Note #1

Critical Success Factors & Environmental Analysis Models

Business Success
- All internal and external parts of a business directly contribute to the success of a
business, all parts are linked together
- Maximizing the internal and external values allow you get past barriers that impact
the viability of success

Diamond-E Model
- Opportunities and threats are external effects
- Strengths and weaknesses are internal effects

Strengths and Weakness

- Environmentp
- Political, Economic, Social and Technological (PEST)
- Five Forces

Strengths and Weakness for the Diamond-E focus on specific values within the two parts of
the Swot Analysis
- Look at the environment and see what strategies are the best then look internally
- What should we do and then what can we do (Inside the box of the model)

Strategy is what connects the internal and external questions of what can and what we
should do

Principal Logic - Consistency and alignment.

Internal consistency allows good execution
External Alignment = Right strategy for environment
Warning : environment always changes

Often times things like the environment (demand) does not meet our goals it changes the
strategy and plan

Why use this model?

- Environment always changes so this model allows companies to evaluate such
changes and modify
- Develop new strategies and how can they be executed
- Evaluate which strategy works the best
How can it be used?
- Starts with strategy and environment, start with environment because it can not be
changed and you have no control the environment so you must understand it
- Do you have what you need and where do you need work or an influx of resources

Look Internally
- Management Preferences
- Vision and the mission of the organization, what does management like and
want to do. Various approaches to running their business,
- Seeking international or local ventures, smaller markets vs larger
international ventures
- Money and financial driven
-

- Organization
- Culture, Capabilities and Structure
- What is the company good at, how you organize the company depends
on your strategy and impacts your strategy
- Organize structure to execute strategy

- Resources
- Human, capital and financial
- All assets except cash are capital resources

Bias towards what resources you have and certain companies are good at

Success Factors come from Success Drivers

1. Financial performance (profit and the growth of profit, return on investment)
a. Employment - Gain employee commitment (turnover costs)
b. Uniqueness (Keeps away from perfect competition, mini monopoly)
c. Customers - (meet customers needs, understanding what customers what
and delivering it, anticipate customer needs)
d. Innovation - Continuous change
e. Products and services - (build quality products and services, not THE BEST
because not everyone can afford it, THE BEST make more to make)

What are the individual components, and what does each of the components mean?
*midterm potential* why are each of them individually important
Example -

Employees - are people that are paid to work for the company, execute the goals of the
company. Nothing would happen without them, no objectives would be met without
employees. Committed employee - loyal to the company, emotionally and psychologically
committed to the success of the company. Saves you the turnover cost (hire and train new
employees). Committed employees are more likely to work harder and value their work,
higher quality of employment. Costs to hire and lay off members, productivity costs. More
output of committed employee for same wage

Customers - Meeting customer needs, groups of people that companies focus on to sell our
goods and services. Without customers business does not work, no purpose in having
employees, no revenue. Understanding, anticipating and satisfying the needs of your target
consumers. Lose revenue and market share if you are not meeting customer needs. They
communicate with each other, part of marketing.

Products and services - Revenue generation, build quality products and services. Quality
means quality that the customers expect, customers understand the value of the products
they buy and they achieve that product. Reliability in terms of the perspective of the
customers, consistency. Sets you apart from the competition, build reputation. More
repairs, more returns, higher marketing costs, per unit cost would increase

Innovation - Finding new ways to improve products, change business strategies, hiring,
manufacturing, delivering, tracking records. Left behind by the competition, since the
environment is changing it is innovation that allows you to take advantage of changes in
the market. Connect ideas, share ideas, gives employees incentives. Boosts everything,
lower costs and find easier and more efficient ways to improve ways and structures

Uniqueness - Competitive Business advantage, Walmart is an efficient supply chain

whereas a company like Apple is seen as efficient. Walmart because they are efficient can
offer lower prices. The advantage maximizes costs for these companies. The domain of the
company is pivotal in the competitive advantage

