Professional Documents
Culture Documents
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
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
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
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
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
-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
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
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
-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
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
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
-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
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
-managers must constantly step back and assess the industry and predict potential disruptive
changes that will render products obsolete or negatively affect customer base
-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
-> 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?
---------------------------------------------------------------------------------------------------------------------
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
Types of Competition
SWOT Analysis
3C Analysis
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
---------------------------------------------------------------------------------------------------------------------
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
-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
-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 <---------------------------------
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
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
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
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
->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
->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
->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
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
Need Identification
Marketing Challenges
Distribution Capabilities
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
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?
-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
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
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?
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
-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
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
Describ
e the
Busines
s
-Barriers to Success
Environment
Customer
Industry
Market Fit
-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
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
Margin Requirements
Capitalization Well
===> Performance Indicators for Financial Capacity and Sustainability
Revenue Model Assessment
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
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
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)