Bu111 midterm notes

What does the Diamond-E Model assess?

It assesses the alignment between management preferences, organization, resources, strategy, and environment.

What are PEST factors?

Political, Economic, Social, and Technological factors that affect business operations.

What defines a good strategy?

It aligns internal capabilities with external opportunities and considers various logistical factors.

What is the purpose of SWOT Analysis?

To identify strengths, weaknesses, opportunities, and threats for informed strategic decision-making.

Why is Time Value of Money important?

It evaluates the value of cash flows over time.

How does the Ansoff Matrix relate to strategy development?

It identifies growth strategies by linking market and product choices.

Why is strategy-structure fit important for organizational performance?

It ensures internal consistency and external alignment, enhancing execution.

What is the first task in linking strategy to the environment?

Evaluate external forces and adjust internal structures or strategies accordingly.

What is considered in the internal assessment step?

Capabilities and realistic objectives.

What aspects of management preferences are crucial for the Diamond-E Framework?

Management's vision, mission, priorities, risk comfort, and resource preferences are essential.

How should an organization assess its capabilities according to the Diamond-E Framework?

It should identify gaps, assess efficiency, value stability or innovation, and support new ideas.

What types of resources are evaluated in the Diamond-E Framework?

Human, capital, and financial resources are evaluated for sufficiency and adaptability.

What is the final step after evaluating management, organization, and resources?

Create a plan to resolve identified issues that hinder success.

What type of organizational structure might focus on efficiency?

Specialist structure.

In the context of resources, what are intangible assets?

Reputation and patents.

Why is production capacity assessment necessary?

To meet demands effectively.

What are Key Success Factors (KSF) in business?

KSF are critical elements that enable a business to operate effectively and achieve its goals.

How can KSF contribute to a company's growth?

KSF facilitate expansion and development while ensuring market advantage and environmental alignment.

What role does decision making play in strategic execution?

Sound decision making based on market insights improves operational efficiency and ROI.

• External Analysis Techniques:

• PEST Factors: Political, Economic, Social, and Technological factors affecting the business.

  • Porter's Five Forces Model: Analyzes industry competitiveness and market dynamics.

Porter's Generic Strategies:

1. Cost Leadership: Focus on becoming the lowest-cost producer in the industry.

2. Differentiation: Offer unique products or services that stand out from competitors.

3. Focus: Target a specific market segment, either through cost focus or differentiation focus.These strategies help firms achieve superior performance and market position.

Analytical Frameworks:Profitability Analysis,

Business Situation Analysis,

Time Value of Money,

Estimation Techniques

• Profitability Analysis: Assessing the financial health of the business.

• Business Situation Analysis: Understanding the current market position.

• Time Value of Money: Evaluating the value of cash flows over time.

Estimation Techniques: Methods for forecasting and planning.

explain the Diamond-E Framework Components

• Management Preferences: Leadership style and decision-making processes.

• Organization: Structure and culture of the firm.

• Resources: Assets and capabilities available to the firm.

• Strategy: The plan to achieve competitive advantage.

Environment: External factors influencing the business.

key variables in diamond e

• Key Variables: Identifies critical factors to consider, including PEST (Political, Economic, Social, Technological) analysis and Five Forces model.

SWOT Analysis quiestions

• Key Questions:

  • What CAN we do?

  • What SHOULD we do?

  • What do we WANT to do?

Strategic Planning

• The plan a business uses to pursue opportunities and mitigate threats.

Ansoff Matrix

 A tool for identifying growth strategies.

Principal Logic

•  Consistency and alignment are crucial.

  • Internal Consistency: Ensures effective execution.

External Alignment: Matches strategy with the external environment.

key quiestions of the Diamond-E Framework

1. Is our current strategy aligned with future opportunities and threats?

2. What new strategies are feasible and worthwhile?

3. What are our strengths, and how can we leverage them for competitive advantage in the current environment?

   1. What resources are needed to execute a strategy? Can we acquire them? Where are inconsistencies present?

Strategy-Environment Linkage

• First Task: Address the linkage between strategy and environment.

  • Assessment: Evaluate external forces and their implications.

  • Adjustment: Modify internal structures or strategies as necessary.

Internal Assessment

• Second Step: Focus on internal capabilities.

  • Key Considerations: What do we want to achieve, and what can we realistically do?

Management Preferences quiestions

• What does management want?

  • Ambitions and objectives.

• What are its priorities?

• How comfortable is it with risk?

• Does it value or prefer certain capabilities and strategies over others?

• Are some capabilities or resources valued more than others?

organization quiestions

Organization

• Culture, Capabilities, Structure

  • Key Questions:

    • What are we good at as an organization?

      • Identification of capabilities gaps.

    • Are we organized to efficiently and effectively execute our strategy?

      • Consideration of organization around success drivers:

        • Specialist (efficiency) vs. generalist (integrative).