External Analysis
- Process of scanning and evaluating the external environment
- Opportunities and threats
- Pest guides you on the general environment
Benefits of external environment
- Proactive to future threats
- Provides information used in planning
 - Helps organizations get needed resources
- Improves consistency and performance
- Environment is uncertain
- Takes time to implement change, helps prevent problems

Challenges
- Takes time, feels unproductive
- Specific management we resist because changes to overall planning comes in
- Unpredictable changes

How to do an external analysis

1. General environment
a. Pest model
b. Identifies general trends and changes
2. Specific Environment
a. Porter's 5 forces

External Analysis
- Understand the current markets and situation
- What are the trends, what will happen in 2 years? 5? Or longer
- Consider unexpected changes in the market (Political tensions or advancements of
technology) “what do I do if”

PEST ANALYSIS
1. Political or Legal Factors (Government)
a. Motivated by the protection of consumers, to make sure we are treated fairly
b. Domestic business protection (tax money, provide jobs)
c. Foreign investments and opportunities, trade missions are created to bring
in exports (more revenue). Can be seen through laws and regulations, taxes,
trade agreements or conditions, political system and political stability. Sales
tax income tax, sim tax
2. Economic Factors
a. Significance of economic ability, employment rate and measures of
aggregate output, GDP and GNP
b. Inflation and deflation
c. Valuation of the dollar in comparison foreign currency rates
d. Can be seen through inflation/deflation, interest rates, employment rates,
exchange rates, balance of trade and productivity
3. Social Factors
 a. Who is in the society you are living in? Impact on consumers preferences and
working attitude and behaviours. Standards of Business conduct and social
responsibility
b. How to understand the preferences of consumers?
c. How workers view work?
d. Values as a society and what society appreciates. Bias
4. Technological Factors
a. Demands constant scanning & learning’ legacies and compatibility make
change challenging
b. Elements of this are internet, information technologies, not limited to
computers and information
c. Machines change is a technology change
d. Chemical products is technology change

What opportunities or threats does the environment possess?

Porter’s Five Forces

- Increasing competition, reduces prices, reduces profit

1. Potential entrants, ability to enter (barriers to enter)

2. Substitutes, perform the same function but not as well (Car vs Bus) Quality and
Number of substitutes dictates profitability
3. Supplier, lots of suppliers (lowers supply prices, negotiate price down)
4. Buyers, lots of buyers and consumer loyalty.

Read the Article on WeWork from Twitter

Porter’s Model answer the profitability within an industry, intensity of business

competitions

Supply - Increasing costs (input costs) Raising input cost lower profitability
Buyers - Impact revenue (negotiate pricing)
Substitute - Goods and services that do the same function but are also cheaper. Caps price
difference (better the substitutes and the cheaper they might just continue to use the
substitute)
Potential Entrants - Ability to keep others into the industry (barriers to entry) more
entrants lower price. How well can we keep others from entering the market

*IBIS diagrams from the database*

Buyers have the majority of impact on revenue, substitutes and maybe potentially potential
entrants

Supplies are costs of goods sold

Competitors - Marketing expenses

5 FORCES
1. Competitors - Rivalry among existing firms
a. Volume - Only a certain amount of buyers for a specific amount of people
b. Spend more in advertising and distribution to attract consumers

Low industry growth - increase rivalry intensity - reduce profitability

- New customers decrease, not growing at a high rate. Increases rivalry because less
consumers to fight over. You can’t produce because each company has a cap. If
capacity is high, rivalry is down.

Switching Costs - not the dollar value

- Learning costs
- Timing and effort costs, knowledge
- Low switching costs make it easier to switch, increase intensity easy to lose
customers.

