BU111 – Midterm Notes

Key Success Factors

Necessary important Components of a company that allow it to be real its
(Employee Commitment) – Employees
- Loyal and productive employees love working for you and value you as an employer,
they are producing a lot of value
- To gain employee commitment, you want to hire people with the basic skill set and are
qualified for the job
- Must train employees and how to execute that job well, increased productivity
- Motivate them for the job they are doing, e.g, flexible hours, promotion

(Innovation & Creativity) – Innovation

- You improve as a company and align more with the environmental wants, and it
improves your pre-existing products and services
- “Meaningful & valuable change” – finding something better or changing to remain
relevant

(Quality Products & Services) - Products & Services

- If you cannot sell products and services, you will not get customers, meaning no revenue
will be generated
- Value: Providing value for the dollar, pay more expect more, pay less expect less
- Consistency: You don’t provide appropriate value for what they are paying, they expect
the quality for the price
- Reliability: They are reliable and perform consistency, so we can rely and count on them.
- Ex. McDonalds big mac will always taste the same from any McDonalds [consistency]

(Distinctive Competitive Advantage) – Uniqueness

- Market advantage, differentiate, be unique and different to get the win
- In a valuable way, being distinct from other organizations in a business environment,
sustain that difference, be unique to make it tough for the competition
- Employees are more incentive to bring more ideas that brings productivity and creates a
competitive advantage against competitors.

(Customer Satisfaction) – Customers

- You have many loyal advocates for your product
- They help you sell it and tell their friends about it (importance)
 - e.g., Apple, apple users want to convert everyone to apple and want to buy all apple
products.
- How to get advocates? Targeting specific customers (target market) to seek that market
to satisfy current needs and future needs

(Financial Performance) - Financial Resources

- Enable growth, give a reason for people to choose you and not somebody else
- Be more efficient for everyone else
- Willing to pay more to go for quality o Consumer recognizes the differences
o If customers can’t see a meaningful difference between companies, they will go to
the cheapest one and closet to home

How Do They Connect To Each Other?

Employee Commitment -> Innovation and Creativity -> Quality Products and Services ->
Distinct Competitive Advantage -> Customer Satisfaction -> Financial Performance

1 -> 2
(If an employee loves their job, there would more likely be committed to the company and
would find more innovative ways for the company to succeed)

2 -> 3
(As we are generating new ideas, we are finding new ways to deliver customer value (what they
expect) As employees are finding innovative ways, we are able to provide customer value to
satisfy that need.

3 -> 4
When you have a unique product, you have an advantage over direct competitors in a small
business with a small market share, they cannot get the same product so they will come to you

4 -> 5
A distinct competitive advantage would help a company capture a company better (market
share) and by doing so they can satisfy them better because they are able to capture them and
fulfil their needs unlike other businesses can.

5 -> 6
You have less churn, which will result in more profit and net promoter share. Which will make
your financial performance better as a result. Loyal customers are a business's greatest asset.
Drives financial performance up.
Why Are They Important?
- They ensure success overtime Promotes Holistic Thinking:
- If you changed something in key success factors, it would have impact
on others
- Organizations that are successful as are a series of interconnected

External Analysis:

Key Performance Indicators

What Are They?

What Do They Measure?
What Can Affect Them & What Can They Affect?

Key Success Factor(s) Key Performance Indicator(s)

