key success factors
Why it is important for an organization to know its external environment
What every organization must do to be successful is that it must know itself – in other words,
know its strengths and its weaknesses, its capabilities, and its preferences. It must also know
its enemy – in other words, it must know its external environment, the challenges and threats it
poses, or the opportunities that exist.
Most firms are not able to influence their environment and must therefore focus on
understanding the environment→ to be able to harness its own strengths and capabilities to
anticipate and capitalize on the opportunities that are presented or anticipate and avoid or
overcome the threats that may arise.
Describe and explain the importance of each of the 6 organizational key success factors
(KSF)
Why are KSF important to consider??: Weakness in one or more KSFs reduce organizational
performance and create constraints on a firm’s strategic options; strength in one or more of
them can lead to more consistent or better performance than the firm’s competitors and may
even be a source of competitive advantage.
Key success factors
When developing a good strategy and thinking about the internal and the external forces, you
should always be thinking about the key success factors/drivers of any strategy or
solution. What are the most important elements that any business (profit or not-for-profit)
needs to ensure long term success?
The key success factors for any organization are related to the activities and resources that are
crucial to the efficient and effective operation of the organization. These are:
•
•
•
•
•
•
Financial resources
Customers
Employees
Products and services
Innovation
Uniqueness
These elements don’t operate independently - they each impact your potential financial
performance
Employees – Gaining employee commitment
Employees are important because without well-trained, knowledgeable employees any
organization will have difficulty operating and successfully navigating the environment. They
are an organization’s key resource. Furthermore, an employee who is happy with his work are
committed to staying with the organization (loyal) is more likely to work longer and harder.”
Employee commitment is linked to financial performance because committed employees are
more productive than those that are not, thereby reducing the operation costs of the
organization. The uncommitted employee is also more likely to leave the
company. Consequently, employee commitment affects your costs because retaining
employees reduces the indirect costs of replacements and training them.
Committed employees affect the quality of goods and services because they take greater care
in their work and will do their best to ensure that goods and services being produced are free
of defects and of the best quality possible. They are more likely take personal pride in
customer satisfaction. An employee who is dedicated to the company and its success is more
likely to seek and share innovations that are likely to result in improvements.
You begin by hiring people that are a good fit for your organization – they will enjoy working for
you. Part of a good fit → to perform well in the tasks
How can a company do this?
Employee needs the tools and training to do the job well and perhaps advance in the
organization. You motivate the behaviours that you believe will contribute to organizational
performance by identifying and rewarding those.
Key performance indicators:
Given that dedication to the organization (retention) and productivity are key elements of
employee commitment,
1.turnover and 2.productivity are two important performance indicators of employee
commitment. “Turnover is the percentage of your employees that leave and must be replaced
each year” indication that you are perhaps not hiring people that fit with the organizational
environment. A “leading indicator” is the rate of absenteeism – how many days per year the
employee doesn’t come to work when expected.
Measuring the productivity or effectiveness of your employees depends on the job and the
industry, but it could be sales generated per salesperson, number of units produced per
employee etc. Low levels of productivity could mean your employees aren’t motivated or that
they need more training to do their jobs well.
Customers – Ensuring customer satisfaction
Your customers are the particular segment you focus upon when designing and selling your
products (your target market). customers provide the revenue ultimately generate a profit.
Customers validate and generate the company’s value. They determine its growth, and the
perceptions of the company they hold and share with others affects its reputation. If a
company does not satisfy its customers’ needs customers will choose to purchase the goods
and services (products) of competitors. You will also have difficulty attracting new customers if
they believe you will not meet their needs or that other firms can meet their needs better, or if
your existing customers are particularly unhappy with you.(Bad reviews)
Revenues are the first section of your income statement, so how many customers you have,
drives your revenues, impacting your profitability and your financial performance. Your
customers are connected to your employee commitment because if the products you create do
not make customers happy, it is more challenging for your employees to feel proud of the
company.
Customers affect innovation because their needs and wants inspire and drive product and
service innovations(Customer preferences)
How can a company do this?
1.Deciding which customer segment (target market) you can best serve that will most value
what you offer.
2.Understand what that customer wants. (Customer preferences)
3.Anticipating customer needs is a way to continue to keep them loyal by anticipating future
needs
4.The final aspect of meeting customer needs is making sure that the customer believes you
are delivering what the customer wants or is expecting – satisfying the need or want.
