing enhancements
-HR Management: recruitment, development and support for employees
-Other Supporting Departments (Finance, Accounting, Legal, Environmental Safety)
--------------------------------------------------------------------------------------------------------------------The Operations Cycle
-operations mgmt. need to understand strategic intent of firm and translate that into action
that will drive execution of firms strategy
operations cycle: alignment of operational tasks within firm to meet strategic outcomes
defined by firms business strategy
process standardization: design and use of common platforms and order to produce a variety of
products
process simplification: design and use of minimum number of tasks when developing products

Operations Cycle
What is the Strategy?
Lower Prices or Better Quality?
What Needs to be done to Execute Strategy?
Required Operational Changes and Investments?
Undertake New Process and Assess Performance.
Strategic Intent
Low Cost / Low Prices

Operations Mgmt Focus


-tight costs control
-structured organization
-tight process supervision
-meeting volume-based targets

Operations Application Focus


-process standardization and
simplification
-economies of scale
-technology intensive
-low-cost distribution
-focus on process update
Differentiated Strategy /
-focus on quality vs. quantity
-higher labour skills
Higher Prices
-culture of collaboration and
-creativity skills
communication
-strong tie in with marketing
-greater allowance for
-strong product innovation
creativity
focus
-defining and adding value to -strong partnership relations
products
with distributors
-------------------------------------------------------------------------------------------------------------------Process Management
Four Decision Areas
1. Process design, layout, and execution
2. Material Management
3. Facility Design and Layout
4. Capital Asset Evaluation and Acquisition
process design, layout, and execution: implementation and assessment of tasks
necessary to get work done, and how such tasks will be grouped and ordered to ensure
maximum efficiency
->decision requirements based around quality, timing and performance of products,
as well as human interaction, and technology used
-DICE (Define, Identify, Create, Execute)

TPS Concept (Toyota)


Jidoka (Visualization of Problems)
-if equipment malfunctions or defective component discovered, production stops immediately
-for just-in-time stocking to work, all parts must meet predetermined quality standards
-operators can oversee multiple machines if malfunctioning ones stop automatically; leading
to higher efficiencies
Just-In-Time (Productivity Improvement)
-quality products made only when demand is there eliminates waste, and inconsistencies in
production line
-assembly line must be amply stocked so any type of product requested can be made
-parts used must be replaced by retrieving same number used up from the production process
PERT Chart: scheduling method that focusses on task sequencing and identification of critical
steps that will improve time needed to complete project
Gantt Chart: method used to schedules steps for project and time required for each step
materials Management: mgmt. of inputs required to deliver products and services of a
firm
-components for assembly
purposes -parts for repair and
maintenance -raw materials
-waste disposal
-sanitary
practices
-regulation compliance for handling of drugs
-handling of fully finished goods, for redistribution to retail outlets
facility design and layout: infrastructure layout required to support processes and
materials used by firm
capacity: maximum amount of product that can be produced given facility constraints

->in retail operations, facility design can be about product positioning, seasonal
promotions or a theme that promotes a USP
->decisions regarding capacity often made years in advance, based on sales forecasts
capital asset evaluation and acquisition: assessment by operations mgmt. of the state of
current capital assets, and their relevance to meeting needs of organization
->equipment must constantly be updated and compatible with new technologies
->decisions on which assets to keep and which to sell/discard
Supply Chain Management
-planning, sourcing and delivering products through B2B or B2C relationships
-response network dealing with defective merchandise or excess inventory

1. Supply Chain Mgmt: development of supply chain structure of necessary info to


make effective decisions
-outsourcing vs. in-house production
-assess software and e-bus. services needed to manage supply chain
-assess sales forecasts to determine appropriate product quantities

-transportation and warehousing network to manager flow of products through value


chain
2. Supply Chain Operating Execution: execution of specific tasks needed to ensure
performance
-mgmt of inventory levels
-effective use of transportation, technology systems
-effective A/R collection and timely product distribution
3. Supply Chain Performance Evaluation: outcomes supply chain must achieve to support
organizations overall performance
-maximum use of capital asset base
-minimize time involved with cash operating cycle
Cash Operating Cycle: amount of time it takes for firm to recover cash paid for
development, production and distribution of products

->shorter the cash operating cycle, the better off organization is (less reliance on debt
financing or cash reserves to finance operations)
-supply chain mgmt. all about assisting firm to reduce cost base, offsetting market pressures
for lower pricing
Product/Service Management
-Existing Product Service Changes
->existing level of services/products offered with marketplace
->associated with product enhancements necessary from competitive standpoint
-New Product Opportunities
->new product opportunities to replace existing products with definite life cycles
->newer products will replace older ones as primary focus and money-maker

-Long-Reach Opportunities
->investment into research for emerging markets of the future
->although may not pan out as hoped, money put into R&D should still be considered
vital
--------------------------------------------------------------------------------------------------------------------Establishing Quality Standards
-continually protect value of products to keep up with downward pressure on price
Quality Impact Factors
-Market Expectations
-Employee Education and Training
-Product Consistency
-Effective Communication of Strategic Intent
-Systematic Decision-Making
-Process Analysis
ISO (International Organization for Standardization): worlds largest publisher of international
standards

-at the very least, operations mgmt. must adhere to ISO standards for manufacturing
and products
-organizations must look beyond that and develop culture of product quality to achieve
sustainable competitive advantage
Six Sigma: method focussing on a philosophy of total improvement
-existing operations (define, measure, analyze, improve, control)
-new operations (define, measure, analyze, design, verify)
-stronger processes means lower defect rates, leading to lower costs, and thus improved
profit margins
Total Quality Management (TQM): broad-based approach to managing quality
-challenges firm to be customer focussed and total employee involvement to ensure
quality is integrated as part of organizations strategy
Strong Mgmt Support and
Commitment