Products are commodities or perishable

- Commodity is a good that consumers do not care about the brand, no difference.
Consumers view them as the same. Price is important (lower price) reducing profits
- Perishable go bad if you don’t use it (must be sold in a certain amount of time)

Exit Barriers - companies can’t leave

- Reducing rivalry if companies can leave

Solutions -
- Growth
- size of the company matters, bigger companies don’t experience the same level of
competition
- Switching costs (use apple efficiency)
- Differentiation (make consumers feel like you are the only one that provides that
value or quality)
 2. Substitutes

Good quality substitutes - more incentives to switch to substitutes, their is value is using
the other competition and also costs cheaper for specific people. Price ceiling

Low switching costs - easier to switch are more likely to actually switch

Higher buyer propensity to switch - specific products are likelier to use the substitute.

Solutions
- Strong marketing and differentiation
- Lock in customers (increase switching costs)

3. Potential Entrants
a. New/Future competitors. Cause big changes and changes the intensifies the
competition

Potential entrance is barriers to entry

1. Lack of capital intensity (economies of scale). Cheap to start = low enterency
barriers. Low capital intensity = low barriers
2. No specialized assets - need to have specific things to enter the company = high
entry barriers
3. No government regulations and policy - You must be approved in certain types of
business (high entry barriers for banking, communications and radio industries)
4. Switching costs and brand loyalty - create barriers to entry, (apple). No brand loyal
means others can come and steal you away

Solutions
- Grow to achieve scale, economies of scale
- Controlling distribution networks
- Lobby government - create regulations
- Differnientations - Apple users believe apple is the best
- Lock consumers - high switching costs

4. Suppliers
- Who provides key input resources?
- Bargaining power (negotiate price up)
Few suppliers - Not lot means they have power, accept whatever prices they want
Few good substitutes - have to buy a specific product, accept whatever prices they want
High switching costs - input is unique to me, or the supplier relationship.
Threat of Forward Integration
- Supplier becomes competitor. Motive supplier to not be a competitor.

Solutions
- Form strategic alliances (partners not just contracts, succeed with you)
- Become your own supplier if possible (buy supplier)
- Long run - redesign product to needs other suppliers

Substitutes quality improves as price is lower, caps business price or consumers will leave
or force more investment

5. Buyers
a. Discretionary buyers, is a product is discretionary it's not a must have (they
have bargaining power, buyers) Some items people will buy no matter what
the price (supplier has more power).
b. Standardization - When products are standardized because they have
alternatives, when they can not be subbed they are more suited to pay more.
Games vs Consoles
c. Low Switching costs - low switching costs than it is easy for buyers to move
to another seller. Negotiate the price down which leads to lower revenue.

Solutions
- Strong differentiation and different, competitive advantage. Differentiation is what
is perceived as common and regular products
- Few concentration means the market is held by very few companies (banking
industry) Concentrated buyers or few big buyers the buyers have pricing power.
Reducing buyer purchasing power is done by coordinating price between firms and
business in specific industries. Gas stations all increasing prices at the same time
- Locking in consumers and brand loyalty (coffee machines and apple credit card)

How do these forces help and what do they answer?

- How profitable is an industry and is it worth entering?
- How profitable would launching a new product line or service and that does it
mean?
- How do I make more profit then my direct competition?
- In your new venture you are in the perspective of the potential entrants and asking
yourself two questions, is it worth and what are the barriers to entry and can you
get over them?
Generic Strategies
- Low prices but financial performances : margins low (low cost), produce amounts
- Broad market (unique needs)
- Walmart HIGH VOLUME)
- Cost focus (cheaper but for specific style)

*reduce the bargaining power of the buyer to control price and ultimately increase profit*

Note #2
Understanding Entrepreneurship

Entrepreneurship - Identifying an opportunity and accessing resources to capitalize on it

As a group, small businesses provide more jobs

- Pay lower tax rates, reason is to allow business to keep more money so it will help the
business grow. Helps overall economic growth for small business
- Low barriers to entry

Process has 3 parts (Linked with the Diamond E Model)

1. Entrepreneur
2. Access Resources
3. Identify Opperfunity

A lot of them fail because they did not have the right skillset, presostance, capability. Was not able
to get enough resources.