        • Customer vs. product vs. function.

resources quiestions

• Human, Capital, Financial

  • Key Questions:

    • Do we have sufficient funds to acquire necessary resources or execute required activities?

    • Do we possess the production capacity to meet demands?

    • Can we adapt our production methods or outputs?

    • What type of talent do we currently have, and what do we need?

      • Assessment of labor sufficiency for execution.

    • Consideration of intangible assets, such as reputation and patents.

Functions of KSF

• Enable Operation: Essential for the day-to-day functioning of the business.

• Provide Revenue: Directly linked to generating income.

• Environmental Alignment: Ensures the business adapts to external conditions.

• Market Advantage: Helps in gaining a competitive edge.

• Enable Growth: Facilitates expansion and development.

Actions Related to KSF

• Customer Satisfaction: Prioritizing the needs and expectations of customers.

• Employee Commitment: Fostering a motivated and dedicated workforce.

• Innovation & Creativity: Encouraging new ideas and solutions.

• Quality Products & Services: Maintaining high standards in offerings.

• Distinctive Competitive Advantage: Creating unique value propositions.

Strategies for Achieving KSF

• Human Resource Management:

  • Hire, train, and motivate employees to build a loyal and productive team.

• Customer Engagement:

  • Develop loyal advocates through value, consistency, and reliability.

• Sustainable Differentiation:

  • Implement valuable changes that set the company apart from competitors.

ALL Key Performance Indicators (KPIs) 1st half

Market Share,Share of wallet,Churn,Net promoter score,turnover,applications,productivity

• Market Share: Represents the percentage of an industry's sales that a particular company controls.

• Share of Wallet: Indicates the amount of a customer's total spending within a category that is captured by a company.

• Churn: The rate at which customers stop doing business with an entity.

• Net Promoter Score (NPS): A metric that measures customer loyalty and satisfaction based on their likelihood to recommend a company.

• Turnover: Refers to the total revenue generated by a company during a specific period.

• Applications: The number of applications or uses for a product or service.

• Productivity: A measure of the efficiency of production, often calculated as the ratio of outputs to inputs.

ALL Key Performance Indicators (KPIs) 2nd half

New products,new approaches,idea generation,cycle time, strong unique reputation,superior comparative perofrmence,returns,defects,warranty claims,waste

• New Products: The introduction of new offerings to the market.

• New Approaches: Innovative methods or strategies implemented to improve performance.

• Idea Generation: The process of creating new ideas or concepts.

• Cycle Time: The total time from the beginning to the end of a process.

• Strong, Unique Reputation: The distinct perception of a company in the market that sets it apart from competitors.

• Superior Comparative Performance: The ability to outperform competitors in key metrics.

• Returns: The amount of money returned to customers due to product issues or dissatisfaction.

• Defects: The number of flaws or errors in products or services.

• Warranty Claims: Requests made by customers for repairs or replacements under warranty.

• Waste: The amount of resources that are not utilized effectively.

ALL Key Performance Indicators (KPIs) Third half

Revenues,profit,growth,return on investment,firm value

• Revenues: The total income generated from sales.

• Profit: The financial gain after all expenses have been subtracted from revenues.

• Growth: The increase in size, revenue, or market share over time.

• Return on Investment (ROI): A measure used to evaluate the efficiency of an investment.

• Firm Value: The overall worth of a company based on its assets, earnings, and market position.

What metrics can indicate successful execution of KSFs?

KPIs such as churn rate, return on investment, and warranty claims are useful for measurement.

What is the first step in KSF execution?

Identify what each KSF is and define objectives.

principal logic diamond E

The principal logic ensures that all components align and support the overall strategy to prevent misalignment.

How does the external environment influence the Diamond-E framework?

The external environment shapes the components of the Diamond-E, impacting strategic decisions and organizational success.

How does strategy impact the internal components of Diamond-E?

Requires adjustments for alignment and effectiveness.

Political Factors:

• Laws and Regulations: Impact of local and international trade laws and agreements on business operations.

Economic Factors:

• 
  

• GDP: Gross Domestic Product as a measure of economic performance.

• Inflation: Rate of price increase affecting purchasing power.

• Employment: Employment rates influencing consumer spending.

• Exchange Rates: Currency value fluctuations affecting international trade.

• Interest Rates: Cost of borrowing impacting investment decisions.

Social Factors:

• 
  

• Values and Attitudes: Cultural norms and societal values shaping consumer behavior.

• Customs and Habits: Traditional practices influencing market preferences.

• Demographics: Population characteristics affecting market segmentation.

• Technological Factors:

  • Information Technology: Role of IT in enhancing business operations.

  • Internet: Impact of online presence on market reach and customer engagement.

  • Materials and Equipment: Technological advancements in production processes.

Demand and Funding

Understanding market demand to secure necessary funding.