Well-Structured Approach and


Deployment
Successful Quality Initiatives

Full Team Involvement

Effective Communication of
Progress and Results
-quality improvement not only makes processes more effective, but creates a stronger company
culture and ensures customer communication and satisfaction
business processing engineering: how firm transforms production and manufacturing processes
to improve the way people work
--------------------------------------------------------------------------------------------------------------------Operations Mgmt in Small Businesses
-having limited resources and expertise, small business owners often cannot take full advantage
of cost-effective practices and processes
-owners should focus on incorporating consumer expectations; such as product and
service consistency
-could also have employees pitch in ideas for efficiency management

Chapter 10 The Marketing Challenge


Social Networks
-growing trend for people to rely on their social circle to determine which products or services
to purchase, which is why advertising on social media is becoming crucial
Marketings Purpose
marketing: process through which business designs, develops, and communicates value
of products/services
-marketing encompasses assessing market conditions, identifying needs and solutions,
and determining pricing of products/services
Two Fundamental Principles of Consumer Behaviour
#1: Consumers dont purchase products/services, they buy solutions to needs/wants
#2: Consumers wont pay more if they can get a similar product/service for less
-the better firm is able to present its services/products to be of higher quality,
uniqueness, importance, or convenience, the greater the value it becomes for consumers
Value Proposition = Service Benefits + Product Benefits + Brand Benefits + Cost Benefits +
Emotional Benefits
--------------------------------------------------------------------------------------------------------------------Marketing: Its Link to Strategy
-marketing is critical component associated with successful execution of business strategy
-marketing fundamentally responsible for connecting consumers with firms products/services,
and communicating the needs and desires that have been satisfied
Six Rs of Marketing
-right need to pursue
-right solution to offer
-right value proposition to position businesss products around
-right methodology for delivery

-right price to charge


-right communication message to use

Core Challenges of Marketing


Price Point Validation

Message Development and


Delivery

Need Identification

Marketing Challenges
Distribution Capabilities

Value Proposition Creation


Assessment of Our Ability to
and Positioning
Respond
-to be successful in execution of overall strategy, business must be successful at both product
strategy level and business strategy level
Effective and Well-Defined Market Position + Superior Marketing Effort = Profitability
and Growth
-properly positioned products combined with superior marketing efforts, leads to
organizational growth and profitability
--------------------------------------------------------------------------------------------------------------------The Concept of Positioning
positioning: ability of firm to develop a unique, credible, sustainable and valued place in minds
of consumers for its brand, products and services
-market position can be built around product features, functional or emotional benefits,
or cultural values
-if a brand or product is positioned well, they are automatically in the minds of consumers
when they are looking to make a repeat purchase or advising their friends on making purchases
Successful Positioning Objectives
-effectively communicate solution to targeted consumers
-understand market business wants to enter
-understand the psyche of targeted consumers
-deliver solution in a fashion that would be perceived as superior to competitors
---------------------------------------------------------------------------------------------------------------------

Segmentation and Target Marketing


-successful companies recognize they cannot please all markets, and everyone in one
specific market
segmentation: determining best way to divide market in a way that will provide better
understanding of potential consumer needs, interests, preferences, attitudes and behaviours
Development of Marketing Research Information:
1. Primary Sources
2. Secondary Sources
primary sources of information: data specific to business products/services and its needs
-collection of customer input from social media and company
websites -focus groups to discuss current products/services
-behavioural observations and other marketing tests
secondary sources of information: data already existent and available, with no extra
cost incurred, but are not tailored to companys specific needs
-federal govt statistics site to gather demographic information
-generic information searches under search engine
giants -blogs of identified experts
Profile of Customers within a Specific Segment
1. Demographics: age, gender, income etc.
2. Geographic Clustering: location and reach
3. Pyschographics: lifestyle, status, ego, tastes and trends
4. Behavioural: buying patterns, use of products
Three Fundamental Questions Driving the Marketing Effort
1. What are key criteria consumers use in determining which product they will buy?
2. What is the ranking of these criteria? One criterion that will dominant decision-making?
3. How can we best position product/service offering to align with these key
criteria in comparison to our competitors?

--------------------------------------------------------------------------------------------------------------------Transitioning Segmentation Analysis to Target Marketing


Marketing Process
What Opportunities Exist => What Opportunities Could We Pursue => Which Opportunities
Will We Choose? What Action Path Will We Take?
Market Research -> Segmentation -> Target market -> Value Proposition Development and
Profiling ->Marketing Mix Development -> Message Rifling and Concentration
target marketing: process where business determines which market segments have strongest
clustering of potential consumers with purchasing capacity and sufficient motivation/need

-> allows firms to focus marketing resources on consumers with most


purchasing potential and capacity, and to tailor their message to that specific segment
3M (innovator of Post-it Notes) has a key performance metric of 30% of revenue produced by
new products launched within 5 years.
Starbucks positioning its brand beyond core operation of providing coffee, with partnerships
with UniLever and Pepsi to provide a more diverse product mix
--------------------------------------------------------------------------------------------------------------------Marketings Challenge
Need Identification
-assessing opportunities within marketplace for current and potential products/services
-identifying untapped or unmet needs within marketplace and leveraging R&D capabilities
to develop products/services accordingly
-looking at existing line of products and deciding which market segment will enable
maximized profitability and revenue sales
-consideration of a need for new consumer acquisition, leveraging relations with
current consumers
Need Identification
Product/Opportunity Matrix
Existing Customer
Leveraging

