BU111 Study Guide - Comprehensive Final Exam Guide - Pest Analysis, Ikea, Business EthicsPremium

BU111
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BU111 Week 1 SI Session-Thursday September 21st 2017

Critical Success Factors
• Achieving financial performance
o Return on equity (it is more impressive to make $10000 off a $1 investment than
$10000 off an $999 investment)
o Profit
• Meeting customer needs
• Building quality products and services
o Building a quality that people that are paying for (not actual quality but quality that
you are paying for)
o Ex: buying a cheap car vs. expensive car has different expectations
• Encouraging innovation and creativity
o Great for customers because of new innovations
o Ex: google 15% of their time at work they work on a personal project (this is how
gmail was created)
• Gaining employee commitment
o Improve output
o Makes company more productive
o Ex: everyone wants to work for google and thus they get so many job applications
they get to choose the best
• Creating a distinct competitive advantage
o Set yourself apart
o Ex: all apple products talking to each other
o Ex: tangerine banking→ all in an app, get more interest because the bank does ’t
have branches
Diamond-E
• Management preferences
o How they want to spend their money
• Resources
o Human(employees)
o Capital (physical products)
o financial resources (money)
• Organization
o The o pa ’s culture, what is done ethically
o Environment→is it laid back or very structured
o Structure→is it like a corporation and slow or like a start-up and fast
o Capabilities→what the company is good at
• Strategy
o Affected by resources, management preferences and organization
• Environment
o PEST or porters 5 forces
PRINCIPAL LOGIC: CONSISTENCY AND ALIGNMENT **exam question last year
o E : la k err did ’t sta alig ed ith the e iro e t a d the e t a krupt
o Ex: blockbuster vs Netflix
o Ex: Kodak vs Canon












BU111 Week 2 SI Session-Thursday September 28st 2017

PEST
• Political
o Legislation
o Regulatory bodies and processes
o Government policies
o Trading policies
o Home market
o Funding, grants, initiatives
o Wars and conflicts
• Economics
o Economic trends and situation (home and international)
o Specific industry factors
o Interest and exchange rates
o Seasonality and weather
• Social
o Lifestyle trends
o Demographics
o Consumer attitudes and opinions
o Media views
o Fashion and role models
o Consumer buying patterns
o Advertising and publicity
o Ethical issues
• Technological
o Competing tech development
o Research funding
o Replacement technology and solutions
o Innovation
o Intellectual property issues
o Technology access, licensing, patents
Porters Five Forces

• Important question to always answer with five forces analysis: how does it effect
profitability?
• The most important force is rivalry
• SWITCHING COST is a key term → use this on midterm
Midterm Practice Exams

• What are the elements of each PEST factor?
• Can you think of an example for each one that represents a threat or opportunity?
• How are they linked with other PEST factors?
• Ho does ea h fa tor affe t a fir ’s profita ility or a hie i g the riti al su ess fa tors?
• Why is it important to utilize the external analysis models?
• What is a factor of each force, and what are some solutions for them?

BU111 Midterm Review SI Session
Exam tips
*bring an highlighter
*give an example
*when it asks how CSF are related link it both ways
Critical Success Factors

• Know why critical success factors are important
o In order to be successful
• Know how they are connected
• Why you must pursue them all
o To be successful you must achieve all of them because not meeting one of them
leads to all of them failing
Example Question: define the CSF of gaining employees commitment and building quality
products and services. How are they related? Why is it important to pursue these two CSF? (4
marks)
PEST
• Know three points well from each category
• Technology is anything that improves cycle time (ex: Swiffer) (ex: emailing people
improved cycle time on how long it took to receive message vs. memo or letters)
Example Question: select an element from the economic factors of PEST, how can this
represent an opportunity for a business and a threat for another? (3 marks)
Diamond-E
o Risk tolerance
o Goals
o preference of direction (ex: want to expand, want to make new products?)
o ethics (ex: are you trying to be environmentally friendly or do you not care)
• Organization
o Culture (company feel ex: google slides and games and naps vs bank)
o structure (where are we located, 1 location or 1000 or how do you structure
power/management), capabilities (what are you good at doing), leadership or
organization
• Resources
o human resources (how many, specialties) *ties into capabilities because your
employees determine what you can do
o capital (what money do we have and what can we spend, also machinery and
buildings) *ties into management preferences because you can take more risks
with more money

• Strategy
o Path you take to reach your goals (based on resources, organization and
management preferences)
Example Question: what is the principle logic in the Diamond-E? What is an example of being in
alignment with the Environment? (3 marks)
Environment
• Pest=general
• Porters=industry
Consistency and alignment

*important words
*Question: what is the principle logic=consistency and alignment=synchronization between
company and environment which makes a company successful
• Needed for strategy to be successful and possible
• Examples: IKEA and P+G
Porters Five Forces

*Key Words: suppliers, buyers, rivalry among competitors, Potential Entrants, Substitutes
• Know the factors on the charts, their effects and how to meditate
Entrepreneurship
• Must be consistent among opportunity, resources and entrepreneur
• Screening process
o Unique
o Adds value
o feasible
• idea generation
o solves a problem and the solution sells itself
o listen to complaints and frustrations
o ask customers what they wish they could get
Criteria High Potential- Good Idea Low potential- Bad idea
Product/ value added Significant Value added; Incremental improvement
unique; recurring revenue only; one-time revenue
Cust./market Reachable; large and growing Loyal to others;
small/declining
Competition/Rivalry Imperfect; fragmented Highly Concentrated, mature,
competition; at capacity under capacity
Suppliers Many; easily switched Few, high switching costs
Substitutes Few, inferior, expensive, high Many, good quality,
switching costs inexpensive, low switching
costs

