Académique Documents
Professionnel Documents
Culture Documents
Commercial Endeavours: market business serves, goods/services it offers, and needs business
meets
Organizational Efficiency & Structure: culture of business and its command infrastructure
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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
-failure to meet objectives of planning cycle can be a result of poor execution or poor positioning
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Fundamental Objectives of Business
1) Short-Term Profit
profitability: efficiency of assets used over a period of time, benchmarked against competitors
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value proposition: statement stating who the service/product is for, and the benefits of such
->Service Benefits + Product Benefits + Brand Benefits + Cost Benefits + Emotional Benefits
-> quality also depends on brand recognition, loyalty and emotional value to consumers
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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
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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)
-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
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-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
Political
Stability
Manageable Established National
Levels of Factors of Monetary
National Debt Production Policy and
Banking System
Sufficient Low Inflation Absence of Effective Legal Comparative
Levels of Corruption System Advantage
Investment
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
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The Underlying Economic Model
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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
-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
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-refers to level of freedom/openness of market to encourage and promote private enterprise and
personal ownership
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-govt can act as manager by running crown corporations in competition to private sector
-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)
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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)
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Gross Domestic Product (GDP): total market value of goods/services national produces
domestically over a period of time (usually one year)
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.
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-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
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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
-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
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
hostile takeover: when attempt to take over a company whose mgmt + board of directors are
unwilling to agree to takeover/merger
-businesses will seek to achieve market positioning advantages and cost advantages to improve
company perception and protect the environment
-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 well-
educated 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 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
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-for managers, it is critical that they understand the domestic economy as well as global
economies that influence domestic prosperity
-unemployment rate
-inflation rate
-manufacturing inventory
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-in addition to assessing current status of competitive market, managers must recognize that
market composition will not remain static
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-managers must constantly step back and assess the industry and predict potential disruptive
changes that will render products obsolete or negatively affect customer base
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Why Go Global?
-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
-firms look for nations where labour costs are low relative to occupation skills
-as competition intensifies and differentiation becomes harder, price becomes more important
-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
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-global recession in 2008 came from free flow of debt services and crediting without any unified
regulatory system for global markets
-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
-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
-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
-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
current account: countrys net trade in goods and services, plus net earnings from interest and
investments
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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 low-valued
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
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-what has allowed trade to flourish is willingness for marketplace to engage in specialization so
everything so that efficiency is improved
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-shifting to a global presence for a business is a strategic decision that requires thought as to
where and how to compete
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
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
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
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Resource Availability
peak model theory: resources are finite, and eventually maximum production
point will decline
7 Factors of Demand/Supply
Political impact factors: legal barriers to carry out business productions (taxes
and tariffs)
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Resource Depletion
-> 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
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-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
-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
-board of directors and upper management must take control and lead the initiative for the firm to
run things that are clearly conscientious
->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
1. Purpose
-> mission of the firm and vision of mgmt. for the business
-> review of these two statements critical to deciding where and how to compete in the
markets
2. Markets
-> 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
-> 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
-> researching and updating firms distribution outlets, warehousing, production facilities,
and marketing campaigns
-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
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Company
Analysis
Customer
Analysis
Revisit Our Identify Define Our Develop Execute
Purpose Opportunitie Objectives Our Plan Our Plan
s & Threats
Macroeconomi
c Analysis
Competitor
Analysis
Revisit Our Purpose: Assessing fit of current mission & vision statements of firm
Assess Our View of the World: what are our choices going forward?
Implement our Strategy: How will we achieve our objectives and successfully execute the
plan?