New Customer Acquisition

Ansoff Matrix
Market Penetration

Product/Service
Development
Assessing Market
Opportunities

Market Development
Market Penetration

Diversification

-growing sales revenue through existing consumer base with existing line of
products -all about increasing market share in a existing market
a) existing consumers be enticed to purchase goods/services more frequently
b) increase revenue per transaction/purchase
-achieved through sales discounts, greater advertising initiatives, and incentives to
purchase greater quantities
Product/Service Development
-new products/services to present to existing markets that a business competes in
-often times new products are complements/accessories of businesss existing line of services
Market Development
-cultivating new consumers for existing products that a business provides
a) could be a result of product line extensions of existing products
b) could be finding new uses for existing products by attracting previous uninterested
consumers
segmentation stretch: expanding focus of a product/service to similar market segments that
share positive affinity for that particular product/service offering
cannibalism: reduction in sales of existing product due to launch of similarly target
product from the same company/brand
-managers must determine if there is sales volume erosion to existing product offerings, and if
this is offset completely by newly launched product offering
customer desertion: when consumers move to a competitive offering due to a change in current
brand or product communication message focus

-managers must ensure old consumers do not abandon due to new focus, and also try to
attract new consumers
Diversification
-entering into new markets with new products and services
a) natural organic growth of a firm, seeing the opportunity to expand due to prior success
b) acquisition or merger with another firm that changes firms business strategy
drastically
--------------------------------------------------------------------------------------------------------------------Understanding the Consumer Decision-Making Process
-critical aspect of marketing is identification of needs that exist within marketplace, and also
understanding why potential consumers purchase a particular product/service
The Buying Process
Initial Consideration of Options -> Active Consideration and Evaluation of Options ->
Point of Purchase -> Post-Purchase Influence
Goals for Marketers considering the Consumer Decision-Making Process:
-be at the top of potential consumers purchase list, and reinforce the purchase of our product as
the consumer transitions to point of purchase
-if we are not at the top of purchase list during initial consideration, then disrupt
that predetermined list to create awareness and preference for our product
-having won battle for initial purchase, reinforce consumer to encourage their loyalty and
commitment to our product, making repeat future purchase automatic and with little
consideration for competitors

Marketers Tool Box


Category
Company-Driven Marketing Techniques

Consumer-Driven Marketing Techniques

Tools of the Trade


Advertising
Sales Promotion
Publicity
Point of Purchase Displays
Dedicated Sales Force
Internet Searches
Product Reviews

Peer Recommendations
Analysts Blogs
Social Media Websites and Commentary
Channel Support and Interaction Techniques
Dealer Incentives
Point-of-Purchase Discounts
Channel Member Training
Exclusivity Arrangements
Salesperson Recommendations
-effective marketing does not end at the point of purchase; post-purchase period will ensure
long-term loyalty and commitment from the consumer
1. Consumers require immediate and continuous reinforcement that they purchase they
made was right for them.
2. Ongoing servicing and training integral to making full use of product and full satisfaction.
3. Satisfied consumers spread the word about quality of products they purchase
and use. Referrals are key to broadening customer base.
Existing Customer Base + New Costumers Deserting Customers = New Customer Base
-growing the company is all about communicating to current and prospective consumers that
we offer best value proposition out there in the marketplace
Responding to Needs: Value Proposition Development and Communication
-the need to respond to consumer-driven marketing techniques and channel support point-ofsale techniques grows in importance the farther the potential consumer moves through
decision-making process of purchase
Market Dynamics: Critical Factors
Market Clarity and Stability: how long market will be stable in relation to businesss
intended marketing strategy and projected time to reach its financial goals
-> influenced by external political pressures, industry innovations, etc.

Customer Analysis: businesss set of products and services marketed to the right set of customers?
Competitor Analysis: anticipate and disrupt competitors actions?
Competitive Advantage Analysis: is our competitive advantage validated through objective
analysis?
Culture and Business System Analysis: right culture, capital capacity and business system to
support intended positioning and marketing strategy?

Chapter 11 Understanding the Marketing Effort


Four Pillars of the Marketing Effort
marketing mix: organizations strategic and tactical decisions for its products/services,
including: pricing, distribution, marketing communication efforts etc.

-> typically known as product, price, place, promotion


(NOTE- promotion = communication, place = distribution)
-marketing mixs primary focus is on developing, demonstrating and communicating to current
and potential consumers why our product is the best solution to their needs
Different Way to Think about the Marketing Mix
Traditional
Revised
Product Strategy
Value Proposition Attributes
Pricing Strategy
Maximize Return on Sales
Distribution Strategy
Connect with Customers
Communication Strategy
Communicate Fit
Product Strategy: Value Proposition Attributes vs. Product Attributes
-product strategy does not have to be limited to narrow vision of focussing on functionalities and
component make-up of the product
-creating value proposition strategy broadens focus to include branding, emotional attributes and
post-purchase servicing and support benefits
->even price dominated markets can be attacked with value benefits such as various
financing options, high expertise of sales representatives, and high level of service post-purchase;
that differentiates products from competitors
Tangible Product Attributes + Intangible Product Attributes => Development of Positive
Performance Gaps over Competitors
---------------------------------------------------------------------------------------------------------------------