How to find ideas?

- Solve a problem
- What problems are consumers asking for, think of solutions
Screen process
- 3 Parts
- Viability - does it make sense and doe sit create values by solving a problem for
many consumers. Will consumers actually pay for whatever service you are offering
- Uniqueness - Idea is unique + defensible. What do we solve and who else does
something similar to us and how do they do it
- Feasibility - Is it possible to do it? Barriers and challenges can be overcome
Criteria - High potential vs low potential
Product/Value - Significant value added, unique and recurring revenue vs Incremental
improvement, one time revenue

Customers/Market - Reachable, large and growing vs loyal to others, small and decreasing

Competition/Rivalry - Imperfect, fragmented competition or at capacity vs highly concentration,

mature under capacity

Suppliers - many, easily switches vs few high switching costs

Substitutes - few, inferior, expensive and high switching costs vs many good quality inexpensive
and low switching costs

Barriers to entry - Low, competition low, you have needed networks vs high competition stuff, hard
to tap networks

PEST - Future and current conditions favour your product vs conditions will make profitability
difficult or will cause declining performance in nature

Accessing Resources

1. Bootstrapping - doing more with less

a. Make do with as few resources as possible
b. Use other people's resources where possible
c. Find/use free stuff
2. Debt vs Equity Financing
a. Debt = Interest and control
i. Sources - Financial institutions suppliers
b. Equity = no interest, less money
i. Sources - Savings, love money, private investors , v.c
3. Crowdfunding - initiator + backer + platform
a. Rewards-based
b. Equity
Social Enterprise
- Social, changes in society, not profit focused, social enterprise
- Difference between a charity, they are business, revenue stream, not based on donations
- Not solely on donations
- Solving poverty and stuff

Facets of Social Enterprises

1. Inefficient allocation of resources, markets don’t address all societal needs
2. Often in areas of education, health, environment, food insecurity and poverty
Innovated solutions to wicked problems

- Social value is the primary objective but financial sustainability imperative

- Donor and government funding is not reliable

Implications
- Economic value not required priority
- Dual stakeholders - those served and those supporting; one or both pay

Social venture creates a model that makes revenues to allow them to create social value, unlike a
charity.

Key Facets of Social Enterprises

1. Help overcome market inequities/failures
a. Definition - Inefficient allocation of resources, markets don’t address all societal
needs
2. Social value is the primary objective but financial sustainability imperative
a. How much social value they create,
b. Economic value not required priority
c. Duel stakeholder - those served and those supporting (one or both pay)

Social enterprise = Social enterprise goals are to create profit to make more social benefit

Key facet
1. Super entrepreneurs (work in difficult circumstances)
2. Bootstrapping

Summary and Differences

Traditional vs Social Entrepreneurship

Value Definitions and Financial Priority - Financial ROI and financial primary vs social ROI and
financial sustainability only
Social benefit - secondary vs primary

Who they serve and stakeholders - paying consumers and investors vs underserved populations -
can't afford/access service, supporters or investors

Organizational form - For profit vs varias forms

Example
- How does building quality products and services connect to meeting customer needs?
 - Step 1 = What does each concept mean? Quality products and services means being
consistent, what dollar value (how much value) and durability. Meeting consumer needs
means, satisfy their own needs, anticipating future needs, understanding their needs.
Knowing what they want
- Model would be critical success factors, connect one to the other and back and forth
- Consumers want consistent and reliable products they don’t want to be scammed, we need
to understand what they understand where they see value. Each consumer has a different
expectation in terms of value. If you understand the needs of consumers you will make
products to meet the needs. All concepts of the concepts are interconnected.
-