• Competitive Pricing:

• Strategies to price products competitively.

Corporate Social Responsibility (CSR):

• 
  

• Customer and Employee Engagement: Importance of CSR in building brand loyalty and employee satisfaction.

• Innovation and Strategy:

Research and Development (R&D)

• Investment in innovation to maintain competitive advantage.

Porter's Generic Strategies

• Strategic Market Choices:

  • Companies must make two fundamental choices:

1. Market Scope: Decide between targeting a mass market or a niche market.

2. Competitive Approach: Choose between a cost leadership strategy or differentiation.

What economic indicators affect consumer spending?

GDP, inflation, employment rates, exchange rates, and interest rates influence consumer spending.

• Broad Target:

• • Assess if a large portion of the overall market values lower-priced offerings.

  • Determine if a simpler, lower-performance, cheaper product appeals to a small but significant segment of the market.

  • Evaluate customer willingness to pay a premium for unique features.

  • Identify capabilities or resources that enable cheaper production compared to competitors.

Narrow Target:

• 
  

• Investigate if unique features are broadly appealing to a specific market segment.

• Analyze if there is an underserved niche that can be profitable.

• Confirm the capacity to produce at large volumes.

• Assess the ability to reach and attract a significant number of customers.

Forces Affecting Profitability:

• 
  

• Lower prices.

• Reduced sales volume.

• Increased costs.

• Overall reduction in profitability.

Components of Porter's Five Forces

• 
  

• New Entrants: Analyze the threat posed by new competitors entering the market.

• Substitutes: Evaluate the availability of alternative products that can fulfill the same need.

• Buyers: Assess the bargaining power of customers and their influence on pricing.

• Suppliers: Consider the bargaining power of suppliers and their impact on costs.

• Industry Competitors: Examine the rivalry among existing firms within the industry.

Income Statement Overview:

• 
  

• Revenues: Calculated as Price x Volume (e.g., $100,000).

• Cost of Goods Sold: Direct costs associated with the production of goods (e.g., $40,000).

• Gross Profit: Revenue minus Cost of Goods Sold (e.g., $60,000).

• Expenses: Costs related to marketing and customer service (e.g., $10,000).

• Net Profit Before Tax: Gross Profit minus Expenses (e.g., $50,000).

What are the two competitive scopes in achieving competitive advantage?

Broad target and narrow target.

Rivalry Among Existing Firms

• 
  

• Definition: Competition among firms selling similar products or services.

• Significance: Considered the most powerful force affecting market dynamics.

• Effects:

  • Price Competition: Leads to lower prices as firms compete for market share.

  • Lower Volume: Increased competition can reduce overall sales volume for firms.

  • Increased Costs: Firms may incur higher costs due to competitive pressures.

Threat of Substitutes

• 
  

• : Products that serve a similar function but are not identical.

Why does the commoditization of products intensify competition?

Price becomes the primary differentiator.

Substitutes

• 
  

• Effects of Substitutes:

  • Creates a price ceiling.

    • Increases marketing costs.

• Low switching costs lead to a
  

• high buyer propensity to substitute.

Effects of New Competitors:

• 
  

Barriers to Entry:

• Cost-related Barriers:

  • Economies of scale: Larger firms can produce at lower costs.

  • Capital requirements: High initial investment can deter new entrants.

Solutions to Create Barriers:

• 
  

• Grow to achieve scale.

• Control the distribution network.

• Lobby government for favorable regulations.

• Differentiate products to create brand loyalty and identity.

• Lock customers in through various strategies.

Differentiation and switching costs can enhance

brand loyalty.

Cost-related Barriers:

• 
  

• Economies of scale: Larger firms benefit from lower costs.

• Capital requirements: High costs can deter new entrants.

• Cheap supply sources can provide an advantage.

nowledge-related Barriers

• Technology: Patents and capabilities (e.g., supply chain expertise) can protect established firms.

Cost of Inputs

The cost can significantly impact profitability.

Five Forces - Suppliers:

• Few Suppliers:

  • Effect: Increased power over pricing and terms.

• solution is

• Form strategic alliances to enhance bargaining power.

• Develop internal supply capabilities.

• Consider redesigning products or inputs in the long run.

• Standardized Products:

• Discretionary Purchases:

• Threat of Backward Integration

• Standardized Products: The presence of standardized products can increase buyer power.

• Discretionary Purchases: The importance of the product to the buyer can influence purchasing decisions.

• Threat of Backward Integration: Buyers may consider producing the product themselves, increasing their power.

Key Factors Affecting Profitability

• 
  

• Assess problematic forces in the industry that negatively impact profitability.

• Determine what is driving the power of these forces.

• Aim to reduce the power of these forces to enhance profitability.

• External Influences:

  • Evaluate external factors affecting profitability.

  • Formulate strategies to increase profitability.