Barriers to Entry Low, competition slow, you High, competition stiff, hard
have needed networks to tap needed networks
PEST Future and current Conditions will make
conditions favour your profitability difficult or will
product cause declining perf. In
future
o play the mix and match game; combine functions
o offer a lower-priced more convenient version of an existing product
• the difference between a social venture and a charity is that a charity relies on
donations whereas a social venture has a stream of revenue
Example Question: What is the difference between traditional businesses and social ventures?
How do the critical success factors differ when applying them to these two businesses? (5
marks)

BU111 Week 5 SI Session
• Technological Innovations are allowing professionals meet Critical Success factors

• Information technology= improved amount of data you can track
• Technology comes from Basic VS applied R&D
o Basic is thinking what people will want in 10 years (ex: Apple) or revolutionizing
an overall experience (ex: horses to cars)
• Opportunities
o Products→ Amazon is able to offer a variety of products which is made possible
through technological factors such as being able to source product form all
around the world
o Access to information→ ex: TD has apps and other technologies to help
customers get information and allows TD gather information on you
o Competitiveness→ ex: Apple is able to stay competitive by collecting little
technological advancement and collecting them into one product
o Communication and collaboration→ ex: Google docs, easy to quickly share
something
o Customization→ ex: Swiffer with spray or hard to reach places, helps you
customize to fit your needs
• Threats
o Imitation→ easy to imitate but expensive to create
o New technologies in unfamiliar areas→ ex: Uber, taxi companies did not see this
coming, ex: car and horse
o Unpredictable evolution→ ou do ’t k o hi h a e olutio is goi g (e :
Kodak vs Canon), ex: Blu-ray and DVD
o Need for constant learning and scanning→ take up a lot of resources and drives
up costs
o Information overload→ hard for a company to find the exact information they
need, customers can also do their own research, ex: TD has so much data that it
is hard to get through it and identify issues
o Greater independence of a company or workplace→ people are less attached to
the company, less of a sense of unity, hard to gain employee commitment, also
hard to enforce ethics and behaviour
• Disruptive technologies
o By Harvard professor Christian Clayton
o Disruptive technology starts at the bottom working on the market big
o pa ies do ’t are a out a d the take o er arket share a d gro to
overtake the biggest company
o ex: refrigerator took over entire market (0→ 70% of people had refrigerators in
10 years)
o start in lower performance markets
o gain foothold and slowly improve

o traditional business methods fail (have to do something different, in a new way

with a new product)
• sustaining technologies
o focused on the high margin customers → those who are willing to pay the most
o existing firms normally win
o changes are expected
opportunities and threats that technology presents
**know this chart


Week 7 SI Session
• There are three different levels of ethics

o Ethics
o Business or Managerial ethics
o CSR
• Four approaches to CSR
o Obstructionist stance → block attempts to point our lack of CSR, do as little as
possible, willing to go a bit under the line of the law
▪ E : p do ’t are a out oil spills or ha i g the safest ethods to transfer
their oil as much as they care about low prices)
o Defensive stance→ only do what the law says they have to do, stay a tiny bit
above the line)
▪ Ex: cigarette companies (put warnings on their packages ut o ’t
change the ingredients in their cigarettes)
o Accommodative stance→ go further in some areas
▪ Ex: Kellogg’s he government asked them to lower energy use in 5
years they agreed)
o Proactive stance→ finding ways to do better
▪ e : Be a d Jerr ’s free trade a d o u it progra s
• why do we care about CSR
o to make environment more manageable
o promotes favourable legislation
o to meet CSF
▪ i pro es profita ilit e : solar o pa ies do ’t ha e to pa for e erg ,
also some companies such as IKEA, sell extra energy
▪ o petiti e ad a tage e : e a d jerr ’s ha e good pu li it a d people
are more likely to buy from them
• Application question: you are trying to revamp your HR department at your company.
What different rules, activities or practices would you implement in order to improve
your ethics?
o Hiring criteria
o Managerial role modeling (Be an example of the standard)
o Mission statement/code of conduct
o Ethics booklets and training
o Goals/evaluation criteria and rewards (ex: better benefits)
o Employee protection mechanisms (*whistle blowers)
• 5 areas of CSR
o society
o customers
o natural environment
o investors
o employees

• why do we care about the environment?

o Social attitude shift
o Affect human capabilities
o Diffuse issues of social decay and political chaos
• Ex: Patagonia jeans are organic, free trade, save water and save energy
• Ex: Dawn has helped clean birds due to oil spills
• Green washing= appearing to be green to improve marketing (ex: sunlight green clean
laundry detergent) → customers start to become unhappy and you can get in trouble
from the government
• Application question: the debate about outsourcing, is it good or bad? How does it
benefit businesses? How does it negatively impact other areas? Are the pros worth the
o s? It’s a out our opi io a d ho ou support our opi io , ot e essaril a right
or wrong answer
o Threats→ reputation, exposing yourself to international relations (think about
PEST), hard to monitor quality
o Opportunities→ creates jobs (must consider fair wages and treatment)
• Agency problem= conflicting opinions from share holders

BU111 Week 9 SI Session
• Stocks have a higher potential yield than a bond

Stocks Vs. Bonds-Investor
Stocks (Equity) Bonds (Debt)
Repayment -no -principle paid on maturity
date
Income -dividends but discretionary -Coupon/interest rate
Claim on assets -last (preferred before -first
common)
Ownership/Voting rights -yes (common) and no -None
(preferred)
Price Volatility -Common-Highest -Lowest
preferred
Stocks Vs. Bonds-Company

Repayment -Not required -Principle paid on maturity
date
Income -Dividends but not -Coupon/interest rate
discretionary
Claim on assets -After all others are paid -Along with creditors and
(preferred before common) before stockholders
Ownership/Voting rights -Yes (common) and No -None
(preferred)
Preferred

Exam: December 9th @noon
BU111 FINAL EXAM NOTES

TECHNOLOGICAL FACTORS
Elements
• Internet
• Information technologies
*technological factors are not limited to computers and information
5 industries changed by technology:

1. Music
2. Travel
3. Transportation
4. Publishing
5. Retail
Technology Shifts
• Power
o Electricity
o steam
• Build and Move
o Assembly line
o Trains, planes, cars
• Communication
o Mass media
o telecommunications
• Information
o Computers
o internet
• Smart Tech
o Collect, analyze learn
Opportunities from Technological Changes

• Products
o Uniqueness, innovation, value
o Ex: can make smartphone unique by downloading apps
• Access to information
o Better service through coordination
o Leaner organization (less people needed to run)
o Improved operations efficiency
o Greater independence of company and workplace
o Big data and better decisions
• Competitiveness
o Create barriers to entry; reduce cycle time
• Communication and collaboration

o Within firm and with customers

o Ex: emailing, skype, social media
• Customization
Threats from Technological Changes

• Imitation
o Costly to develop but cheap to share
o Ex: pirating music/movies
• New technology in unfamiliar areas
o Challenge organizational capabilities and resources
o Have to adjust strategy and organization
• Unpredictable evolution
o Ex: Kodak vs. Canon
• Need for constant learning and scanning
o Uses time and effort
• Information overload
o Takes more time to find valuable information
• Greater independence of company and workplace
o Both good and bad (flexibility is good, harder to supervise is bad)
How Technology Impacts CSFs

Factor Opportunity Threat
Achieving -find cheaper ways to produce -information overload, harder for
financial (robots), also creates a leaner customers to get info about product
performance organization lowers costs and -constant investment required to
increases profits keep up and implement tech.
changes
Meeting -allows customers to customize -harder to fully understand
customer needs product customers demands because there
-instant feedback is too much data
Building quality -more consistent products, -risk of imitation
products and reduce defects
services
Encouraging -enhance communication and -because pace is so quick it is hard
innovation and collaboration (ex: skype) to keep up and be innovative, need
creativity for constant learning and scanning
Gaining employee -more independence (ex: work -harder to watch workers, may not
commitment from home) =more flexibility be working while at home
Creating a distinct -disruptive technologies -imitations
Competitive -unpredictable evolution
Advantage

Key Technology Concepts

• Complementary goods- needed for value
o Laptop and software Availability of
complementary
o Pencil and paper goods
• Technology standards- enables compatibility of
complementary goods
o Phone case to match phone
o Games on matching game system Attractiveness
• Installed base- number of users that use a to producers of Attractiveness
complementary to users
particular product goods
• Network effect- value depends on number
of users
o Facebook, dating apps, bars
Number of
o This is a CHALLENGE because it is hard to get the users
first couple of users (installed
• Lock in – size of investment base)
o Larger=greater resistance to switch
o Ex: game system, phone contract
• Switching costs-cost of moving
o Higher=makes lock in worse
• Solutions: offer leap in performance, lower switching costs, compatibility, alliances,
incentives for complimentary goods
Sustaining Technology
• improves existing product in expected ways (enhancements in product functionality)
• target: mainstream, high-margin customers
• incumbent (company in market) usually
wins
o ex: Uber
Disruptive Technology
• different performance attributes not
valued by mainstream customers
• starts in low performance segment,
improves rapidly, enters mainstream
market
• disruptive firms usually win
o ex: AirBnB
Key Considerations (differences)

• initial target market
• initial performance
• later performance and market

Sustaining Innovation VS Disruptive Technology

Characteristic Disruptive Technology Sustained Technology
Speed -starts slow and then ramps -stable changes over time
up fast
Target market -smaller niche market, -existing market, innovation
typically customers they is anticipated, mainstream
ta get a e ’t e pe ti g a (High-margin market)
type of innovation
Market predictability -market is not predictable -predictable
Business Methods -traditional methods fail -business models usually stay
the same over time,
traditional methods are
sufficient
Value (how much value does -game changing innovation -little changes
innovation provide for us) -add a lot more value -not a lot of value
Why Large Firms Fail

• organizational structure and capabilities slow response time
• organizational processes weed out idea that do ’t add ess u e t o su e eeds
• focus on satisfying mainstream customers
• avoid small, unfamiliar markets
How to Avoid Failure

• monitor outside of industry
• partner with a young firm
• establish venture units
• design by JOB not customer-Clayton Christensen (ex: Burger King Milkshake)
SOCIAL FACTORS
Elements
• customs
• values
• attitudes
• demographic characteristics
Three Levels of Ethics

1. Ethics- Individual standards/beliefs regarding what is right and wrong or good and bad
2. Business/Managerial Ethics- standards of behaviour that guide individual managers in
their work
3. Corporate Social Responsibility (CSR)- what an organization does to and for its
stakeholders
*when it comes to gaining employee commitment personal and business ethics must be aligned

Stakeholders
• groups/ individuals/ organizations affected by the organization
• importance depends on situation and issue
Four Levels of CSR

1. Proactive→ looks for opportunities
2. Accommodative→ goes further in some areas when requested
3. Defensive→ legally required only
4. Obstructive→ as little as possible
Why Focus on CSR

• Make environment manageable
o Avoids adverse action
o Promotes favourable legislation
• Meet CSF
o Improves profitability
o Improves trust and loyalty of customers and employees
o Promotes operating efficiency (reduces waste)
o Encourages continuous improvement and innovation
o Can be a source of a competitive advantage
Influencing Managerial Preferences

• Select
o Hiring criteria
• Show
o Managerial role modeling
o Show what is important/ what is expected
• Tell
o Mission statement/ code of conduct
• Teach
o Ethics booklets and training
o Help practice how to make the right decisions
• Reward
o Goals/evaluation on criteria and rewards
• Reinforce
o Employee protection mechanisms
o Continue to make personal decisions in alignment with what you asked your
employees to do
Areas of Social Responsibility → Stakeholders