Financial Performance Revenue, Profit, ROI, Growth, Firm Value

Customer Satisfaction Market Share, Churn, Net Promoter Score,

 Share of Wallet

Employee Commitment Turnover, Applications, Productivity

Innovation & Creativity New Products, New Approaches, Idea

Generation, Cycle Time

Quality Products & Services Returns, Defects, Warranty Claims, Waste

Distinctive Competitive Advantage Reputation, Comparative Performance

Financial Performance
- Profits & return on investments [R-E = Profits]
- What percentage return do we earn on everything invested in the business - How
do we know we are accomplishing them?
- Varying on various factors such as the size and age of the organization - Return on
Investment:
o Every Dollar PUT IN HOW MUCH IS ACHIEVED IN THE SAME INDUSTRY
Firm Value o If business is sold today, how much would you get from it?
Sound Strategic Decisions
- Taking a look at the environment
- Many opportunities and threats and how to prevent them - Looking internally
and picking a strategy that makes sense
- Efficiently and effectively executing the strategy Customer Satisfaction:
- Returning customers refers to customer loyalty
- Churn refers to the percentage of customers that is lost every year, costs 10x more to
get new customers
- Loyalty measured in churn
- Advocates talk about your product and promote it to others which is Net Promoter
Score
- Net Promoter Score is measured by If people promote your product to others o The
number of people who say yes o Measures the likelihood of word of mouth
- Market share is how much percentage of dollars do you attract out of the overall dollars
available in that market o Bigger company has bigger market shares
 - Share of wallet: taking a look at how much consumers spend on products and what
proportion comes to your brand o Ex. Apple
Employee Commitment
- We can identify problems or challenges, or areas of superior performance compared to
other organizations
- Each of these key performance indicators are directly aligned with what we are trying to
accomplish, ex. Committed employees o We have less employee turnover [fewer people
leave]
o Turnover is the percentage of the workplace that needs to be replaced each year
- Productivity measures the dollar invested into employees and what is the output
- How much are being spent to pay employees and what is the output o Sales and
employee output
- Number of applications achieved (are you desirable to work for)
Building Quality of Products and Services
- Expected value of the money of product (consistently and reliably)
- Vast majority of returns is because the product is not to your satisfaction o Did not
provide expected value for the money paid o Key indicator
- Defects are products that roll off the assembly line that are defected o If in the hands of
consumers, low quality of product o Defected or product that works, high level defects
reduce it
- Warranty claims when product breaks down within the days o High warranty claims
mean the product is not designed as it should and perform reliably
o Longer warranty period means probably higher quality
- Waste as an inefficiency in the manufacturing process o Process
Innovation & Creativity
- Identifying and implementing valuable change o New product offerings = valuable
change
o Ex. Tide Pods are an example, still clothing detergent, but a new format
- New approaches on how products are sold to consumers o New approaches on how to
hire and train employees - How are new ideas brought out by your employees?
o Shopify has an internal employee where employees are encouraged it pitch in
new ideas and to work on it
- Cycle time refers to how long it takes to go to idea generation to idea implementation
and to design it and put it into production o Want faster recycle time for new
approaches
o You want an organization structure where new approaches are easily made o
Slow recycle time can bring it to a stop
Distinct Competitive Advantage
- When you are different from identities near you,
o Market research to see how you are perceived and viewed from others
o How widely known is the reputation for uniqueness
Superior Comparative Performance
- Are you able to produce more uniquely than other organizations?
- Faster than any other organizations
- Charge higher prices than any other organization
- Attract higher level of employees than any other organization
- Lower turnover then other organizations in the same industry = Superior comparative
performance

Diamond-E Model
- A framework used to help us make strategy choices.
- Provides us with a way to connect the internal environment to the external environment

The Diamond-E Framework takes the company and decides what are the different elements to
consider within the company: Internal Organization:
- Management Preferences
- Organization
- Resources

SWOT Analysis:
- Components of the internal organization (strengths and weaknesses) with the external
organization (opportunities and threats) - Strengths: o Characteristics of a business
which gives it an advantage over competitors.
- Weaknesses: o Characteristics of a business which makes it disadvantageous over
competitors.
- Opportunities:
o Elements within a company’s external environment that allow it to implement
strategies to increase profitability - Threats:
o Elements in the external environment that could endanger the integrity and
profitability of the business

Principal Logic: Diamond E says to be successful as an organization, you need internal

consistency (management preferences, organization, and resources have to be consistent with
the strategy you decide to pursue)
Internal Consistency = Good execution of strategy (within the organization) o
Feasible means internal
External Alignment = The right strategy for environment o External
environment determines if a strategy is worthwhile

First Task: Deal with Strategy-Environment Linkage

- Assess the forces at work in the environment as they cannot be changed o e.g., COVID
was a threat for some but was an opportunity for Amazon, Uber Eats

Second Task: Look Internally:

Management Preferences
- The vision of the organization outlines the direction it wants to go in
- The mission of the organization
- Ultimately, management makes decisions of how the company will run and work
- Preferences and biases of those managers, do they prefer or biased toward technology?
Or marketing strengths? Or building a company by inquiring other companies?
Organization
- Talking about the company as a whole
- Culture – who are we? what do we value? o Culture of workplace aligns with what you
appreciate - Capabilities – what are we good at?
o e, g. Apple is very good at marketing! And developing user friendly markets o
e.g, Walmart is an effective supply chain, supply chain ability gives it an advantage
to sell large range of products at a small price - Structure – how do we divide
work?
o How we divide the work impacts how efficient we are at doing some kinds of
things but also what is it is going to take for us to re-organize ourselves
Resources
- What the company has
- Human Resources are the employees (how many? Skillset of employees?)
- The number of employees and the skillset they have driven the capabilities o e.g, Apple
had a ton of people that are good at technology (computer engineers or marketing)
- The number of people determines what your output is, the more employees you have
the more you can produce
- Capital refers to assets except for money (land, buildings, equipment) o Intangible
assets (brand, reputable patents)
- Financial resources (money) and potential to generate more money
Strategy
 - Not internal or external, it is the link between internal and external
- The plan the businesses uses to pursue opportunities and avoid threats
- Every internal aspect affects what strategy to use (resources determine what strategies
are available, strategy affects what resources are needed), (management preferences
can change how a strategy is used, but strategy can change how management works)
Environment
- The external environment surrounding the company
- PEST & Porters 5’ Forces

Examples:
EX: Ikea (Consistency)
- Ikea looked at the furniture industry and saw stores such as Leon offered expensive and
big furniture that takes up a lot of space. Ikea looked at the environment and saw that
there was a big consumer market that wanted modern furniture with small space and
did not want to wait. Ikea looked internally to form a strategy to chase the consumer
market. They had access to a good designer that can multi-task and compact and from
there they designed furniture to meet the needs of the market. The strategy was aligned
with the environment and internally consistent

EX: P&G (Inconsistency)

- Expanded and offered various products and tried to put them on store shelves
- The strategy was not right for the environment, consumers did not want the variety of
products o P&G did not have the HR to expand sales and was overall inconsistent and
misaligned
o Internally invested to help refine the lines of products

EX: Kodak vs Canon (Alignment/Consistency)

Why did KODAK reject the first digital camera? Why did they fail? – Kodak instead focused its
efforts on continuing to improve its film products
- it didn’t adapt to digital photography and overtime digital photography took over
traditional film photography.
o Kodak went bankrupt because they failed to develop new strategies o Digital
photography didn’t have consistency with the managerial preferences of Kodak
since the managers didn’t have digital photography on their priorities and weren’t
afraid of digital technology overtaking traditional photography
Porters Strategies

Competitive Scope:
- Broad, narrow market Competitive Advantage:
- Uniqueness, low cost

Cost Leadership:
- Increasing market share by charging lower prices, while still making a reasonable
profit on each sale because you’ve reduced costs
- For this strategy you need… o Access to capital needed to invest in tech that will lower
costs o Very efficient logistics
o Low-cost base (labor, materials, facilities) and a way of sustainably cutting costs
below those of other competitors
- Walmart can attract and satisfy large number of consumers at the lowest price
Cost Focus:
- Focusing on a niche market that are worried about getting the best price. Not worried
about expanding into large market
- Freedom Mobile: There are consumers who want lower price cell phone service, people
live in Toronto and do not leave often o Target those consumers with a cheaper cell
phone consumers focused just on them
Differentiation Focus:
- Unique, high-end products that focus on a very specific set of customers -
Appeals to certain tastes
- Ferrari automobile is an expensive automobile with a sporty, high-end features
 - That appeals to a small market that is willing to pay substantially more for a Ferrari
automobile
- Appeals to certain tastes
Differentiation: Unique and Broad
- Products that are rather expensive, but they offer unique features that are valued by a
wide range of customers
- Are these unique features broadly appealing?
- Apple: Large variety of products and those products with the features they offer and
value they provide are application to a wide variety of consumers, 15 vs 60-year-old,
user friendliness and battery life
- Can charge a higher price as a result