The Power of Brands


-brand name that communicates positive performance attributes from repute are huge
in competitive environments where tangible aspects are more or less the same
Value Proposition Attributes
Brand Leveraging + Cost Advantages + Behaviour Linkage + Point-of-sale and PostPurchase Services and Benefits + Financial Incentives and Benefits + Tangible Product
Attributes + Psychological and Social Benefits
-power of brand lies in ability of brand to move customer market from brand awareness to
total brand commitment
Brand Ladder
Brand Awareness -> Brand Preference -> Brand Loyalty -> Brand Commitment
predetermined purchase list: ranking of products/services purchasers develop when making a
purchase decision
-successful brands create emotional or psychological link that have consumers believe that
substitute brand will not result in same level of satisfaction
Brand Success
Distinctive Emotional /
Psychological Benefits
Distinctive Product Benefits
Distinctive Product
Attributes
Greatest Canadian Brands not only have wide range of products and high quality service, but
permeate a sense of tradition and grassroots firms that found success from hard toil and sweat
--------------------------------------------------------------------------------------------------------------------Pricing Strategy: Return on Sales Maximization
-trend of having expenses and capital costs creep up while increasing competitive intensity
drives prices of services/products down
-dealing with this trend comes down to differentiating products/services from competitors:
thereby minimizing price as a large influence on decision-making of consumers

Responding to Price Pressures

Protect Price Point


Communicate Product Importance
Develop Brand Distinction
Develop Quality Differentials
Develop Unique Need
Solution Features

Respond to Price Reduction Pressures


Process Innovation
Develop Greater Economies of Scale
Reduce Quality
Reduce Marketing Efforts

Managing the Pricing Process


-pricing involves considering internal and external processes and influences
a) internally, must understand cost base of business, and margins needed to cover
operating expenses and investment capital
b) externally, assess competitiveness of price against substitutes, and gauge
willingness of consumers to pay more for the better solution to their needs
Key Fundamentals to Setting Price
1. Identify cost structure components of product/service business offers to markets
2. Research and identify cost structures of major competitors and their focus on pricing as a
USP
3. Assess price elasticity of target market
price elasticity: change in demand at various price points business is offering for
product/service
consumer price threshold: maximum price consumer is willing to pay for product/service
4. Determine degree of strength value proposition positioning strength commands in
the marketplace
-should be noted that mgmt. must also consider required margin to ensure asset expenditures
and liabilities and interest payments are met
payback period: length of time required to earn back cost of investment
-------------------------------------------------------------------------------------------------------------------Distribution Strategy: Connecting with Consumers
-distribution revolves around consumers having convenient access to purchasing products
and services provided by company

-this process has been revolutionized by development of e-commerce and web-based


B2C conduct
Direct, Indirect, or Mixed
Systems
Distribution Channel
Decisions
Delivery Options
Direct, Indirect, or Mixed Systems

Degree of Sales Support

-refers to amount of control/involvement business has over final sale of products/services


direct distribution: connecting directly with consumers and handling delivery of
products/services
->firms believe product better supported by dedicated employees and gain more customer
loyalty and greater share of profits by dealing directly with customer
channel intermediary: firm that assists a business in distribution of goods and services
to consumer
indirect distribution: use of channel intermediary, or broker/retailer/wholesaler to facilitate
sale of companys products
-> firms believe in greater market reach and using expertise and facilities of
channel intermediaries to gain greater exposure and higher volume of sales
-> if firm feels customer familiarity with product is sufficient that personal selling
approach will not add to value proposition, then cost of reaching consumers with channel
intermediaries will be much lower and efficient
mixed distribution systems: incorporation of both direct and indirect distribution options
Product/Service Delivery Options
pop-up stores: temporary facilities stocked with select brands to take advantage of
seasonal trends and needs of specific demographics
private label brands: products created by one company sold by another company under the
latter companys brand name
multi-channel distribution: incorporation of number of different channel connections through
which consumers can purchase product/service
Degree of Sales Support Within the Channel

-key factor with type of distribution channel depends on level of sales/service support
required during and after product purchase
- in general, the more complex the product, the greater the price, and the greater the lack
of familiarity with product by the consumer, the more important sales support becomes
1. Intensive Distribution Arrangements
2. Selective Distribution Arrangements
3. Exclusive Distribution Arrangements
intensive distribution: business decision to distribute product/service through as many outlets
and locations as possible
convenience goods: goods purchased by consumers on a regular basis, with little need
for emotional connection
-> maximizes market penetration and has great potential for achieving great volumes of
sale
-> requires significant financial commitment in stocks and inventory
-> very little focussed commitment offered by middle-men who also stock products
in direct competition with businesss own products/services
selective distribution: business decision to sell products/services through limited number of
channel intermediaries
-> could be due to need for significant sales support, or to promote perception of
exclusivity and brand prestige
-> can also be based on geographic clustering, differentiation tactics, or joint
ventures / strategic partnerships
-> retains better relations with select intermediaries and greater control over how product
is priced, marketed and sold; sometimes contract agreements limit intermediary and its authority
to carry directly competing products
exclusive distribution: business decision to offer products through single market representative
-> products require highest level of service and support
-> occurs when firm is attempting to penetrate new markets
-> channel intermediaries can also garner loyalty for the businesss brand, but add to its
own repute as a reliable intermediary with high-end goods