Key performance indicators:
Market share: the portion of total market revenues that you earn compared to other firms of
similar size in your industry is an indication of how you are viewed by consumers.
Share of wallet: is the percentage of a customer’s total spending on your type of product is
spent on your product. Consumer loyalty is reflected.
Net promoter score: is the likelihood that your customers would recommend you to someone
else – high score means that customer is more likely to advocate for you.
Products and Services - Producing quality products and services
They are important because they are the mechanism by which you satisfy customers.
Intangible elements→ as how you deliver the good and post-purchase customer service.
Producing at a level of quality that customers view as appropriate for the price paid. This also
means providing a consistent and reliable level of quality.
How can a company do this?
1.Defining “value”: The features that describe quality and therefore value can include
convenience, form, price, taste.
2.Product or service has the expected level of reliability
3.The quality of the inputs: better quality inputs generally result in better outputs.
4.Customers expect consistency.
5. Processes: important because having structured production and quality control processes
allows you to produce the same product with the same quality level consistently.
*** Producing quality products and services is connected to financial performance through its
impact on revenue and expenses. The quality of the good determines the price that can be
charged – higher quality or premium products often have a higher profit margin.
→The features or qualities for which your goods are known impact your uniqueness in the
marketplace. If your offering has unique aspects to it then you will be differentiated from your
competitors.
Key performance indicators:
Performance in creating quality goods and services is reflected in your returns - the percentage
of products returned. Higher values indicate that the product did not deliver the “value”
expected or perhaps does not do so consistently.
→Defects and warranty claim both indicate that a product is not delivering the expected level
of reliability.
→Waste measures the number of inputs relative to outputs so it’s an important efficiency
measure that can also reflect the consistency of processes.
Innovation – Encouraging innovation and creativity
Innovation is simply valuable change. This change can represent a new approach to existing
organizational processes.
Changing to improve is important to the long-term survival and success of any organization.
Since innovation underpins change, it should be applied to all organizational activities, this
factor is therefore linked to all of the other success factors.
***For example, innovation and creativity is linked to meeting customer needs because it can
lead to identifying new needs or new ways to satisfy your customers***
***Innovation is linked to producing quality products and services because new inputs and
ways of producing can be identified that can lead to improved consistency and reliability but
also improved value***
***Innovation affects your ability to gain employee commitment because they want the
variety, they want the success, they want the challenge it creates***
***Innovation affects financial performance indirectly through its effects on other success
factors, but also directly when the firm identifies new markets, thus increasing revenues or
reducing costs***
***Innovation affects uniqueness because innovation in your strategy and how you approach
your market ensures not only that you are different from your competition rather than settling
for imitating them, but continuous innovation ensures and retaining your uniqueness and
sustaining your competitive advantage.
How can a company do this?
- By encouraging the creation and pursuit of ideas – challenging the status quo and taking some
risks.
- Having a structure that enables knowledge and ideas to be brought in from outside and to be
shared within the organization.
- You must also reward innovation because rewards are a part of building an innovative culture
Key performance indicators:
→Since idea generation is an important starting point for innovation, measuring how many are
put forward is valuable, and is an indicator of whether the culture, rewards encourage ideation
as well.
→To measure whether the structure stunts new approaches you then need to see what
proportion of ideas actually result in new products or new approaches – how much change has
occurred within a period of time? How does that compare to competitors?
→Cycle time measures how quickly an idea becomes an adopted approach or product; this is
an indicator of a structure and culture that is supportive of innovation.
Uniqueness – Creating distinctive competitive advantage
Distinctive competitive advantage means being different from your competitors:
Its importance becomes clear if you think for a moment what would happen if your company
looked exactly the same as every other company in your industry. Customers and employees
have no reason to prefer you over other organizations – this makes it much harder to attract
them and the decision comes down to money
**Differentiation is a key strategy for being able to charge higher prices rather than compete
on the basis of lowest price.
*Creating a distinctive competitive advantage is linked to each of the other success factors. It
directly affects financial performance because,-- it can allow a company to earn above normal
returns, in part by charging higher prices or by driving down costs through superior efficiencies.