Profitability - Porters
- Customers = buyers
Note #3
Technological Factors

Technology is a piece of the environment that is constantly changing, politics and economy are
fairly steady. Social trends may take a long time to change
- Demands are also constantly changing, can be a random breakthrough and often times the
change comes from a direction that was not anticipated. Requires learning and invest in the
technology (online shopping for companies, the technology now exists)
- Because tech is so complex, when you embed it into a company, the other connecting pieces
have to be compatible. Technology “stack”, really high switching costs

Elements
1. Internet
2. Information technology, the ability to collect and extract data and use it to make decisions
(very important asset)
3. Not limited to computers and information

5 industries that have been revolutionized by technology

1. Music
2. Travel
3. Transportation
4. Travel
5. Publishing
6. Retail

What is technology?
- Material and equipment advancements
- Substitutes and magnity human effort
- Reduce costs (cost of error as well), improve performance, increase flexibility.
Consistency
 - Example robot
- Information technology advancements
- Devices and software for creating, storing, exchanging and using information
- Example cloud, data analytics (collection of information and that information is
being analyzed in other way, information is understood much better and at a higher
level to other before), video calls

Technology shifts
1. Power - Electricity and steam
2. Build & move - Assembly line and trains/planes/cars
3. Communication - Mass media and telecommunications
4. Information - computer/internet and collect/analyze
5. Smart technology - Autonomous machines and acting/machine learning

Privacy laws (cookies)

Key technology concepts

Complementary goods - needed for value (need each other to create value for each other) Computer
and software are complements

Technology standards - enables compatibility of complementary goods, enable the compliments.

Apps for example (what devices do I make it compatible on)

Installed base - number of users, something becomes standard based on the amount of users.

Network effect - value depends on users

Example - when apple and computers first came into the market there was only apple and
microsoft, you could not share info between. If you chose either you could not work on both, can’t
switch. Computer users would have to commit to a standard. Apple discovered that since windows
was available everywhere, they realized that if too many users picked windows they would have
the majority share.
Key Technology Concepts
- Complementary goods - needed for value, impossible for companies to produce everything,
rely on other companies to produce compliments to increase the value and necessity of the
goods

Technology standards - allow compatibility of complementary goods (Apple iOS)

Installed base - # of users that are aligned with a technology standard, larger base of technology
standard the more likely complementary goods are made for that product
Blackberry once tried to make a iPad to compete with the Apple ones, called the playbook. More
people already had the iPad and did not want to switch. More coders wanted to make apps and
services compatible with the iPad because of market share. Bigger installed market for Apple, larger
user base that standard becomes more attractive so more complementary goods. Making the iPad
for appealing.

Network effect - value depends on, complementary good is other users. (Social Media)

Lockin
1. Consumers perspective - how committed an individual people are to switch
2. Causes include habits or systems (ecosystem), learning, investment and overall cost of
switching. Time can also be a switching cost

Solutions - lower switching costs, offer leap or much better performance

Current Business Tools

Big Data and Analytics
- Knowledge is power
- Collection and analysis or large amounts of data
- Data about our history and searches
- Get deeper insights into customer behaviour and preferences
- Customize and localize ads and marketing

Network effect - social media

Cycle is called vicious/virtuous cycle

Installed base = a lot of base

Ecommerce and Omnichannel

- Online research and shopping
- Seamless experience between platforms and brick/mortar
- Expect to be able to purchase something online
- Convenient and timely information and purchase
- Personalized communication and purchase experience
- Beacon that send you messages near items or stores you search

Virtual and Augmented reality

- Replicates on environment or maps over reality
- Virtual vs augmented - virtual is a different reality immersed into it, augmented is more real
life
Blockchain
1. Distributed ledger that ensures accuracy and security of data
2. Allows company to make sure their data is secure and accurate
3. Reduces fraud and eliminate errors
4. How it works? The block in the middle is the info, the chain is the information from all
sources. Because the info is coming from a variety of areas it makes it hard to corrupt or
fraud the data
5. Within an organization, if you need to sell x number of units, the rest of the business teams
will provide consistent to align with what is needed. Blockchain helps with this organization
6. Challenges - requires participants on one platform, a variety of data sources that are
disconnected and have to agree to the same platform. Technology standards haven’t aligned