1. Employees
2. Investors
3. Natural environment

4. Customers
5. Society
Responsibility to Natural Environment

What:
• Air, water and land
Why:
• Shift in management thinking
o Se e the p ese t ut do ’t o p o ise the futu e
o Have to look at people+planet+profit
• Quantification of impact
o Climate change costs $1.2 trillion per year
• Change in societal attitudes
o We now recycle, buy green and eco-friendly commute more
Actions:
• Increased corporate greening, not green washing
Responsibility to Society
Areas:
• Poverty, health, education (look at HDI, Human Development Index)
Why:
• Diffuse ideas of social decay, political chaos, terrorism
• Affect human capabilities
• Societal attitude shift
Actions:
• Social entrepreneurship
• Business and community partnership
• Innovative business models and leveraging business skills contribute to social
entrepreneurship
Responsibility to Customers
Areas:
• Pricing, advertising, rights
Why:
• Avoid adverse actions
• Purchase goods and services therby providing businesses with revenue
• Avoid increased regulation
Customer Rights
• The right to safe products
• The right to information
• The right to voice concerns
• The right to choose

• The right to courtesy

• The right to education
• The right to fair pricing
• The right to ethics in advertising and brands
Responsibility to Employees
Areas:
• Hiring, promotion, compensation, training
Why:
• Provide business with talent, skills, labour
Actions:
• Responsible hiring/promotion (no bias/ discrimination)
• Safe work conditions
• Opportunities for advancement
• Respectful treatment
• Protection of whistleblowers
Responsibility to Investors
Areas:
• Financial management, reporting
Agency Problem:
• Shareholders allocate decision making authority to managers
• Conflict of interest shrinking
Why:
• Investors provide businesses with capital
• New regulations due to repeated irresponsibility
Actions:
• Focus on long term ROI (return on investment)
• Responsible management, reporting, transparency
• No insider trading
Strategic Stakeholder management

• Stakeholders can be threatening → willing and able to create uncertainty (ex: lawsuits,
boycott, lobby government)
• Or can be cooperative→ willing and able to support
• This determines their importance
How to Strategically Manage Stakeholders

1. Identify key stakeholders
2. Diagnose among two dimensions and categorize
3. Formulate strategies to enhance relationships
4. Effectively implement these strategies

Strategic Stakeholder Categories

Potential for threat
cooperation High Low
Potential
High MIXED BLESSING SUPPORTIVE

Strategy: collaborate Strategy: Involve
Low NONSUPPORTIVE MARGINAL
Strategy: Defend Strategy: Monitor
• Mixed blessing- most dangerous but also most valuable, give them what they want (ex:
government)
• Supportive- want you to succeed (ex: investors, parents)
• Marginal- no voice, unwilling/ unable to threaten (ex: Environment)
Stakeholder Management Strategies

Marginal
• Monitor- satisfy needs/ demands; no need to collaborate with them
• Ex: low paid manufacturing employees
Non-Supportive
• Reduce interdependence
• Use media to promote/ defend your actions
• Encourage supportive stakeholders to voice their support
Supportive/ Mixed Blessing
• Collaborate or involve
Stakeholder Type Suggested techniques for collaborating/involving
Customers & Involve in Product Design
Suppliers
Competitors Joint R&D, Joint Market Development
Government Invite involvement in setting safety/technical standards, Appoint
to BOD
Community Involve in Urban Renewal Projects
Activist Groups Appoint to BOD, Seek input, Consult
Unions Invite involvement in Joint Committees, Appoint to BOD, Profit-
Sharing
Demographics
• Who: ased o Da id Foot’s o k
• What: study of human populations
• Why:
o Powerful predictor of behaviour/trends
o Certainty and simplicity of age data
o Changes significantly impact businesses

What to Look for in Demographics

1. Cohort size
2. Current
3. Cohort participation
4. Future trends
*cohorts cause a shift in demand
Advantages/Disadvantages
Cohort Size Advantages Disadvantages
Small -less competition -not as big of a voice
-easier to find jobs, university,
house
Large -get a lot of attention -competition
-from companies and the
government
Canadian Demographic trends and implications

• Aging boomers, fewer youth
o Need increased elder care (threat/opportunity)
• Large and influential echo generation
o Echo has a greater market impact
• Changing households→ one person households growing
o Lost economies of scale in living
• Changing ethnic composition→ immigration increasing
o Brings in new talent and fills labour gaps
• Changing geographic distribution→ donut effect, moving to around city center
o Affects median age in rural areas
ECONOMIC FACTORS
Elements
• Inflation/deflation
• Interest rates
• Employment rates
• Exchange rates
• Balance of trade
• Productivity
GDP- monetary value of all final goods and services produced in a period
GNP- total value of all the final products and services produced in a given period by the means
of production owned by the countries residents

Aggregate Output- total quantity of goods/ services produced in an economy in a given period
Canadian Financial System Pillars

1. Chartered Banks
2. Alternate banks
3. Specialized lending/ saving intermediaries (Life insurance companies)
4. Investment dealers
Pillar #1- Chartered Banks

• Publicly traded, profit seeking companies
• Largest and most important institution
• Highly regulated
• Major source of short term loans for business
Changes in Banking
• Deregulation
• Changes in customer demands
• Competition from foreign banks (due to changes in technology)
Pillar #2-Alternate Banks

• Trust companies and credit unions
• Big investor
Pillar #3- Specialized lending/ saving intermediaries

• Insurance companies, venture capital firms, pension funds
• Big investors
Pillar #4- Investment Dealers

• Facilitate trade of stocks, bonds and other products in securities markets
Primary Market- first time a stock is sold (from company to investor)
Secondary Market- market in which stocks/ bonds are traded for the second time/ after the
initial public offering→ Toronto Stock Exchange and other exchanges
Role of Each Pillar in Companies Life