*When consumers believe that a company’s products are different from all others in a way that
they value, they are likely to be more loyal
*When potential employees view a company as unique in a way that aligns with their interests,
they are more likely to apply for work and stay with the organization.
*Distinctive competitive advantage in products or services differentiates the organization from
its competitors in a way that is meaningful to the market and reduces the intensity of
competition it confronts.
*The desire to be unique is what drives innovation – seeking new and different ways to
operate and compete.
How can a company do this?
→ understanding what your competitors are doing – you need to know what everyone else is
doing before you can identify what would make you different.
→ understand what the market values before you can say that the difference is going to be
advantageous.
→Develop unique capabilities or acquire resources that make you better than competitors at
doing something – Apple is known for its innovative and marketing capabilities.
Key performance indicators:
1.Identifying whether the company has a strong reputation -→ market research.
2.A quantitative measure of this is to look at how this company’s financial statements look
compared to competitors – is it able to generate a better gross margin? Is it able to charge
higher prices yet retain lots of customers? Does it perform better than its competitors on any
of the key performance indicators associated with the other success factors?
Financial Resources – Achieving financial performance
Financial performance: means having sufficient cash flow and being profitable
Without an appropriate level of financial performance, the organization will not be able to pay
for its activities. Achieving financial performance→comparatively better and improving profit
and return on investment.
Companies create financial performance through wise and well-implemented strategic
decisions and effective and efficient operations.
Financial performance impacts the other success factors because it affects the investments it
can make on the other factors.
More money means it can afford to pay its employees
More money means it can invest in market research to better understand its customers and
thereby fill their needs, but also attract more customers through advertising.
It can create quality products and services by investing in technology that helps standardize the
production process and test quality
It can fuel innovation through investments in research and development.
It can create a unique reputation by promoting its activities and its unique features
Key performance indicators:
1.Evaluate revenue, profit, profit margin and return on investment (ROI).[Revenues: money
generated through sales][Profit: measures what remains after you have paid expenses][Profit
margin: helps you understand the ratio of profit to every dollar of sales – the higher the
better!][Return on investment: net profit divided by total investment.
2. Firm value is an important measure if the company is going to try to use equity financing by
selling shares or if the owners want to sell the company.
3. Growth in revenues, profit, and ROI all indicate that the company is continuously getting
better
Diamond-E framework
Model for understanding both the environment and the firm’s interaction with it is the
Diamond-E. → Connects internal & external environment; detailed version of SWOT analysis;
Focuses on strategy & environment
1.“Environment” : includes the Political, Economic, Social, and Technological elements that are
external to the organization. Determines what opportunities and threats exist.
(“Environment “ influences Organization: use the Environment to develop strategies)
( firm influences the environment: strategy becomes a part of the environment as well,
changing its nature influences the environment of your competitors) [OPPORTNITIES &
THREATS]
***encompass the internal characteristics of the organization – “Managerial Preferences”,
“Organization”, and “Resources”. [STRENGTHS & WEAKNESSES]
2.Managerial preferences: mission, vision, preference & biases of people in management roles
within the company
(**Managerial Preferences affect how management interprets the environment: what it
perceives as an opportunity versus a threat)
**Management Preferences must be consistent with the Strategy or will not be able to
effectively implement the strategy**
(Preferences are influenced by Strategy: in those successes and failures that are experienced
influence future managerial choices
(Management preferences also affect the Organization and Resources: by influencing what is
pursued in each of these variables(will determine which resources are perceived as more
valuable and therefore acquired more aggressively than others)
( Preferences also affect Organization): influence the culture, structure, and leadership style of
the organization, and determine the capabilities that are built.
3. Resources and Organization:, capital, and financial& human resources(employees/labour) of
the company.
Resources are connected to Strategy: strategies the organization has the resources to pursue
and are therefore feasible.
Resources are influenced by Strategy: because strategy determines what resources are needed
and must be acquired to properly execute it.
Resources influence Management Preferences and Organization: influence what capabilities
the organization can build and will bias management toward using resources which are held in
abundance.
Managerial Preferences and the Organization influence Resources: which resources are
acquired and built up will depend on what management prefers.
4. Organization: the culture, capabilities, structure, and leadership of the organization.
Organization influences strategy: because capabilities determine what strategies are feasible.
Strategy influences organization: because the experience it creates enhances existing
capabilities and influences which new ones are developed and also determines the
organizational structure required for effective implementation.