• Industry Comparison:

  • Analyze profitability across different industries using the 5 Forces Model.

  • Consider which industries may be worth entering based on profitability potential.

Assessing Profitability Issues:

• 
  

• If profitability is poor, compare performance to competitors.

• Evaluate if the organization is underperforming in one or more Key Success Factors (KSFs).

• Investigate whether the cause of poor profitability is an industry factor.

The Four Generic Strategies

1. Cost Leadership

   • Focuses on becoming the lowest-cost producer in the industry.

   • Strengths Required: Efficient production, economies of scale, cost control.

   • Market Consideration: Price sensitivity of customers.

2. Differentiation

   • Aims to offer unique products or services that provide value to customers.

   • Strengths Required: Strong R&D, brand reputation, customer service.

   • Market Consideration: Customer preferences for quality and uniqueness.

3. Cost Focus

   • Concentrates on a niche market while maintaining cost leadership.

   • Strengths Required: Deep understanding of niche market, operational efficiency.

   • Market Consideration: Specific needs of the niche market.

4. Differentiation Focus

   • Targets a niche market with unique offerings.

   • Strengths Required: Specialized knowledge, tailored marketing strategies.

   • Market Consideration: Unique preferences of the niche market.

Cost Leadership vs. Differentiation

• Cost leadership focuses on price, while differentiation emphasizes unique features.

Case Analysis Process

• 
  

Understanding the Process

Identifying and Comparing Solutions

• utilization of forcefield analysis to assess enabling and constraining forces related to solutions.

• Recommendations and Impact

• Risk Management

  • mitigation and contingency plans

    Organization of Solutions

    • 
      
      

  
  
  

features of a good solution

• Feasible: The firm has or can acquire the necessary resources for implementation.

• Complete: The solution outlines all key activities that must be executed.

• Effective: The solution achieves both immediate and overarching objectives.

Steps in the Case Analysis Process

1. dentify Issues:

   • Distinguish between immediate and underlying issues and summarize them as questions.

2. Define Objectives and Aspirations:

   • Clearly outline what the analysis seeks to accomplish.

3. Identify Complications and Constraints:

   • Recognize any factors that may hinder the analysis or solution.

4. Apply Relevant Models:

   • Conduct research to enhance understanding and apply relevant analytical models.

5. Develop and Evaluate Hypotheses:

   • Generate potential solutions and evaluate their viability.

6. Propose a Good Solution:

   • Present a well-thought-out solution along with an implementation plan.

7. Identify Risks and Mitigation Strategies:

   • Recognize potential risks and develop strategies to mitigate them.

8. Demonstrate Impact:

   • Show how the proposed solution will effectively address the identified issues.

Key Elements of Effective Analysis

• 
  

3 Whys, models, frameworks, and issue trees to guide analysis.

Immediate Issue:

: The visible problem that is apparent and often stated in the introduction of a discussion or analysis.

Underlying Issue:

The root cause of the immediate issue, which must be addressed to ensure a complete solution.

Identifying Underlying Issues

3 Whys Technique: A method to uncover the underlying issue by asking "Why?" three times.

• Example:

  • Immediate Issue: You are hungry at 11 am.

    • Why? No breakfast.

      • Why? Slept in.

        • Why? Stayed up late.

Frameworks for Understanding Issues

• 
  

• Issue Tree: A visual representation to break down the immediate and underlying issues systematically.

• Profitability Framework: A model to analyze and understand the financial aspects of the issues at hand.

Given Objectives:

• 
  

• Clearly defined goals for what we want to achieve with a solution.

Aspirational Objectives

• Long-term visions that outline what we desire now and in the future.

Difference Between Objectives and Criteria

• 
  

• Objectives:

  • Focus on what the solution aims to achieve.

• Decision Criteria:

  • Focus on how the solution will achieve its objectives while ensuring certain standards are met.

Key Performance Indicators (KPIs)

Diamond-E Framework Insights

• 
  

• Human Resources: Recognize that the workforce may lack technical skills.

• Financial Constraints: Acknowledge existing debt which limits borrowing capacity for expansion.

• Talent Acquisition: Note the scarcity of technology talent, which often gravitates towards larger firms.

Porter's Five Forces Analysis

• 
  

• High Competition: The market is characterized by intense rivalry.

• Customer Accessibility: Many potential customers may be unreachable.

• Supplier Capacity: Most suppliers are operating at full capacity due to existing contracts.

• Horizontal Analysis:

• Vertical Analysis:

• Horizontal Analysis: Examine changes in relevant items over time.

• Vertical Analysis: Assess the significance of line items relative to revenues or profits.

Significance of Forcefield Analysis

• 
  

Forcefield analysis is a tool used in case analysis to evaluate the forces for and against a change.

Mitigation Plan:

Strategies to reduce the likelihood or impact of risks.