PEST Factors

Political
- Any decisions that governments may make or impose on you
- Laws, regulations, international trade laws (who and what type of products can be sold
in Canada), trade agreements to lower tariffs in other countries
- Trade agreements o Impacts expansion (opportunities) – export into foreign markets
without tariffs, barriers (cannot sell cell phone service and banks in Canada, Uber in
taxicab industry), and competition (less competition)
Economic
- GDP: Gross domestic product (how much wealth is in a country) - Inflation: How much
and at what rate are pricing increasing?
- Employment: At what percentage of the employable population is employed or
unemployed?
- Exchange: The value of our currency compared to foreign currencies - Interest: How
much is charged when we borrow money?
o Impacts costs (when inflation is high, it means input costs are higher), demand (if
you have a high GDP and you are thinking about expanding, then those
consumers have more money to spend and it will increase the demand you face,
high inflation lowers demand), funding (how much money you can borrow,
higher interest rate, less you can borrow), competitive forcing (if you import
from US for sale in Canada, when Canadian $ is high, you are very happy, cheap
products) Social
- Values/Attitudes: In Canada, we value Education, we have an attitude about guns, which
is different as a population from the U.S
 -
Customs: The custom of celebrating thanksgiving, which results in different holidays,
custom of celebrating Halloween
- Habits: In Canada, we tend to eat dinner around 5-6pm (a norm), in Greece they are
napping at 6 pm
- Demographics: How big the population is? What percentage is over 70 vs 5 years old?
Education? Average income?
o Impacts customers, employees, CSR
▪ Customers and employees both come from society
• Their values, customs, and habits are all different and want
different goods and services
• Employees (post-pandemic) habits have changed the way
companies deal with us
- On the Diamond-E, management preferences make decision about corporate strategy...
Corporate Social Responsibility is a part of strategy o Since management comes
from Society, the company values and leadership employees will come from
that
o How much we are concerned about the environment and where we source our
inputs from
Technology
- Information Technology: Computers
- Internet: The Internet upon which internet technology can be shared
- Materials & Equipment’s: Not necessarily related to computers; evolution in movement
from steel-to-steel substitutes that are just as strong without the same weight (material
technology innovation)
- Barriers (can higher or lower entries to industries, AIRBNB used technology to enter the
hotel industry), Innovation Strategy (can impact innovation such as opening ways to
produce those products and changed processes), R&D (technology has big impacts on
organizations – new opportunities and threats)
Porters’ 5 Forces
- Focuses on industry dynamics and what factors will predict industry
profitability
- Used when entering a new market to see how attractive it is

Industry Competitors (Rivalry Among Existing Firms)

- High rivalry can result in lower volumes, price competition, and
increased costs - (Arguably) the most powerful of the five
forces - What affects rivalry?
o Low Industry Growth Rates
▪ If the industry isn’t growing quickly competitors may try to source their
growth from your market
▪ Established CPGs such as P&G competing in mature categories such as
soup, detergent, household cleaning supplies o Low Consumer Switching
Costs
▪ If consumers have frictionless switching, then you have to be more aware
of your rivals as customers will be able to abandon your product for theirs
at no extra cost
▪ Grocery stores vs. bank accounts o Perishable/Commodity Products
▪ When products are perishable competition intensifies as rivals try to sell
their product while it is still good
▪ Groceries vs Gold o High Exit Barriers
▪ Companies that may want to leave the industry but have difficulty doing
so or recouping their investment may stay in the industry and continue
competing
▪ Auto manufacturing – Hard to liquidate
Solutions to Rivalry
- Acquisition Of Competitors o Be in a “sponge” absorb your
competition
 -
- Create or Increase Customer Switching Costs o Make this break up
time-consuming, pricy, and painful
- Differentiate Products/Services o “Standout” from the crowd
Suppliers
- Organizations or people that provide your “key inputs”
- The higher the force of your suppliers, the higher the cost of your
input and lower your profitability will be