-> should exclusive intermediary not live up to projected level of sales success, business
lacks backup options or alternative lines of distribution to make up for it
Importance of Channel Intermediaries
-successful businesses realize that channel intermediaries are more than outlets for sales of firms
products/services, but a key stakeholder and partner in the distribution process
-channel intermediaries could become key to building market share, shaping product mix,
forecasting demand, educating consumers and retail expertise that manufacturing company
may not possess in-house
-channel intermediaries also mitigate risk by committing to purchases and absorbing cost
of unsold inventory
-channel intermediaries also make connections with consumers identify profit leak and drive
down costs by essentially outsourcing a part of the distribution process from the original business
profit leaks: inefficiencies in a business marketing mix that results in margin erosion and loss
of profit
B2B Sales
-selling firms need to commit to long-term training initiatives to ensure competency of sales reps
-selling firms need to assess forward profitability (repeat consumer?) of each client, and adjust
level of sales commitment and service accordingly
-selling firms must make better use of technology-based sales to cut costs of
st
traditional distribution channels and to meet global trend of the 21 century
--------------------------------------------------------------------------------------------------------------------Communication Strategy: Communicating the Fit
-key fundamental is to communicate the fit of the product/service to the needs of the
target market
message rifling: focussed message driven by well-developed value proposition, targeted
specifically at a specified audience
Four Questions to Developing Communication Strategy
1. Understand why customers need our products/services?
2. Understand level of knowledge consumers have regarding our products/services?

3. Understand who the actual decision maker is when making such a purchase?
4. Able to define clearly what differentiates our products/services?
-with these four questions, we can determine where to allocate marketing budget to create
awareness for products/services, generate awareness, explain value proposition, and
reinforce their purchase at point of sales
-with such decisions made, can decide which mediums to market to target market
Growing Importance of Social Media as Part of the Communication Strategy
1. Coordinating communications through web-based mediums
2. Generating interest for brand in a way that allows consumer to personalize and
develop a relationship with it
3. Create and manage access to demand for content of products/services, and
distribution channels used
4. Increasing emphasis of selective use of social media to ensure target consumers are reached
-key to effective social media marketing is to have quantifiable performance metrics and to keep
content up to date
For media marketing to be successful, four things must be accomplished
1. Capture interest of general Internet users
2. Increase consumer engagement with firm
3. Turn interest into sales
4. Foster active customer loyalty
--------------------------------------------------------------------------------------------------------------------Managing a Products Life Cycle
-products will undergo five stages during the life cycle: R&D, introduction, growth, maturity,
and decline
-mgmt must constantly assess where a product is in its life cycle and adjust marketing strategy
accordingly
-products with short life cycles, are either fads, or are made obsolete with new innovations and
technology

Managing Across the Life Cycle


-must sense competitive actions and disruptive innovations that could cut product life
cycles short
-mgmt must also be aware that decline of a product is inevitable, and at a certain point in time,
the costs of keeping it alive are no longer profitable
Development
Viable product
that can be
commercialized
.

Intro
Grow market
share and
position
according to
primary target
consumers.

Growth
Consumer
acquisition
and retention,
with market
share growth.

Marketing
Effort

Test marketing,
pre-launch
advertising, and
establish initial
channel
intermediaries

Crate
awareness and
make product
launch huge.
Define market
position and
key
differentiators
.

Create
product and
brand loyalty.
Stress
differentiatio
n and reward
early
adopters.

Financial

Money burning
with no return
as of yet.

Get to
breakeven
point.

Get enough
capital to
continue
producing
and support
system needs.

Profits

No revenue
stream as of yet

No profits
early on.

Profitability
objectives
seeping in.

Competitor
s

Protect IPR .

Starting to
emerge in
markets; firstmover
advantage get

Enhance
product
offerings
from
competitors,

Marketing
Objective

Maturity
Customer
retention and
segmentation
stretch. Either
defend market
share or seek
new market
opportunities.
Reinforce
product and
brand
differentiation
. Increase
market
development
and
penetration
tactics. Assess
potential for
product line
extensions.
Maximize
return on
sales, and
returns on
additional
incremental
investment.
Seek ROI
maximization.
Assess risk of
disruptive
innovations.

Decline
Harvest
product or
treat as a
cash cow.
Assess
likelihood of
revitalization
Determine
most
profitable
consumers
and cut
down size of
operations.
Maximize
efficiency of
expenditures
.
Keep up
profit
margins
despite
cutting down
scale of
operations.
Maintain
profitability
for as long
as possible.
Look for
extra
revenue
opportunities
as

Common
State
Transition
Triggers

-concept moved
to working
prototype
-focus group
responds
positively to
new product
-pre-launch
publicity
generates
interest

first wave of
early
adopters.
-product
launch, with
initial wave of
eager early
adopters
taking charge

and ramp-up
of value
propositions
-demand for
product
increases,
putting
pressure on
capacity and
operating
margins

competitors
exit market.
-demand in
core market
slows
-repeated
purchase
dependency
increases
-niche market
activities
increase

-repeated
purchasing
rate slows
segmentatio
n and niche
opportunities
diminish
-some
competitors
leave the
market
-innovation
opportunities
become
minimal
Business in Action: increasing transportation costs greatly affect profitability margins and even
endanger the viability of globalized supply chains; consumer purchasing capabilities are also
diminished due to rising oil costs
--------------------------------------------------------------------------------------------------------------------Managing a Product Portfolio
-constantly assess market potential of product, making adjustments to market positioning and
deciding which products to harvest, completely divest, or keep alive
Assessing Future Product Potential
High
Medium

Low

Given strong market position,


what can be cone to further
increase gains and scale?
Is there opportunity to stretch
or tap into secondary markets
to improve returns?

Will rebranding or
repositioning get us back on
track?
Improve harvesting or niche
marketing by increasing
efficiency and effectiveness of
marketing effort? If not,
should we divest?
Should we divest and free up
resources better applied
elsewhere?