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-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 Focus of Analysis
PESTEL -understanding of macroeconomic environment
-political, economic, social, technological,
environmental, legal
Porters Five Forces -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
Types of Competition -understanding nature of industrys competitive
landscape
-perfect competition
-monopolistic competition
-oligopoly
-monopoly
SWOT Analysis -assess company capabilities and the
environment it functions in
-strengths, weaknesses, opportunities, threats
3C Analysis -assessment of firms competencies,
capabilities, and capacity in resources
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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
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
-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
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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
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-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
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
rootedness: extent to which NFP is interwoven into community and base of support it has from
various sources
-formal hierarchy / structure of firm and how communication and sharing of ideas is carried
forward
-> 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
-> processes and initiatives to support and direct product development, creation of value
propositions, and the supply chain
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
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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
customer intimacy: interactions and degree of connectivity firms seek to have with consumers
in order to provide optimal service / support
-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
-how all layers of organization interact and communicate with one another
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
-> supporters call this most efficient and aligned with overall objectives and vision
-> detractors say lower-levels of command feel less empowered and less motivated
-> 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)
nature of work: specific tasks required at the individual job level within a firm
-generally occurs when mgmt. finds a disconnect from their intended strategy as a result of
external / internal changes
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
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-employees should feel valued and given opportunity to grow and excel, held accountable for
their responsibilities and rewarded appropriately
-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 Fit with Employees Lifestyle
-key for employees to and Reward Requirements
understand how their role fits -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
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-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
-finding most efficient techniques of labouring, and regulating that across the whole organization
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
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
-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
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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
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
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
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-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
-successful firms balance needs of all stakeholders, and manage organization so that it is
successful both short-term and long-term
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-managers must build continuous momentum and inspire high levels of performance, inspiring
employees to buy in on the overall vision of the organization
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-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
-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
4) Operations Execution
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operations mgmt: effective design, development and management of processes, procedures and
practices within firms business system to achieve strategic intent
-Process 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
product/service mgmt: activities that begin with R&D and extends to post-purchase customer
service
->consumer wants and competitor adjustments and disruptive technologies identified; and
components of firms own product adjusted accordingly
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-benefits of a decision would contribute positively to overall value chain, outweighing the
relative costs associated with it
primary activities: specific activities through which development of product occurs as it get s
delivered to consumers
-Inbound Logistics
-Operations
-Outbound Logistics
-Customer Service
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
marketing and sales: activities that create profile and awareness for firms brand and products,
and the benefits gained from purchasing said products and services
customer service: support provided to consumers before, during and after purchasing process
->key goal is to enhance value of product purchased, resulting in higher consumer loyalty
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
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-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
Process Management
2. Material Management
-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
-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
-raw materials
-waste disposal
-sanitary practices
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
1. Supply Chain Mgmt: development of supply chain structure of necessary info to make
effective decisions
3. Supply Chain Performance Evaluation: outcomes supply chain must achieve to support
organizations overall performance
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
->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
->although may not pan out as hoped, money put into R&D should still be considered
vital
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-Market Expectations
-Product Consistency
-Systematic Decision-Making
-Process Analysis
-organizations must look beyond that and develop culture of product quality to achieve
sustainable competitive advantage
-stronger processes means lower defect rates, leading to lower costs, and thus improved profit
margins
business processing engineering: how firm transforms production and manufacturing processes
to improve the way people work
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-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
-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
#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
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Six Rs of Marketing
-properly positioned products combined with superior marketing efforts, leads to organizational
growth and profitability
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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
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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
1. Primary Sources
2. Secondary Sources
primary sources of information: data specific to business products/services and its needs
secondary sources of information: data already existent and available, with no extra cost
incurred, but are not tailored to companys specific needs
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?
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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
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Marketings Challenge
Need Identification
-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 New Customer Acquisition
Leveraging
Ansoff Matrix
Assessing Market
Opportunities
Market Development Diversification
Market Penetration
-growing sales revenue through existing consumer base with existing line of products
-achieved through sales discounts, greater advertising initiatives, and incentives to purchase
greater quantities
Product/Service Development
-often times new products are complements/accessories of businesss existing line of services
Market Development
b) could be finding new uses for existing products by attracting previous uninterested
consumers
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
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
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-critical aspect of marketing is identification of needs that exist within marketplace, and also
understanding why potential consumers purchase a particular product/service
Initial Consideration of Options -> Active Consideration and Evaluation of Options ->
Point of Purchase -> Post-Purchase Influence
-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
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
-the need to respond to consumer-driven marketing techniques and channel support point-of-sale
techniques grows in importance the farther the potential consumer moves through decision-
making process of purchase
Customer Analysis: businesss set of products and services marketed to the right set of
customers?
Culture and Business System Analysis: right culture, capital capacity and business system to
support intended positioning and marketing strategy?
marketing mix: organizations strategic and tactical decisions for its products/services,
including: pricing, distribution, marketing communication efforts etc.
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
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-brand name that communicates positive performance attributes from repute are huge in
competitive environments where tangible aspects are more or less the same
-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
-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
---------------------------------------------------------------------------------------------------------------------
-dealing with this trend comes down to differentiating products/services from competitors:
thereby minimizing price as a large influence on decision-making of consumers
a) internally, must understand cost base of business, and margins needed to cover operating
expenses and investment capital
2. Research and identify cost structures of major competitors and their focus on pricing as a USP
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
-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
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-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
->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
-> 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
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
-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
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
-> very little focussed commitment offered by middle-men who also stock products in
direct competition with businesss own products/services
-> 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
-> 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
-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 traditional
distribution channels and to meet global trend of the 21st century
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-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
3. Understand who the actual decision maker is when making such a purchase?
-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
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
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-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
-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
---------------------------------------------------------------------------------------------------------------------
-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
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
-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
-identifying various costs firm will face, percentage impact of key cost areas to total cost base, is
essential for managers to succeed
5. Evaluating Cost Structure with Respect to Good Costs vs. Bad Costs
---------------------------------------------------------------------------------------------------------------------
-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
-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)
-understanding firms cost base essential to determining required pricing strategy and its impact
on profitability
---------------------------------------------------------------------------------------------------------------------
-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
-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
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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
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
-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 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?