Key linking variable of the Diamond-E.
5. Strategy: organization plan to pursue opportunities or avoid threats it has identified in the
environment. It is the critical linking variable between the organization and its environment.
(Strategy: must be consistent with the demands & opportunities of the environment or the
strategy, even if it is executed perfectly, will not create success for the organization. (Strategy:
must be consistent with the internal characteristics of the organization or the organization will
not be able to effectively execute it)
***Research shows that strategy-structure fit increases firm performance***
Strategy models: Ansoff matrix, Porter’s Generic Strategies
Principle logic: You need to have CONSISTENCY OR ALIGNMENT, a given strategy needs to
MATCH the resources, management preferences, organization AND also be aligned with the
external environment in order to fit and be successful.
This is the principal logic of the Diamond-E – the strategy must be internally(SW) and
externally consistent(OT). (What can we do vs What should we do)
-
Consistency internally -leads to performance
Alignment externally ensures strategy is right for the given environment
EXAMPLES:
(e.g., P&G Strategy in 2000 → Inconsistent ● The CEO of P&G expanded their product line massively.
Customers didn’t care to have many varieties of the same product, they preferred something
competitively priced (external misalignment). P&G also didn’t have the capability to continually support
the sales in the manufacturing and marketing (internal inconsistency).
Ikea Strategy → Consistent ● Ikea saw a void in the market that was not filled and decided to fill it
(external alignment). They didn’t have the capabilities to manufacture all the furniture, so they made
contracts with other factories to produce it for them. They are affordable and durable (internal
consistency))
(e.g., Blockbuster 2000 → Inconsistent ●- Movies moving to online streaming and directly through TV,
No one wanted to go to the store to rent when you could get it in convenience of home, -Didn’t evolve
with its environment
What can Diamond-E be used for: strategic & case analysis, firm’s current strategy given the
environment and its internal characteristics, identifying the resources and capabilities the firm
will need to acquire.
KSF
What they are?
Financial
resources
-liquid assets of
an organization
Customers
-purchases the
products
Employees
-forms the
business & helps
expand the firm’s
domain
-product is a
tangible
item/consumable
-service is
intangible item
-new approach to
product
-improvement
Products &
Services
Innovation
Uniqueness
-authenticity &
distinctiveness
among others
What they
measure?
Revenue, Profit,
Profit margin,
Firm value,
Growth, Return
on Investment
(ROI)
- market share
- share of wallet
-net promoter
score
-Turnover
-Productivity
-Absenteeism
#of applications
- returns
-defects &
warranty
-Waste
What can affect
them?
-the life stage of the
business
What can they affect?
-the larger the sales
the larger their
needs & wants to
use the products
-unmotivated
-unsatisfied at work
- low level of
commitment
-low quality of
products and
services
- it greatly affects the
revenue, more
customer->more sales
-idea
generation
-proportion of
ideas
-cycle time
-market
research
-financial
statements
-culture, rewards, or
structure of the
ideation
-it can affect their
edge among other
competitors
-company performs
better than other
competitors
-generate a better
gross margin
- financial stability, the
industry where in they
operate
-debts, loss &
expenses
-low level of
productivity
- day-to-day operation
- percentage of
products returned
Porter’s Generic strateGies model:
➔ Internal & External considerations that distinguish the 4 strategies: Companies
choose 1 of the 2 types of competitive advantage its either lower costs than its
competition or by differentiating itself along dimensions valued by customers to
require a high price. A company also choose 1 of the 2 types of scope, either focus on
which offering its products to selected segments of the market or industry-wide and
offering products across market segments.
➔ Competitive strategies and differences:
1. Low-cost strategy: organization that aims to acquire a competitive advantage by
reducing its costs lower than the costs of its competing firms
Cost Leadership: focuses on low-cost products & broad target market
2. Differentiation strategy: organization that aims to differentiate itself from the
competitors through unique quality of its products and services.
Differentiation: focuses on unique products & broad target market
3. Focus strategy: organization focus on a specific group of buyers, market and
product line
**2 strategies
a. Low-cost focus strategy- offers products and services to a small range of
customers at a lower price
b. Focused Differentiation-offers to a small group of customers products or
services that meets their customer’s standard and far different than other
companies
•
How to choose a firm based on its strength or size?