Autonomous machines
1. Increases automation (self driving cars)
2. Reduce human error, (program is only as good as the programmer)
3. Machine error
4. Requires precise programming and anticipation of all problems

Opportunities
1. Products - innovation, uniqueness and VALUE, personalized user experience
2. Improved information use, access and sharing
3. Competitive advantage; create barriers to entry (virtuous cycle)
4. Customization

Threats
1. Imitation
a. Information costly to develop but cheap to share. Digital form makes it easy to copy,
music industry
2. New technology and new entrants in unfamiliar areas
a. Need new capabilities, resources and learning
3. Information overload and security
a. Hackers and cloud storage breaches, data breaches
4. Disconnected employees and customers
a. People don’t expect to be at the same job
Technology impacts on Critical Success Factors

Achieving Financial performance

1. Opportunity
2. Threat - Increase costs or increase competitors. Lower barriers to entry increasing
competitors lowering profibality
Meeting customer needs
1. Opportunity - Amazon delivering with higher efficiency
 2. Threat - Invasion of privacy and ethics of data collection, expectations of users are much
higher
Building quality products and services
1. Opportunity - More specific designs and better more effective designs
2. Threat - More complex makes them harder to make and problems with failures are hard to
fix
Encouraging innovation and creativity
1. Opportunity - Using big data to better understand industry trends and see where to
innovate. Different mediums to do research at a higher level, more access to information
2. Threat - Easy to copy makes it hard to make new creative ideas, new tech increases the risk
are implementation
Gaining employee commitment
1. Opportunity - Make work more accessible from other places
2. Threat - Other companies can breach ideas and opportunities

Look into this in more detail^^^^^^

4 Types of Innovation****
1. Radical/Disruptive
a. Extent to which a company runs its business, internal environment (change
structure) ABACUS VS CALCULATOR
2. Modular - disruption in 1 way (significant knowledge shift) (Digital sensor in camera vs
film)
3. Architectural (Modules the same, reconfigures how the modules are work)
4. Incremental - Don't disrupt structure or knowledge

REVIEW THIS^^^^^^

Sustaining Innovation
- Incremental innovation

Disruptive Innovation
- Faster then big incumbents would reacts

Examples
1. AirBnB
 2. Uber
3. Uber creates car-sharing

Why do large firms sometimes fail?

- Organization structures and capabilities slow response time/ability and influence
- Organizational process weed out ideas that don’t address current needs
- Focus on satisfying mainstream customers
- Ignore new technologies
- Move to higher mainstream opportunities
- Avoid small, uncertain, unfamiliar
- Niche markets small and financially unattractive
- Growth potential uncertain
- Lower profit margins
- Risk of being criticized if you fail

How to avoid failure?

- Monitor outside of industry
- Partner with young firms
- Establish venture units
- Design by JOB not customer
Value on the customers life not the product

How small firms compete

- Enter with a product or market large firms don’t care about
- Not their mainstream - not interested or motivated
- Not what they are good at or can not easily adjust to (do it differently)
- Margins are too small or market too small
- Once you have specialized and grown you move up the market

Economic Factors
1. Bonds
2. Representing debt for issuing corporation or government
Characteristics
- Legal binding agreement
- Fixed rate of return (often paid semi-annually) COUPON
- Fixed term - principal repaid at maturity MATURITY DATE
- Priority over stockholders

Debt vs Equity
- Bonds vs Stocks
 - Bonds are liability
- Bonds above stocks in balance sheet