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
---------------------------------------------------------------------------------------------------------------------
-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
-global marketplace has made setting prices extremely difficult, as well as volatility in
transportation costs (fuel), in addition currency exchange rates, and transnational regulations
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
-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
line of credit: arrangement with loaner for firm to take out borrowed money anytime (with a
ceiling)
cost of borrowing: total sum of money owed to credit facility, including interest and loan start-
up 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
-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
---------------------------------------------------------------------------------------------------------------------
Equity Options
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
-non-profit organizations are not allowed to use equity investments (ownership via shares) to
raise capital -> can pursue fundraising options
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
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
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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
-important role of managers when conducting financial analysis, is to make conclusions about
firms current and future liquidity and solvency
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Income Statement
income statement: shows whether or not business is earning a profit from sales, minus expenses
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
---------------------------------------------------------------------------------------------------------------------
Statement of Cash Flows
cash flow statement: shows the total movement of cash (from all sources) into and out of the
business
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
---------------------------------------------------------------------------------------------------------------------
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
-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
Earnings Per Share: return on investment for each share purchased by investor
-> 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
Quick Ratio: quick assets (ability to be turned immediately into cash) against 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
->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 Equity Ratio: relationship between money raised via borrowing and money
raised that investors have provided
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
->if this ratio is high, then firm could face short-term liquidity issues
Inventory Turnover: ability to turn inventory into cash
->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.
-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
->ratios are important to understand efficiency, but absolute dollar value accurately gauges the
potential dollars a firm stands to generate
---------------------------------------------------------------------------------------------------------------------
->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
-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
-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
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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 Mgmt Competency
(Economic Logic) Analysis (MERFS
Model)
Fatal Flaw Identification Opportunity: GO or
NO GO
Value Advantage Operations Analysis Exit Options
(Differentiators) (Value Chain and
CRM)
Fishbone Diagram: Venture Assessment
-key to assessment lies in search of fatal flaws that could derail a venture in its early stages
-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
-new entrepreneurs like franchises because its a proven business launch with a popular brand
-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
---------------------------------------------------------------------------------------------------------------------
Offsetting the Uncertainty: The Business Plan
-business plan describes business, assesses market opportunity and competitive conditions,
defines strategy, details mgmt. expertise and operating/market tactics, and outlines finances
Describ Review the Explain Describ Explain Develop Highlight Explain
e the Market, mission, e plan for Financial risks and why you
Busines Competitio vision, Strategy developin Projection opportuniti will
s n and and g s es succeed
Market objective products/
Position s services
=======================Business Plan================================>
venture capitalist: individual who provides capital to business venture for start-up or expansion
purposes
---------------------------------------------------------------------------------------------------------------------
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 New Entrant Existing Extension Existing Market
Market
-consumer need alignment -innovation -new revenue generation
-profile of need solution -superior consumer opportunity
-proper deployment of capital relationship model to target -degree of cannibalization
-driver of consumer adoption market -validation of segmentation
process -disruption of consumer stretch opportunity
adoption process -degree of channel
-proper deployment of capital involvement in demand
stimulation
-strength of brand extension
-proper deployment of capital
Market Analysis: Key Success Factors
Value Analysis
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
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
Revenue Model
Cash Operating Cycle Financial Risk Analysis Cost Structure and Drivers
Focus
Margin Requirements Capitalization Well
===> Performance Indicators for Financial Capacity and Sustainability
1. Overall Cost Structure and key cost centres that drive high percentage of firms cost base
-better understanding of various outcomes that will materialize given the estimates
cash flow positive: point where cash inflows exceed cash outflows
-mgmt able to identify key impact factors on cash flow and proactively plan for it
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
-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
-ability of mgmt. to illustrate its competency to execute business plan and yield tangible results is
paramount to equity investors
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
---------------------------------------------------------------------------------------------------------------------
-taking over existing business offers access to existing market share and consumer target market
-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
-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)
---------------------------------------------------------------------------------------------------------------------
-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)