What affects the bargaining power of suppliers?

o Low Number of Suppliers
▪ When you don’t have a lot of choice, your bargaining power goes down
▪ Ex. Airlines o Few Good Substitutes Suppliers/Inputs
▪ If switching to a substitute supplier will reduce your quality this affects
your bargaining power
▪ Ex. Windows vs Linux o High Switching Costs
▪ If your suppliers have created a lock-in your threat of switching becomes
less credible
▪ Ex. Geographical considerations o Threat of Forward Integration
▪ If your suppliers pose a credible threat of Forward Integration… that’s not
great for you
▪ Ex. Apple making the M1 chips instead of intel
Methods To Reduce Its Power
- Form A Strategic Alliance o Make the supplier/buyer relationship a
win-win
- Internal Supply o Become your own supplier
- In the Long Run: redesign your product or needed input o Get
creative in the long run

Buyers
- These are the people who actually purchase your product or service
- High Buyer force reduces the price you can demand and increases
your costs What Affects The Bargaining Power of Buyers? o Few /
Concentrated Buyers
▪ If you can only sell to a few people you’re going to offer them great prices
to actually make the sale→ Selling a really niche action figure
o Discretionary Purchase
▪ How much do customers need your product or service or is it just “nice to
have” → Water vs Diamonds
o Standardized Products
 ▪ Price competition is a larger driver in purchasing when products are
standard → Commodities
o Low Switching Costs
▪ Fast Food vs Banking o Threat of Backward Integration
▪ Buyer becomes supplier – common in B2B i.e, Intel and Apple
How To Reduce Its Power
- Form Alliances with Other Sellers o Set Floor Prices
- Engage in Strong Marketing and Differentiation o Stand Apart and
Create Your Brand
- Create Switching Costs and Lock-In o Lock in customers and make it
impossible for them to leave

Potential Entrants
- These are people currently outside of the industry looking to get in
- Potential entrants have the ability to disrupt an industry and can
drive intense competition if the barriers are low to entry
- How does Apple create high barriers to entry? e.g., Customer
Loyalty (NPS) What Affects the Threat of Potential New Entrants?
o No Regulations / Government Policy
▪
o Lack of Capital Intensity of Economies of Scale
▪ Low capital requirements = Low Risk o Lack of Specialized Assets /
Networks / Knowledge / Tech
▪ Specialized assets are not everyone can easily obtain and creates a
significant barrier to entry
• e.g,
Aerospace parts and manufacturing
o Low Switching Costs or Lack of Brand Loyalty and Identity
▪ Does not cost your pre-existing customers anything to jump ship to a new
competing product and they are not attached to your brand
• e, g.
Toothpaste What can you do about
Potential Entrants?
- Grow to Achieve Scale o Become big as a company so they do not
try to enter
- Control Distribution Network o Lock in your sales locations
- Lobby The Government o Ask the government to make rules about
who can enter
- Differentiate and Create Brand Loyalty/Identity o Stand out from
the crowd by creating a brand customers love
 -
- Lock Customers In o Give them something that they can’t bear to
leave
Substitutes
- Substitutes aren’t necessarily other members of your specific
industry but products and services that provide a subset of the
value that you do.
Products/services that do a similar job to your own
- Substitutes create a Price Ceiling and increase to your marketing
costs What Affects the Threat of Substitutes?
- Lots of Good Quality Substitutes o Overall number of substitutes –
can be a different industry
▪ e.g, bus, bicycle to a car
- Low Switching Costs o Does not cost your pre-existing customers
anything to jump shit to a substitute product
- High Buyer Propensity to Substitute o Buyers are attracted to the
substitutes for various reasons (i.e, lower cost, better product)
▪ e.g, Cars vs Public Transit What
can you do about substitutes?
- Strong Marketing and Differentiate o Stand Out from the Crowd
- Attempt to Lock in Customers o Give Them Something They Can’t
Bear to Leave

How can you classify the external environment?

- General environment and industry environment, general is
analyzed using PEST while industry is analyzed using porter's five
forces

Intro to Case Method

Force Field Analysis & Profitability Framework
APA Citation:
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