Firms usually follows differentiated strategy due to a firm can only differentiate
itself from on a lower cost. Focus strategies is effective when customers have their
own preferences. But in general, it seems that some combination of practices is more
effective that can lead to the firm’s success.
What questions need to ask before deciding what strategy to use?
- markets competition
- Size of your target market
- Identify the company’s SWOT analysis (Strength Weakness Opportunities &
Threats)
Applying Generic Strategies: (Questions to ask before deciding)
• Broad Target - Do I have the capacity to produce at large volumes? - Do I have the ability
to reach and win a large number of customers?
• Narrow Target - Is the market big enough to be profitable? - Is there an under-served
niche? Low Cost - Do I have capabilities or resources that allow me to produce more
cheaply than others?
•
•
•
Uniqueness - Do I have capabilities or resources that allow me to provide unique features
that consumers value? Cost Leadership - Does a large portion of the overall market value
the lower priced offering?
Cost Focus - Does a simpler, lower performance, cheaper product appeal to a small but
big-enough portion of the overall market? Differentiation - Are these unique features
broadly appealing?
Differentiation Focus - Would customers be willing to pay a lot more?
EXAMPLES:
Cost Leadership - WALMART - Have lower priced products compared to their competitors
Differentiation - APPLE – a lot of features, and innovations to their phones - They are NOT cheaper, but
their strategy is differentiation, the cost of uniqueness
Cost focus(niche audience)-FREEDOM - Competing with prices o All their services are cheaper than
competition o However, their services aren't as valuable (Not high quality) o Narrow target market
Differentiation Focus(niche audience)-- Ferrari - Focusing on a group of customers in the larger
automobile market that wants a very high-end car that is the epidemy of luxury - Very unique product
that focuses on a narrow target market
PEST FACTORS:
*** PEST Analysis (Political, Economic, Social, Technological)
A management method whereby an organization can assess major external factors that
influence its operation***
Political: Any condition that reflects the relationship between government and
businesses(usually in the form of regulation)
→ ELEMENTS: Laws, regulations, international trade laws and trade agreements
● Expansion, barriers, competition
○ International tariffs can procure barriers for our manufacturers to be able to
export to a certain market
Example: Norway’s government does not tax new electric vehicle purchases & gives EV’s a
break on annual fees. Conversely, shoppers drug mart has been vocally opposed to the
Ontario government regulations that cut the price of the drug payments to 20% of the original
cost
**INFLUENCES IN THE BUSINESS**
→ If a business has a good that benefits the economy and that the government values, it may
receive compensation & political and legal favour may be granted to them(i.e., EV situation in
Norway)
→ If a government does not favour a company, they are more likely to fine them or regulate
their sales(i.e., shoppers drug mart situation in Ontario)
→ If a country becomes politically unstable, companies are less likely to do business there.
→Political stability influences if a business will relocate elsewhere.
→International relations between countries also affects multinational companies through
potential tariffs etc.
Economic: The conditions of the economic system in which an organization operates
→ ELEMENTS: GDP, inflation, employment, exchange, interest
● Costs, demand, funding, competitive
Example: Loblaws raised the price of their Granola cereal by a dollar, while shrinking the
package by 50 grams to cope with the higher inflation.
**INFLUENCES IN THE BUSINESS**
→ Changes in economic system generally affect international trade(if the changes relate to
trade) but if it’s domestic, it may either increase/decrease spending.
Social: How the culture values goods + services provided by an organization.
→ ELEMENTS: Values/attitudes, customs, habits, demographics
● Customers, employees, corporate social responsibility (CSR)
○ Do we care about pollution and environmental regulations
Example: In China, bicycles are primarily seen as a mode of transportation whereas in Canada,
it is generally used as a form of recreation
**INFLUENCES IN THE BUSINESS**
→ Consumer preferences determine what goods can be sold in a country. If the county’s social
factors do not value a good, it may not yield significant sales.
→Changes in the customs, values/attitudes of the society might affect which businesses enter
the market.