Yield - What you made/what you paid

RISK RETURN TRADEOFF IN INVESTMENTS IS CRITICAL WHEN COMPARING INVESTMENTS

LOW RISK INVESTMENT WILL HAVE A LOWER RETURN THEN HIGH RISK INVESTMENT

HIGHER RISK = HIGHER RETURN

YIELD IS IMPORTANT

ALL INVESTMENTS THAT HAVE THE SAME RISK PROVIDE THE SAME YIELD

Example (On slides)

1. Yield is higher than the coupon rate… Why? We paid less than the face value to buy the
bond, we made a capital gain. Capital gain = price lower than the face value

What decides yield (influences bond price) - yield is interest rate in economy + risk premium
- Risk free rate is what the bank gives you on savings accounts

If the interest rates goes up, the expected yield is expected to go up

Risk premium - 2%
Initial interest rate - 3% + 1% = 4
Face value - 1000%
Coupon rate - 5%
Price Paid - 1000%

New Yield = 6%

Yield - percentage return on any investment

- Allows you to compare them

What is a fair yield for any investment?

1. Investments have risk, first time you look at is what is the safest place to put your money?
(the Bank), then look at the bank rate or the interest rate? Any investment is a risk free rate

REVIEW YIELD FOR INVESTMENTS

Risk Premium is determined is company specific
Interest is country wide
Same risk level is the same risk premium, all should have the same risk

Higher risk = higher yield

Lower risk = lower yield
Same risk = same yield

Risk return trade off^^

Stocks

Leverage
1. Value of initial investment is greater than dollars available to invest
2. Why? Creates potential to make a larger return

Types of Leverage
- Buying on margin - borrowed some of the money, invest part of the value of the transition
(margin requirement), broker lends the rest
- Selling short - deposit 50% of the value of transaction

Comparing long and margin buy example

1. What is your capital gain if you go long and purchase the stock with your money?
2. What is your capital gain if you utilize the full margin and borrow funds from the broker?

Assume commissions/brokerage fees of 2% on all purchases and sales of the stocks

Margin buying
- Must quality for the margin account
- Must sign “hypothecation” agreement (Margin Account Agreement) - pledging of securities
as collateral for a loan
- Must pay interest on loan
- The investors % equity (margin) in the stock must always be greater than or equal to the
minimum margin requirement
- Formula on slide

What is the maximum profit you can make?

- In theory you can make infinite profit (less interest and commissions)

What is the maximum loss?

 - Price paid for stock (+interest and commissions)

Risks/costs
1. Interest expense
2. Margin calls (using money to reduce the size of the loan)

What happens with money paid on a margin call?

1. Broker uses the money to reduce your loan

Buying on margin (Short period of time)

Short selling
1. Buy low, sell high = sell high, buy low
2. Sell shares you don’t own - borrow from broker

Rules
- Deposit must be 150% CMV at start
- Maintenance margin must be met = 125%-140%
- Agreement may be terminated by either party at any time - forced to cover/”buy-in”
- Dividends declared are the responsibility of the seller

Short selling, more money than you have is a leverage transaction

1. Only need half the value
2. No risk return for the broker

Short selling summary

- Maximum profit - price of the short
- Maximum loss - unlimited
- Risks - unlimited losses, forced to cover, dividends, and margin calls
- What happens with money paid on a margin call - increases your deposit

Types of Stocks
- Represent equity/capital for issuing company
- Characteristics
- Voting rights
- No fixed term
- Variable return
- Discretionary payments (dividends)
- Risk (stocks are riskier than bonds)
Common stocks - Voting rights and non fixed payments (dividends are discretionary)
Preferred stocks - No Voting rights and fixed payments are promised but no legally required
(dividends as a % of par value ; granted in exchange for silence) - promise for dividends if money is
available
Bonds

Determinants of Bond Value

1. What impact does the coupon rate at bond issue?
a. Environment - interest rates
b. Company - credit rating issue
i. PRODUCT - FEATURES
2. What impacts bond price when traded?
a. Environment - Changes in prevailing interest rates, inflation/economic/market risk
b. Company - Changes in credit rating
c. Product - coupon rate relative to the return on other equally-risky investments

What impacts stock price?