Pillar 1 and 2 (Banks and Alternate Banks)
• Small and medium enterprises
• Make deposits, borrow
• Ba ks do ’t pu hase e uit , the o l le d
Pillar 3 (Specialized spending/ saving intermediaries)
• mid-large
• p i ate e uit fi a i g/ o o i g (sell sha es to i esto s ut a e ’t pu li all
available)

Pillar 4 (Investment Dealer)

• Large and mature
• Going public: stocks and bonds
Bonds
• Legal, binding agreement
• Fixed rate of return, often paid semi annually (coupon Payment)
• Fixed term-principle repaid at maturity date
• Priority over stockholders
• Assume face value of $1000
Concept of Yield
• Percentage return on any investment
• Helps us compare investments
• Interest rate in economy + risk premium
o Should be the same for all bonds with the same risk
o Risk- return trade-off→ the higher the risk, the higher the return
• Only part of the yield equation we can change is the price we pay
face value - price paid

coupon rate x face value +
years to maturity
=
price paid
Bond Pricing Scenarios

• Pay less (<$1000) = discount
• Pay same ($1000) = par
• Pay more (>$1000) = premium
Stocks
• Voting rights (for common stocks on board of directors)
• No fixed term
• Variable return
• Discretionary payment (dividends)
• Risk

Types of Stocks/ Bonds

Common Preferred Bonds
Control -voting rights -no voting rights -no voting rights
Fixed Payments -none (dividends are -promised but not -fixed (coupon
discretionary) legally required payments)
Ownership -owner -owner -not an owner
Dividend Priority -3rd -2nd -1st
What Affects Stock Price

• General environment
o Bull(up) vs. bear(down) market
o Economy
o Interest
o PEST
• Industry conditions
o Competitor moves
o Five forces
• Organizational choices
o Strategies and changes in Diamond-E elements
Stocks Vs Bonds: Investor Perspective

Repayment -no -principle paid on maturity date
Income -dividends but discretionary -Coupon/interest rate required
Claim on assets -after all other creditors are paid -along with all other creditors and
(preferred before common) before stockholders
Ownership/Voting -yes (common) and no -None
rights (preferred)
-preferred-moderate
Stocks Vs. Bonds: Company Perspective

Repayment -Not required -Principle paid on maturity date=
increased risk
Claim on income -only residual claims (dividends) -yes regular, required, fixed
(coupon) = increased risk
Ownership/Voting -Yes (common) and No -None
rights (preferred), dilutes ownership
and control
Tax Effects -dividends are not tax deductible -interest paid to bondholders is tax
deductible
• Bond financing is more attractive because more control and tax benefit

• We do ’t use all de t fi a i g e ause o ds a e iskie tha sto ks

• It makes sense to carry as much debt as you can afford
Leverage
• Value of initial investment is greater than dollars available to invest
• 2 approaches to leverage
o selling short (if price is falling)
o buying on margin (if price is rising)
Margin Buying Vs. Selling Short Summary

Margin Buying Selling Short
Maximum Profit -Infinite -price of short (price you sold at)
Maximum Loss -Price paid for stock (plus -infinite
interest and commission)
Risks/costs -interest expense -unlimited losses, forced to
-margin calls cover, dividends, short calls
What happens with $ -broker uses $ to reduce your -increases your deposit
paid on margin call loan
Time Value of Money (TVM)

• $1 today is more valuable than $1 a year from now because;
o risk
o real interest
o inflation (reduced buyer power)
Annuities
• multiple equal payments over equal periods of time
• ordinary annuity-payment does not start today
• annuity due- payment starts today/ immediately
Perpetuity
• an annuity that goes on forever (ex: dividend on a preferred share)
Payment and Compounding Periods

r adjustments
Matching schedules r= r/payment frequency
(m=p) n=years*payments
Not matching schedules Use effective rate formula
n=years*payments
Interest stated as APR r=APR/payment frequency (which is always 12)
n=n*payment frequency

What is a Bond
• loan
• receive a series od coupon payments=ANNUITY
• receive a lump sum upon maturity=SINGLE AMOUNT
• PVSA + PVOA
What is a Mortgage
• Long term debt used to buy real estate
• Assume amortization period of 25 years
• PVOA
What is a Lease
• Rental agreement for 3-4 years
• At the end of agreement, you can give up car or pay residual and keep the car
• Price of car= down payment + lease payments + residual
• Assume monthly payments
• Lease payments=ANNUITY *always an annuity due because payments begin right away
• Residual=SINGLE AMOUNT
• PVSA + PVAD
Present Value Vs Future Value

Present Value Future Value
• Amount of $ at the current time • Amount of $ at some point in the
• How much do you need now future
• How much is it worth today • How much you will have in __yrs
• How much would you be willing to • You need $___ to retire
pay • How much should you invest to have
$___ in ___yrs
POLITICAL FACTORS
Elements
• Laws, regulations
• Taxes
• Trade agreements/conditions
• Political system
• Political stability
Government Roles
• Taxation agent
o All levels of government collect business and personal taxes
o Progressive, regressive and restrictive tax approaches
• Provider of financial assistance

o Subsidies, tax breaks, support services, research funding, bail outs

• Provider of services
o Education, health care, military, roads
• Regulator/ law maker (purpose below)
o Promotes competitions
o Promotes innovation
o Protects customers
o Achieve social goals
o Protects the environment
How the Government Affects CSF

Factor Government Affect
Achieving financial performance Taxes, duties
Meeting customer needs Customer rights (ex: right to safe products)
Building quality products and Customer protection act
services
Encouraging innovation and Research and development subsidies
creativity
Gaining employee commitment The government could offer businesses subsidies for
employee vacations
Creating a distinct Competitive patents
Advantage
How the Government Affects PEST

P→ makes laws and regulations
E→ sets wages
S→ restrictive taxes
T→ CRTC (Canadian radio-television and telecommunications)
How Businesses Influence the Government