Maximize cash cow effect?


Can profit generated used in
another investment or
reinvested in current product?
Strong
Weak
Future Market Potential (Vert.) vs. Current Value Proposition Strength (Horiz.)

Not-For-Profits
-key to marketing strategies is to not create perception that business has lost sight altruistic
motives for financial gain
-social media provides a low-cost opportunity for communicating firms activities and to
integrate itself within local community

Chapter 12 Cost-Base Analysis and Pricing


Business in Action
-mid-2009 Air Canada launch Cost Transformation Program, to cut costs from contracts with
suppliers, salaries, operational processes
-combined with managing fuel price volatility and CTP, Air Canada should soon be able to break
even
Understanding the Organizations Cost Base
-identifying various costs firm will face, percentage impact of key cost areas to total cost base,
is essential for managers to succeed
1. Composition of Business Cost Base
2. Percentage of Cost Base that Lies Within Their Control
3. Market Pressures Impacting Cost Base Going Forward
4. Volume and Dollar Requirements Necessary to Breakeven
5. Evaluating Cost Structure with Respect to Good Costs vs. Bad Costs
6. Evaluating Cost Structure in Comparison to Cost Base of Competitors
--------------------------------------------------------------------------------------------------------------------The Composition of an Organizations Cost Base
-firms cost base made up of total costs associated with manufacturing and delivery of
products/services to the marketplace
-need to determine costs incurred in producing and supporting each unit, and if they are directly
or indirectly involved with the production stage
In analyzing composition, hope to gain two fundamental conclusions
1. percentage of direct costs vs. percentage of indirect costs

2. Cost areas that make up significant percentage of overall cost base


Direct / Variable Costs + Indirect / Fixed Costs = Total Cost Base
Variable vs. Fixed Costs
variable costs: costs directly tied to manufacturing/delivery of product/service
-if services rendered / goods sold stopped being produced / delivered, variable costs
would disappear
fixed costs: costs indirectly tied to manufacturing of product, but essential to operations on
a daily basis
-certain costs within operating year are uncontrollable in the near term (committed costs)
Fixed Costs + Committed Current Period Costs = Indirect Cost Base
-understanding firms cost base essential to determining required pricing strategy and its impact
on profitability
--------------------------------------------------------------------------------------------------------------------Degree of Managerial Control
-managers must know how composition of cost base will affect ability to manage finances
Cost Ladder
Design + Development -> Suppliers and Logistics -> Plant + Manufacturing -> Distribution
-> Marketing, Sales and Service -> Administration Costs => Total Costs
Selling Price (per unit) Total Costs = Profit Margin
-the more cost base is made of variable costs, the more control mgmt. has
-the more cost base is made of fixed costs, the more difficult it is to use cost-reduction strategies
-market dynamics also influence composition and competitiveness of firms cost base
-ability to manage cost base effectively is a competitive advantage, with wider range of choices
in the global marketplace
Business in Action
-key to cost-cutting is to ensure that cost-reduction actions dont impact sources of value firm
relies on to compete in the marketplace

-McKinsey report advising that during restructuring, be sure to cut redundancies, and not the
standards that erode productivity and accountability
-cost-cutting should be built on concept of building capabilities; to enhance strengths and fix
weaknesses
--------------------------------------------------------------------------------------------------------------------The Concept of Breakeven Point Analysis (BEP)
breakeven point: level of sales required for firm to cover all costs
-operating below BEP would mean loss, and firm would need to draw upon cash reserves or use
debt financing / equity financing
Breakeven Point = Total Sales Revenue Total Costs (VC + FC) = $0 Profit
-BEP analysis very useful for calculating minimum selling price per unit firm needs to at
least not be at a loss
Calculating BEP in Units
BEP (units) = Total Fixed Costs / (Selling Price per Unit Variable Costs per Unit)
-managers need to continually reassess BEP to get selling price and change their cost structure
Calculating BEP in Dollars
BEP ($$$) -= Total Fixed Costs / (1 Variable Cost%)
Using BEP to Understand Profit Objectives
-firms will strive to achieve defined level of profit in a given year, and understanding level of
sales activity (from BEP) is fundamental to reach that objective
BEP + P = (Total Fixed Costs + Profit Objective) / (Selling Price per Unit Variable Costs
per unit)
BEP + P = (Total Fixed Costs + Profit Objective) / (1 Variable Cost %)
-BEP also useful to determine sales revenue level needed to cover firms full operating costs,
meet profit objectives, and meet principal debt payments
BEP + P + DRP = (Total Fixed Costs + Profit Objective + Debt Repayment) / (Selling Price
per Unit Variable Costs per unit)

BEP + P + DRP = (Total Fixed Costs + Profit Objective + Debt Repayment) / (1 Variable
Cost%)
Optimal Price Point = (Total Variable Costs + Total Fixed Costs + Profit Requirement) /
(Quantity Produced and Estimated to be Sold)
-is optimal price point competitive with similar units and anticipated new units?
-is price acceptable to consumers and our retail distributors?
-is price point keeping with brand position in marketplace
mark-up: addition to manufacturers price distributors add to ensure their own direct and
indirect costs are covered, and that profit margins are achieved.
-often times, optimal price point may not be keeping with companys pricing strategy, or be too
high for current marketplace to accept
Business in Action
-Canadian Tire conducted friendly takeover of retail giant Forzani Group, making them stronger
against potential US entrants
-busiest part of takeover is consolidating companys chain brands and operations with larger
firms brands and operations
--------------------------------------------------------------------------------------------------------------------Mark-up Pricing and Other Pricing Considerations
-pricing decisions cant be made in isolation of competitive price points and willingness
of markets to pay price offered
-different price points of the same product could be from different cost structures (higher volume
of sales, more efficient operations, or additional services adding value)
price discounting: reduction in price of product with intention of stimulating sale of product
price skimming: use of premium price to maximize margin return on sale of each unit of
product
psychological pricing: pricing tactics designed to make it seem cheaper (0.99)
rebate: temporary price reduction on a product/ service
-global marketplace has made setting prices extremely difficult, as well as volatility in
transportation costs (fuel), in addition currency exchange rates, and transnational regulations

