Lecture 1 – External Analysis Models pt1 Wednesday, September 15, 2021 11:49 PM Lecture 1 → Key Success factors + Strategic • PEST analysis ○ Political, economic, social, technological ○ You must confront as a company in Canada • Diamond-E model ○ Preferences, organization, strategy, resources -> environment ○ Connects the internal environment to the external ○ A more detailed version of a SWOT analysis ○ Focus on Strategy and environment • Explain how to do an external analysis • PEST factors • Porter’s five forces model ○ helps you understand the dynamics between the specific industry and how they affect your profitability • Understand the 6 key success factors and their interrelationships and key performance indicators • Understand the relationship between the firm and its external environment • Understand Porter’s Generic Strategies and how to choose between them Diamond-E Model Porter’s five forces model BU111 Page 1 Diamond-E – Principal Logic • Principal logic – consistency and alignment ○ Internal consistency = good execution ○ External alignment = right strategy for environment To be successful as an organization you need, first of all, internal consistency, which means your internal components, your management preferences, your organization and your resources have to be consistent with the strategy that you decide to pursue. P+G in 2000 • Stores started expanding their product line too quickly, losing the interest of costumers • Too much variety for the target audience • In addition, the suppliers were short on the resources to make the expansions to the products Ikea • Ikea noticed that many of their consumers did not have the space to transport large furniture back to their apartments, and wanted more compact ways to transport belongings to their homes • Considering their budget, they were able to use many large buildings, as well as different product lines to satisfy a need found in their audience How to apply the Diamond-E • Questions: ○ Is our current strategy aligned w/ our future opportunities and threats? ○ What new starts are feasible and worthwhile? ○ What are our strengths and how can we use them for competitive advantage given the environment? ○ What do we need to execute a start? Can we get it? Where are we inconsistent? First task: Deal with strategy-environment linkage • Variables that we cannot change • Assess forces at work + their implications o Identify which strategies make sense BU111 Page 2 • Assess forces at work + their implications o Identify which strategies make sense • Adjust internal or adjust strategy • How to get the resources and capabilities to make the strategy work for us Second Step: Look Internally • Vision: outlines did direction that he wants to go in • Missions: put a little bit more detail as to how it wants to get to that destination • Management Preferences: are they biased towards technology, marketing strengths, building a company • Questions: ○ What does management want? Ambitions? Objectives ○ What are its priorities? ○ How comfortable is it w/ risk? ○ Does it value or is it comfier with come capabilities and starts than others ○ Does it value some capabilities resources more than others • Organization ○ Culture- WHO we are ▪ Business culture is like country culture, as each company has slightly different approaches to tasks, management and in general preferences ○ Capabilities - WHAT are WE good at? ▪ Walmart has exceptionally good supply chain, therefore prices are low ▪ Apple is focused on marketing, which is why it has become so popular ○ Structure- HOW do we divide work? • Questions ○ What are we good at as an organization? Capabilities gap? ○ Are we organized so that we can efficiently and effectively execute our strategy? Are we organized around out most important success drivers? Specialist (efficiency) vs generalist (integrative )? Customer vs product vs function? ○ What do we value or not? IE innovation versus stability ○ what do we feel safe doing and spending one? Is it safe to express new ideas? Are they valued? should I be spending time on my job only or does management support new initiatives? • Resources: Human, Capital, Financial ○ Includes Tangible assets, like buildings, etc. ○ Includes intangible assets, I.e., reputation, patents • Questions ○ Do we have enough money to acquire the needed resources to or execute the needed activities? ▪ I.e., if one wants Walmart to sell their product, do they have the BU111 Page 3 ▪ I.e., if one wants Walmart to sell their product, do they have the capabilities to mass produce it? ○ Do we have the production capacity to produce what is needed? Key takeaway: Once you have asked the questions and know the answers, create a plan to resolve them. Key Success factors: • Employees: ○ Enable operation ○ Employee Commitment: Loyal, productive, emotional + mental commitment ○ Hire people who qualify for the job, and will enjoy the work you give them. ○ Training, giving them more opportunities in the company, giving them feasible goal to get a promotion, or better things in the workplace ○ Motivate (promotions, benefits, etc.) • Customers: ○ Provide revenue ○ Customer Satisfaction: buy the product + loyal to the brand ○ Target, understand, anticipate, satisfy ○ Can cause lower worker satisfaction eg. nurses ○ Focusing and understanding what the target market really is looking for and anticipating their future needs • Products and Services: ○ Revenue means ○ Quality Products and Services: value, consistency, reliability ▪ Value: paying for what experience you want. ▪ Consistency: products are consistent, and not different every time ▪ Reliability: reliable products, durability depending on price/quality ○ Define what value means? What features are going to go on the product, how much variety? • Innovation: ○ Environmental alignment; improvement ○ Innovation and Creativity: culture, structure, rewards ○ Valuable change ○ Culture: that encourages change and creativity ○ Structure that allows ideas to be explored and filled out ○ Rewards for the successful ideas, and new innovations • Uniqueness ○ Market advantage ○ Competitor and market insight: unique resources or capabilities ○ Helps you stay relevant ○ Distinct competitive advantage ○ Valuably + sustainable differentiation from competitors ○ Competitor + market insight • Financial Resources BU111 Page 4 • Financial Resources ○ enable growth ○ Allow the company to reinvest • Sound strategic decisions: efficient & effective execution BU111 Page 5