Technology: includes all the way that firms create value for their constituents through the
use of technology
→ ELEMENTS: Information 5rtechnology, internet, materials & equipment
● Barriers, innovation, strategy, R&D
○ Some tech is not accepted in other countries/companies
○ Certain high-tech equipment can create a barrier for new entries into a market
because bigger companies will have more efficient machinery
Example: The rapeseed plant industry is worth $8.6 billion and is profitable because rapeseed
plants(without the undesirable elements) provide canola oil. Research & Development allowed
for the production of canola oil.
**INFLUENCES IN THE BUSINESS**
→ Companies that are more researched and developed are more innovative & unique and thus
have a significant advantage over their competitors
→BOTH THE POLITICAL & ECONOMIC ASPECTS of the PEST diagram are LINKED to this
➔ New technology needs to be approved by the government, and if not, you may lose your
investment
➔ Economically, R+D improves one’s potential to create and create a more efficient way
of producing
Questions to answer from PEST analysis:
1. Are social factors changing how I hire or what customers want?
a. How are customers different in foreign markets?
2. Can I use technology to improve my product quality, meet customer needs or increase
profitability?
3. Will changes in laws, regulations or technology reduce barriers to entry?
4. What legal protection do I have, or laws do I have to comply with?
5. What do future economic conditions look like and how will they affect my demand?
Porter’s Five Forces model
*** A framework for analyzing a company's competitive environment***
Effects on Industry Profitability:
• Rivalry among Competitors: lowers revenue, not a big market to share, downward
pressure on price
Factor
Factors contributing to
rivalry
Effect
Solution
Low industry growth
rates
Low or no growth = stealing customers
from competitors
→Create/increase consumer
switching costs(make it
pricey & painful)
Low consumer
switching costs
Ex: soup/grocery store industry
Customers will be able to choose your
competitors product at no added cost
Ex: McDonald’s, shelf items
Perishable/Commodity When products are perishable,
competition intensifies as rivals try to sell
products
their product while its still good
Competitor Capacity
Ex: groceries, St. Jacobs Farmer’s Market
If competitor is already producing at
capacity(no more room to serve more
customers) there is no incentive to
compete aggressively
Ex: Covid-19 vaccine
→ Differentiation(creating
something consumers can’t
get at other places)
→Acquisition of
competitors(Fido and rogers
teaming together)
•
Threat of new entrants: more people entering the industry, the easier it is for new
people to enter, the more downward pressure on price
Factor
Lack of capital intensity
or economies of scale
Effect
-Easier it is to get in, the more
people will enter creating more
rivals
- Low capital requirements =
low risk
Ex: Ex: UPS, FedEx
No specialized assets—
network, knowledge,
technology
No
regulations/government
policy
Low Switching costs or
lack of brand loyalty
Specialized assets that not
everyone can easily obtain
creates a huge barrier to entry
Ex: Aerospace parts & products
manufacturing
Nothing legally standing in a
new business’ way of opening
up(easy to overcome)
Ex: how easy it is to open a
liquor store?
Does not cost your pre-existing
customers anything to jump ship
to a new competing product and
they are not attached to your
brand
Ex: Tooth paste, paper towel
Solution
1. Grow to achieve scale(be so
big that they don’t even try to
enter)
2.Control distribution
network(lock in your sales
location)
4.Differentiate;create brand
loyalty(stand out form the
crowd by creating a brand
customers love)
3.Lobby government(ask the
government to make rules
about who can enter)
6.Lock customers in (i.e.,
rewards programs)(give them
something that they can’t bare
to leave)
•
Threat of substitute products: If the substitute is good enough and price is a way lower
then consumers will buy that over your product, you need more time and energy to
convince the buyers to buy your product, has no impact on competition for example Bike
vs Car.