Effectiveness of Marketing
Effort

Total Cost Base


Price Influence Factors

Value (Actual or Perceived)

Price Sensitivity of Market


-mgmt must also establish cash reserves needed to replace capital assets due to
obsolescence/ wear and tear
expense creep: tendency for expenses associated with firms cost lines to rise from inflationary
pressures, unionized contracts etc.
Variable Costs + Fixed Costs + Required Contingencies + Future Needs = Total Cost Base
Analysis
Marketing Effectiveness
Perceived Product Uniqueness -> Effective Communication of Brand Differences ->
Minimizes Price as a Key Decision Maker => Ability to Charge Higher Prices

Chapter 15 Analyzing New Business Ventures


Business in Action
-Saputo Inc. started out with immigrant family making cheese in their home to publicly
traded TSX corporation with $5.8 billion in sales
-with great stable of banners and acquisition of international brands, Saputo is now Canadas
leading dairy group, one of three NAs dairy processors, and a global dairy player
-also supports athletes in Quebec and invests in communities its employees live in
--------------------------------------------------------------------------------------------------------------------Analyzing Business Ventures
entrepreneur: individual who starts a business and willing to accept risk associated with money
invested
-ability to assess degree of financial and market risk of venture is critical to evaluation process

Market Analysis

Financial Analysis
(Economic Logic)
Fatal Flaw Identification

Mgmt Competency
Analysis (MERFS
Model)
Opportunity: GO or
NO GO

Value Advantage
(Differentiators)

Operations Analysis
(Value Chain and
CRM)
Fishbone Diagram: Venture Assessment

Exit Options

-key to assessment lies in search of fatal flaws that could derail a venture in its early stages
Absence of Well-Focussed
Execution Strategy
Poor Industry Assessment

Inadequate Pricing

Under-Capitalization

Key Fatal Flaws


Insufficient Marketing
Research

Weak Mgmt Competencies

Fatal Flaw Analysis


-the less an existing business and its structure can be used to support the new opportunity at hand,
the higher the risk and uncertainty it brings
Business in Action: Franchising
-new entrepreneurs like franchises because its a proven business launch with a popular brand
-franchisees supported in staff training, regional marketing, purchasing through economies
of scale, and new product development
-franchisees also have to pay high royalty costs for using brand and high start-up costs
-franchisees also have reduced control over production additions, services and operating hours
LESS RISK BUT MORE FEES AND REGULATORY CONTROLS
--------------------------------------------------------------------------------------------------------------------Offsetting the Uncertainty: The Business Plan
-planning helps mitigate uncertainty and risk
-business plan describes business, assesses market opportunity and competitive conditions,
defines strategy, details mgmt. expertise and operating/market tactics, and outlines finances

Describ
e the
Busines
s

Review the Explain


Describ Explain
Develop
Highlight
Explain
Market,
mission, e
plan for
Financial
risks and
why you
Competitio vision,
Strategy developin Projection opportuniti will
n and
and
g
s
es
succeed
Market
objective
products/
Position
s
services
=======================Business Plan================================>
Rules of the Road

1. Know the Customer


2. Know Why You Will Win
3. Know How You Will Win
4. Know What It Will Take to Win
5. Demonstrate Why Others Should Believe in You
venture capitalist: individual who provides capital to business venture for start-up or
expansion purposes
Successful Business Venture
1. Sound understanding of Markets and Competitors
2. Realistic Business Plan and Sound Strategy to be undertaken
3. Define set of short-term and long-term health and performance metrics
--------------------------------------------------------------------------------------------------------------------Six Phases of Business Plan Assessment
Market Analysis
-focus on assessment of risk associated with entry into target market space
-draw conclusions to validity of proposed plan and if it will achieve desired market penetration
and scale

First Mover New Market


-consumer need alignment
-profile of need solution
-proper deployment of capital
-driver of consumer adoption
process

New Entrant Existing


Market
-innovation
-superior consumer
relationship model to target
market
-disruption of consumer
adoption process
-proper deployment of capital

Extension Existing Market


-new revenue generation
opportunity
-degree of cannibalization
-validation of segmentation
stretch opportunity
-degree of channel
involvement in demand
stimulation
-strength of brand extension
-proper deployment of capital

Market Analysis: Key Success Factors


-Timing
-Sustainability
-PESTEL

-Porters Five Forces


-Opportunity for Disruption
-Industry Growth Cycle

-Barriers to Success
Environment
Customer

Industry
Market Fit

-Need identification and


alignment
-Customer Identification
-Access
-Adoption Cycle
-Value Curve Disruption
Four Key Metrics for Market Analysis

-Defined Competitive
Advantage
-Valid Solution Position
-Profile and Awareness
Success

Value Analysis
-building around competitive advantage and developing positioning campaign
1. Does business plan demonstrate potential of customer habit of purchasing product/service?
2. Does business plan demonstrate product/service provides credible solution to their needs?
3. Does business plan demonstrate we can get consumers to be more attached to our
products than others?
litmus test: process used to draw conclusions about acceptability of a plan