• Lobbyists
• Collaboration with government/ decision input
• Advertising
*the P of PEST is the one that businesses slightly influence, the others are basically given
Intellectual Property Rights

• Includes patents, copyright and trademarks
• Legal rights that result from intellectual activity in the industrial, scientific, literary and
artistic fields
• Grants exclusive rights to the creator
• Creates incentive for innovation

Trademarks
• Words, designs, symbol or shapes or a combination
• Used to identify goods or services of one person or organization
• Protection for 15 years; renewable
• Legislation= Trade-marks Act
• Ex: Nike swoosh, Golden Hawk
Why:
• Establishes and protects reputation/ brand and can be one of your most valuable assets
• Facilitates licencing your trademark
Copyright
• Any original literary, dramatic, musical or artistic work
• Subject to copyright the moment it is created (no registration necessary)
• Owner=the creator of the work
o If created wile at work owner= employer
• Duration= life of owner + 50 years
• Does ’t o e ideas, o l the fo i hi h the a e e p essed
Why:
• Receive credit and royalties for your work
Patents
• Government grants that give inventors exclusive rights to their inventions
• Must be new, useful, and show ingenuity
• Can be a product, composition, apparatus, process, or improvement on any of these
• Protection=20 years
Why:
• Provides protection for owner
• Can license/ receive royalties
• Provides valuable information/ inspiration for further research/ innovation
Caution:
• Details disclosed to public after 18 months
• Does ’t p ote t ou f o i p o e e t
o Thus some companies (ex: coca cola) chose to not patent their product
Intellectual property rights

Trademark Patent Copyright
Duration -15, renewable -20 years -Life of owner + 50
Asset -Logos, designs -Inventions -Original work of art
Purpose -reputation -Idea/ innovation -Work of art
-receive royalties -receive royalties -receive royalties

Forms of Ownership
• Sole proprietorship
• Partnership (limited or general)
• Corporation (public or private)
Sole Proprietorship
• Owned and operated by one person
• Business and owner = 1 legal entity
• Ease of formation
• Few regulations
• Complete control (over profits and decisions)
• Government support (advice)
• Taxed as personal income (advantage if losing money)
• Unlimited liability
• Lack of continuity/ difficult transfer of ownership
• Difficult to obtain outside financing
Partnership
• Two or more owners (maximum 50)
• Business and owners = 1 legal entity
• Ease of formation
• More managerial and financial resources (than a sole proprietorship)
• Lack of continuity/ difficult to transfer ownership
• Few regulations
• Government support
• Difficult to obtain outside financing
• Taxed as personal income (benefit if losing money)
• Shared profits and decisions (causes conflicts)
• Unlimited liability
Types of Partnerships
• General partnership → each partner has unlimited liability
• Limited Partnership → one person has unlimited liability while the others are general
partners and their liability cannot exceed their financial contribution to the partnership
Joint Liability- together share liability
Several Liability- 1 may be liable for all
Types of Corporations
• Public
• Private
• Crown

Inside Directors- on BOD and work for the company

Outside Directors- on BOD but do not work for the company
Private Corporation
• Shares not publically traded
• Less than 50 shareholders
• Owners and business = separate legal entities
• Relatively flat tax rate
• Potential for limited liability (if personal assets are not used as collateral)
• Continuity/ ease of transferring ownership
• Double taxation
• Moderate complexity of formation
• Relatively low regulation
• Retention of privacy
Public Corporation
• Several owners (unlimited shareholders)
• Shares publically available
• Business and owners = separate legal entities
• Flat tax rate
• Limited liability
• Continuity/ ease of transferring ownership
• Ease of raising money
• Double taxation
• Cost and complexity of formation
• Lots of regulations
• Lack of secrecy
How the Different Forms of Business Get Financing

Banks and Trust Alternate Invest Banks
Sole Proprietorship Yes ---- ----
Partnership Yes ---- ----
Private Corporation Debt Both Debt and Equity
Public Corporation ---- ---- Equity and Debt

Comparison of Forms
Sole Partnership Private Public
Proprietorship Corporation Corporation
Number of Owners One owner Less than 50 Less than 50 Unlimited
Liability Implications unlimited Unlimited for limited limited
at least one
partner
Taxation Personal Personal Small Corporate Corporate
Government Low Low Low-Medium High
regulations
Outside Financing Most Difficult Moderately Depends Easiest
Difficult
Continuity None None Yes Yes
Transfer of Ownership Difficult More difficult Less difficult Easy
Cost/Complexity of Inexpensive/ Inexpensive/ Relatively Complex/
Formation easy easy inexpensive/ costly
easy
Secrecy Complete Complete Complete None
*Sole proprietorship/ partnership is good when you are losing money

*become a public corporation if you need additional funding
Driving Forces of Globalization

• Greater awareness of benefits
• Technology makes it easier, cheaper, faster
• Competitive pressure
Major Marketplaces
• Country categorized by income
o High income
o Medium income
o Low income (developing)
• Geographic clusters
o North America
o Europe
o Pacific Asia
Deciding to go International: Considerations

• Should we do it
• Barriers we might encounter
• Strategies to overcome barriers

Going International- Should We

• Is there demand for our product?
• Can the product be modified to fit a foreign market?
• Is the foreign business climate suited to imports?
• Does the firm have or can it get the necessary skills and knowledge to do business?
Barriers to International Trade

• Political
o Quotas, tariffs, subsidies
• Economic
o Exchange rate
• Social
o Adapti g to usto e ’s eeds
• Technological
o Technology standards/ formats
Overcoming Trade Barriers

• Government support through treaties (GATT, WTO, EU. NAFTA)
• Employing firm strategies for new market entry
o Licensing
o Hire local agents
o Set up branch/ sales office
o Alliance with local firm
o Establish foreign subsidiary
Strategy P E S T Capital Other