Factor
Lots of good quality
substitutes
Low switching costs
High buyer propensity to
substitute higher- (reminds to
stay)
Effect
-Forces your prices down to
compete with substitutes
Solutions
Ex: bus, bicycle to a car
Does not cost your customers
anything to jump ship to a
substitute product
Ex: eating at McDonalds vs
Freshii
Buyers are attracted to the
substitutes for various
reasons(lower cost, better
product)
-strong
marketing/differentiation
- lock in customers
Ex: Cars vs Public Transit
•
Bargaining power of Suppliers: people that provide your key inputs. If they are able to
increase price they charge you, your profitability goes down
Factors
Effect
Solutions
-Few
suppliers
–
less
options
they
have
Low # of
more bargaining power
→Form strategic alliance(make
suppliers
the supplier/buyer relationship a
Ex: Airlines
win-win
If switching to a substitute supplier will
Few good
reduce your product quality, this negatively
substitute
suppliers/inputs affects your bargaining power
High switching
costs
Threat of
forward
integration
Ex: cotton vs Polyester
If your locked into your supplier, they have
more power
Ex: buying out a contact
Supplier has capability to become
competition
Ex: Airplane manufacturer begins own
airline
→ Internal supply(become your
own supplier)
→Redesign product or needed
input (get creative in the long
run)
•
Bargaining power of Buyers: when buyers have upper hand, they have the ability to
negotiate (reduces the price-→lowering profitability)
Factors
Few/concentrated buyers
Effects
If you have limited # of potential
customers, you will have to lower
your prices
Discretionary purchase
Ex: Rogers, Bell
If they don’t need your product, this
gives the buyer more power
Standardized products
Ex: Luxury car
Easy for customers to find similar
product at competitors
Threat of backward
integration
Ex: paper towel
Buyer becomes supplier – common
in B2B
Ex: Intel & Apple
Solution
→Form alliance with
other sellers (set price
floors)
→Strong marketing
&differentiation(stand
apart & create your own
brand)
→Lock in
customers(make it
impossible for them to
leave)
➔ strategic questions it answers
1. Is the industry a realistic place for a new venture to enter? If yes then,
2.Can we do a better job than incumbents(company that is already there) at avoiding factors
that suppress industry profitability?
3.Is there a unique position we can pursue?
4.Is there a superior business model that incumbents would find hard to duplicate?
Analytical Thinking
❖ Process for Case-Analysis:
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Identify the issues – immediate, underlying - and summarize as a question
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Identify the objectives and aspirations
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Identify complications & constraints
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Identify & apply relevant models and do research to enhance understanding
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Develop and evaluate hypotheses (options)
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Propose good solution with implementation
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Identify risks , mitigation, and contingency strategies
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Demonstrate impact
1. Purpose is to identify a GOOD solution:
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Feasible – firm has or can get the resources to implement it
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Complete – outlines all the key activities that must be executed
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Effective – achieves the immediate and overarching objectives
❖ Components:
1. Understand immediate question, underlying issue
2. Identify relevant models and frameworks
Immediate issue:
• the “in your face” issue/question
• usually stated in introduction
Underlying issue:
• the cause of the immediate
• “3 Why’s” approach
*** Key: Must understand the underlying to solve completely and effectively immediate***
What role does the above play in making good solution? Must solve underlying as well as
immediate issue otherwise solution incomplete or issue returns
Tools for a Case Analysis… o Porter’s 5 Forces → A framework for analyzing a company's competitive environment
o Ansoff Matrix → (expansion options)
o Porter’s Generic Strategies → (gives insight on competitive position strategies)
o Diamond-E → helps to understand the company and their wants and needs & helps identify
the complications & constraints which is used in all case analysis
o Decision Criteria → (what the objectives must ensure)
❖ GIVEN A CASE:
1. Who, what, where, when?
2. Immediate issue: usually stated in introduction
3. Underlying issue: the cause of the immediate
4. Big question: what’s the problem
5. Objectives: obvious – what do we want to achieve with this solution?
6. Aspiration: what else do we want now and in the future? What’s our
vision?
7. Decision Criteria: Features that describe a good solution –descriptive
8. What models are relevant?
9. Complications/constraints, strengths & opportunities [feasible]:
10.Solution/recommendation: Strategical, tactical & operational
11.Implementation plan: A complete solution outlines not just the actions,
but the order and the timing
12.Risk: arise from assumptions or uncontrollable variables in the
implementation plan (High, Low, or medium risk)
13.Mitigation: strategy reduces the likelihood it will occur
14. Contingency: what to do if risk occurs
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APA reference format style
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3 options for incorporating research to your work:
-Summary (key message of the author)
-Paraphrase (takes specific content from within the work and re-words it)
-Quotation(exact words of the original author)
•
3 characteristics of good evidence that will lend credibility:
- relevant
- reliable
- recent.
•
-
APA 7th edition( will use superscript numbers)
Who
When
What
Where
Period (between each section of content)
Comma to separate sections
Use a hanging indent (second line of citation is indented)
Anatomy of the reference format