Litmus Test Component


Value Proposition
Target Market
Customer Profile
Key Decision Criteria
Target Message Development
Communication Delivery
Value Analysis Litmus Test

Key Outcome
Uniqueness + Value
Connection between primary target market and value
proposition
Consumer behaviour and key characteristics firm can take
advantage of
Alignment of purchase decision making and value proposition
How to catch and hold customers attention
Does plan and product fit with customer profile

Financial Analysis
-for success, mgmt. must have valid estimate of capital needs, requirements for Cash Operating
Cycle and length of time needed to ensure financial stability
Cash Operating Cycle

Revenue Model
Financial Risk Analysis
Focus

Cost Structure and Drivers

Margin Requirements
Capitalization Well
===> Performance Indicators for Financial Capacity and Sustainability
Revenue Model Assessment

-assessing where revenue is going towards and how it will be generated


Revenue
-# of streams
-sources
-size of each
stream
-growth potential
of each stream
-interdependency
of each stream
-price pressure
on each stream

Cost Drivers

-structure:
fixed/ semifixed,
committed,
variable
-type:
reoccurring or
non-reoccurring
-key cost centres
-degree of
control and
market volatility
-source of
competitive
advantage
-build-in expense
creep within each
cost centre
Key Financial Assessment Risk Factors

Benchmark
Requirements
-point of positive
cash flow
-BEP
-GPM
requirement and
target(gross
profit margin)
-Operating
Margin
requirement and
target
-Profit Margin
requirement and
target

Cash Operating
Cycle (COC)
-timing and size
cash inflows and
outflows
-identify impact
factors on cash
flow
-define range of
movement
available prior to
liquidity impact
-determine cash
reserve required
to fund Cash
Operating Cycle

Capitalization
Well
-total investment
size
-maximum
financing needs
-depth of privateequity support
-free cash reserve
availability

Cost Driver Assessment


Factors Considered when Assessing Cost Base:
1. Overall Cost Structure and key cost centres that drive high percentage of firms cost base
2. Costs anticipated to be reoccurring vs. non-reoccurring
3. Type of built-in expense creep anticipated within these cost areas
4. Impact of commodities with high market volatility
5. Does cost base yield a competitive advantage?
Assessing Benchmark Requirements
-better understanding of various outcomes that will materialize given the estimates
cash flow positive: point where cash inflows exceed cash outflows
Anticipating the Cash Operating Cycle
-timing and size of cash inflows and outflows
-mgmt able to identify key impact factors on cash flow and proactively plan for it
Defining the Capitalization Well
start-up costs: initial capital investment required to launch new business or product venture
-start-up costs need to be considered in line with benchmarking and cash operating cycles
capitalization well: framework for assessing full capital requirements of business venture
undercapitalization: situation where company lacks funding to continue business activities
-having sufficient understanding of capitalization well will equip mgmt. to deal with
unanticipated cash deficiencies and shortages once business has been launched
-need to consider depth of capital needed, the length of the burn, and finally the amount of
potential revenue flow which can be tapped with all this drilling
Business in Action
-Richard Branson of Virgin Group indicates details such as aligning service delivery with core
values and long term vision are extremely important
-open door policy encourages communication to readily improve processes and products

Operations Analysis
-well-developed business plan demonstrates how business and products will be developed,
communicated and connected with consumers
Inbound
Operations
Outbound
Marketing and
Customer
Logistics
Logistics
Sales
Service
=========================Value Chain===================================
-logistics of operations also includes other considerations such as environmental safety, legalities,
technological and compliance issues
Management Competency Analysis
-ability of mgmt. to illustrate its competency to execute business plan and yield tangible results is
paramount to equity investors
Motivation

Expertise

-adaptability
-realism
-durability
-desire to excel
-bulldog
mentality

-skill
-knowledge
-direct
experience
-willingness to
make decisions

Relationships

-customer
contacts
-supplier and
channel partners
-advisory board
-access to
specialized skills
Management Acumen Assessment Model (MERFS)

Focus
-strategic plan
-vision
-leadership
-rifle vs. shotgun
-funnelling

Skin in the
Game
-time
-treasure
-talent
-commitment

Exit Options
-potential for exit plan for business, and level of conditions that would trigger this leave
-if anticipated growth does not materialize, cutting losses might be the best option
-in some cases, once a foothold has been established in a market and success has been
achieved, financial supporters of venture must assess the limit of their involvement
--------------------------------------------------------------------------------------------------------------------Acquiring an Existing Business
organic growth: growth coming from firms existing business portfolio
acquisition: acquiring another company or operation
-taking over existing business offers access to existing market share and consumer target market

operational synergies: maximization of productivity and efficiency through combination


of resources
Identify Target

Assess Fit

Determine a
Price

Make the
Purchase

Integrate the
Operation

Acquisition Process
-ideally, the synergy of existing company and newly acquired one will create a higher value than
the premium paid to acquire it, which is the value gain
Business in Action: Target Buys into Canada
-buying into another country for a firm is especially difficult from organic growth
-Target chose the struggling firm of Zellers as a target of takeover to enter the Canadian markets
(parent company is HBC)
--------------------------------------------------------------------------------------------------------------------A Note Pertaining to NFPs
-historically NFPs have sought govt grants and external donations for operations
-cutting of funding for NFPs has resulted in lack of philanthropic dollars for NFPs
-as a result, some NFPs are teaming up with FPs to be entrepreneurial and produce a good
whose profits will be split (good publicity for FP and funding for NFP)