Requirement
Licensing Yes Yes Yes ? Low Lose marketing control
Hire Local Agents ? No Yes ? Low Gain local marketing
know-how
Set up branch/ Sales No No ? ? Low- Gain marketing control
office moderate
Alliance with local firms ? ? Yes ? Moderate Will partnership work?
Establish foreign Yes Yes ? ? High Will it be approved?
Subsidiary
Links to CSF
Factor Gov. Effect
Achieving financial -tax policy (ex: tax for small businesses got lowered, which improves
performance financial performance as it lowers expenses)
Distinctive Competitive -extend patent duration, allows you to retain uniqueness of your
Advantage innovation and to maintain a competitive advantage for longer









BU111 Exam Review SI Session

Social Factors
Three levels of Ethics

• Individual → standards and belief about what is moral
• Business/ managerial → standards of behaviour that guide employees and managers in
the workplace
• CSR→organizational ethical conduct (balancing various responsibilities to stakeholders)
Influencing Ethical Preferences

• Hiring criteria
• Managerial role modeling
• Mission statement/ code of conduct
• Ethics booklets and training
• Goals/ evaluation criteria and rewards
• Employee protection mechanisms
*links back to Diamond-E management preferences and resources
Why is CSR Important

• Makes environment more manageable
o Avoid adverse actions
o Increases stakeholder support
o Promotes favourable legislation
• Helps meet CSF
o Improves profitability and efficiency
o Improves trust and loyalty
o Encourages continuous innovation and improvements
o Source of competitive advantage
4 Approaches/ Stances to CSR

1. Obstructionist
a. Bp (pipe burst and oil spilt)
b. Voltzwagen (lied about car emissions)
2. Defensive
a. Cigarettes (only warning labels but that’s it)
3. Accommodative
a. Tuna
4. Proactive
a. IKEA, TenTree
5 Areas of CSR
• Environment
• Customers

• Employees
• Society
• Investors
CSR: Environment
Why:
• Paradigm shift in management thinking
• Quantification of impact
• Change in societal attitudes
How:
• Corporate greening (not green washing)
CSR: Customers
Why
• Customers=revenue
• Avoid adverse actins
• Avoid increased regulation
How
• Fair pricing
• True advertising
• Consumerism (respect their 6 rights)
Customer rights
• Safe products
• Be informed
• Be heard
• Choose
• Courtesy
• Education

BU111 Midterm Notes
Critical Success Factors *all men grow enormous beautiful beards
1. Achieving financial performance

• ROI (return on equity), profits, growth
2. Meeting Customer Needs
• Understand, anticipate and fulfill needs
3. Gaining employee commitment
4. Encouraging innovation and creativity
• Reward and encourage innovation around products, how you sell, hiring process and
delivery
5. Build quality products and services
• Customers want value for their money (ex: buying a ford VS buying a Ferrari)
6. Building a distinctive competitive advantage
• Unique and inimitable
SWOT Analysis
• Strengths, Weaknesses, Opportunities, Threats
o SW is internal organization
o OT is external/ environment
Diamond-E
o Risk tolerance (ex: conservative or risk taking)
o Goals/vission
o preference of direction (ex: want to expand, want to make new products?)
o ethics (ex: are you trying to be environmentally friendly or do you not care)
• Organization
o Culture (company feel ex: google slides and games and naps vs bank)
o structure (where are we located, 1 location or 1000 or how do you structure
power/management)
o capabilities (what are you good at doing)
• Resources
o human resources (how many, specialties) *ties into capabilities because your
employees determine what you can do
o capital/finance (what money do we have and what can we spend, also
machinery and buildings) *ties into management preferences because you can
take more risks with more money
• Strategy
o Path you take to reach your goals/CSF (based on resources, organization and
management preferences, also determined by environment)

• Uses: assess current strategy, generate new strategic proposals, Evaluate strategic
decisions
Principle Logic
• Consistency and Alignment
• Consistency is internal (diamond-e)and leads to performance
• Alignment is external (with the environment) and ensures the strategy is right for the
given environment
• Examples
o P+G→ inconsistency→ created new products in a recessionary environment and
they did ’t sell
o IKEA→ consistency→ people were moving into smaller homes and needed
inexpensive, modern and easily movable furniture
PEST
• Factors that shape the environment
• Political/Legal
o Laws/regulations
o Taxes
o Trade agreements
o Political system
o Political stability
• Economic
o Exchange rates
o Employment levels
o Inflation/ deflation
o Interest rates
o Balance of trade
o productivity
• Social
o Customs/traditions
o Values
o Attitudes
o Demographic info (age, income, education levels)
• Technological ***not limited to computers, anything that improves cycle time (ex:
Swiffer, or emailing people improved cycle time on how long it took to receive message
vs. memo or letters)
o Internet access/speed
o Information technologies

External Analysis
• Process of scanning and evaluating external environment
• General environment→ scanned with PEST to identify general trends/changes
• Specific environment (industry)→ scanned with Porters Five Forces to analyze
competitive pressure and predict profitability
• Challenges are;
o Forecast imperfect
o Rapid change
o Time consuming
• Benefits are;
o Makes management proactive
o Provides info used in planning = better plans
o Helps organizations get needed resources
o Helps organizations cope with uncertainty
o Improves consistency and performance
Porters Five Forces

• Potential Entrants
Factor Effect Solution
Lack of Capital Intensity Easy to enter industry=more -grow to achieve
rivals=lower profitability scale
No specialized assets Makes it easier to enter and thus -control distribution
(network, tech, knowledge) creates competition network
No regulations/ policies More regulations make it harder to -lobby government
enter (ex: banks) -differentiate
Low switching costs/ no Makes it easier to enter and thus -lock customers in
brand loyalty creates more competition
• Suppliers
Few suppliers Suppliers have bargaining -form a strategic alliance
power with your supplier
Few good substitute Suppliers have bargaining -internal supply
suppliers/ inputs power -long run→redesign
High switching costs Supplier has power products needed inputs
Threat of forward integration Suppliers have a cost so you no longer have to
(when suppliers enter advantage rely on your supplier
industry)

• Substitutes
Many good substitutes Reduces the appeal for the -strong
product and lowers profit marketing/differentiation
Low switching costs Is harder to keep -lock in customers (reward
customers, increases rivalry program)
High buyer propensity to Ex: butter vs margarine, if a
substitutes customer is more likely to
substitute this means less
profit
• Buyers
Few/concentrated buyers Buyers have the bargaining -form alliance with other
power sellers (illegal)
Discretionary purchase (not Buyers have the bargaining -strong marketing/
necessary) power e ause they do ’t differentiation
need it -create switching costs
Standardized products (ex: Buyers have the bargaining
batteries) power unless the product is
unique
Low switching costs Company has the power if
switching costs are high (ex:
game system, Keurig)
• Competitors
Many competitors of equal A more intense rivalry -grow (to reduce same
size/ capacity size competition) (ex:
Low industry growth rate/ Same number of firms and less Walmart)
capacity of customers people reduces profit and -acquisition of
increases rivalry/ if producing at competitors (buy out
apa ity you do ’t eed ore businesses)
customers, rivalry goes down -create/increase
Low customer switching When switching costs are low consumer switching
costs rivalry increases costs
Products are commodities/ If products are all the same (ex: -differentiate (be
perishable gas) compete on price, different in a way that
profitability goes down, rivalry is meaningful to
increases customers)
Exit Barriers The harder it is to leave the
industry increase the intensity

Generic Strategies
Broad target Narrow Target

Low Cost
Cost leadership Cost focus

Ex: Walmart Ex: Wind
Uniqueness
Differentiation Differentiation Focus

Ex: Apple Ex: Ferrari
Entrepreneurship
• Definition→ identifying an opportunity and accessing resources to capitalize on it
o successful only when resources, opportunity and entrepreneur fit
• idea generation
o solve a problem
o combine functions
o simplify a product
• Screening process
o valuable
o feasible
o unique
Criteria High Potential- Good Idea Low potential- Bad idea
Product/ value added Significant Value added; Incremental improvement
unique; recurring revenue only; one-time revenue
Cust./market Reachable; large and growing Loyal to others;
small/declining
Competition/Rivalry Imperfect; fragmented Highly Concentrated, mature,
competition; at capacity under capacity
Suppliers Many; easily switched Few, high switching costs
Substitutes Few, inferior, expensive, high Many, good quality,
switching costs inexpensive, low switching
costs
Barriers to Entry Low, competition slow, you High, competition stiff, hard
have needed networks to tap needed networks
PEST Future and current Conditions will make
conditions favour your profitability difficult or will
product cause declining perf. In
future

• accessing resources
o bootstrapping → doing more with less
o Debt or Equity financing → borrowing $ you have to pay back with interest or
giving up control for $
o Crowdfunding→initiator + backer + platform → getting little amounts of $ from
large amounts of people
Definitions
• Outsourcing→ paying suppliers to perform certain tasks
• Social Media/ Virtual Marketing → word of mouth that spreads not face-to-face but by
relying on the internet
• Business Process Management→ approach by which firms move away from
department-oriented organizations and towards process-oriented team structures
Social Enterprises
• Definition→ generates social value while operating with the financial discipline in order
to overcome market inequalities (ex: hunger, lack of education)
o social value trumps financial value
o management preferences influence if a organization is a social or for profit
enterprise
• similarities and differences
Traditional organization Social Enterprise
Value definition and financial Financial ROI, finances are a Social ROI, financial stability
priority priority only
Social Benefit focus Secondary to profit Primary focus
Who they serve/ Shareholders and customers Those wo provide revenue
Stakeholders and those who receive social
support
Organizational Form For profit Various forms
• How CSF differ

CSF Social Enterprise Traditional organization
Achieving Financial Second priority priority
Performance
Meeting Customer Needs Have to meet both Have to meet customers
supporters values and needs needs so they stay loyal
of the underserved
population
Gaining Employee Want passionate employees Want employees that are
Commitment (volunteers) that enjoy what good at their job and selling
they do products
Encouraging innovation and Always want to innovate the Want to innovate to gain a
creativity ways they are helping people competitive advantage

so they are more effective

and efficient
Building distinctive Need an advantage so Limited customers thus must
competitive advantage consumers choose to support have an advantage to attract
them over other enterprises customers
Building quality products and Important otherwise you Important otherwise you lose
services wont receive donations, customers
quality for both those
supporting and those being
helped, also important for
volunteers (want to be
proud of what they do)





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BU111

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BU111 Week 1 SI Session-Thursday September 21st 2017

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BU111 Week 2 SI Session-Thursday September 28st 2017

Porters Five Forces

Midterm Practice Exams

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BU111 Midterm Review SI Session

Critical Success Factors

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Consistency and alignment

Porters Five Forces

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BU111 Week 5 SI Session

• Technological Innovations are allowing professionals meet Critical Success factors

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o traditional business methods fail (have to do something different, in a new way

opportunities and threats that technology presents

**know this chart

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• There are three different levels of ethics

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• why do we care about the environment?

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BU111 Week 9 SI Session

• Stocks have a higher potential yield than a bond

Stocks Vs. Bonds-Company

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Exam: December 9th @noon

BU111 FINAL EXAM NOTES

5 industries changed by technology:

Opportunities from Technological Changes

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Exam: December 9th @noon

o Within firm and with customers

Threats from Technological Changes

How Technology Impacts CSFs

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Exam: December 9th @noon

Key Technology Concepts

Key Considerations (differences)

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Exam: December 9th @noon

Sustaining Innovation VS Disruptive Technology

Why Large Firms Fail

How to Avoid Failure

Three Levels of Ethics

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Exam: December 9th @noon

Four Levels of CSR