- Present value of expected future cash flows
- Anything that affects above supply and demand of the stock

What affects expected future returns?

- Environment - bull vs bear markets, economy, interest (especially preferred) Pest
- Environment - industry conditions

Payment x years

Receiving payment or making, it doesn’t matter for the timeline (same formula)

What is a bond?
- Lending money, making an investment

Coupon rate is % of the face value

Borrow money - timeline in the future

Mortgage
1. Another word for loan

Lessee is an annuity due

APR - Allowed to assume M=P

Collateral is the asset you use to secure the loan, if you don’t pay a loan off what is the lender
allowed to take from you.

85 marks
29 marks/ investment and time value of money

Social Factors

Creating a CSR Culture - Influencing Managerial Preferences

Select - Hiring criteria, the individual, can’t expect someone to become a different person when you
hire them. Can’t expect them to make decisions that are not aligned with their own beliefs and value

Show - Leadership shows the values and beliefs that are proactive to the consumers, must be
consistent values throughout the company

Tell - Tell them and employees what you want, mission statement and code of conduct. Johnson and
Johnson creating safer products (harder to open packaging and capsule instead of caplets) after
cyanide attack on consumers

Teaching - Ethics booklets and training, sometimes there is no right choice for business decisions.
When someone asks you for help on an assignment, help them rather than give them your
assignment

Reward - Goals/evaluation on criteria and rewards. More conscious decision making, employees
will engage in behaviour because they are being rewarded and allows good communication. Know
and see what is required to be rewarded with benefits

Reinforce - Employee protection mechanisms, protect employment from ethical violations

Corporate Social Responsibility

Areas of Social Responsibility

Stakeholders - Those that are directly impacted by the choices of the organizations. LInk with
Critical Success Factors
- Competitors
- Environment
- Government
- Secondary Stakeholders^^^
Natural Environment
- Air, Water and Land

Why Environment?
1. Paradigm shift in management thinking
a. One it was always about performance in the present, what is the profitability today?
b. Back in the day managers did not think about the future impact of their business
decisions
c. Triple bottom line 1994
d. 1987 - Serve present but DON’T compromise the future
2. Change in societal attitudes
a. 20 years ago - Take, make and waste
b. Today - Reduce, reuse and recycle
3. Quantification in impact
a. Prove that there is a quantifiable impact on the environment
b. Overall attitude - business may be the primary cause of the problem but it will also
likely be the solution. We can’t buy eco friendly stuff if they aren’t being made by the
consumer
c. Action - Corporate greening, think of all the ways you can a company can be
environmentally friendly. Resources. Not greenwashing, seem to be more
environmentally friendly but actually not. Changing the label but not changing the
interior

Responsibility to Society
- Poverty, Education and Health

Why Responsibility to Society?

1. Diffuse the issues of social decay, political chaos and terroritim. More safer resources and
human well being
2. Affect human capabilities - more education is more productive, lower costs per unit of
production. Overall boost of quality
3. Social attitude shift - Chose to work for social work because of the social impact, pay cuts to
work for social enterprises rather than for profit ones. Reduce poverty levels and other
factors = new customers

Responsibility to Society
1. Economic growth is not a complete solution
a. Look beyond aggregate figures, consider income inequality
Actions
1. Social enterprises
2. Business and community partnerships
3. Innovate business models and leveraging business skills to contribute to social
development
Responsibility to Customers
- Pricing, advertising and rights

Why responsibility to customers?

1. Avoid adverse actions, rally and tell other customers. Reviews that are accessible for
customers
2. Purchase goods and services thereby providing business with revenue
3. Avoid increased regulation

Responsibility to Customers
1. Safe products - Tide pods making them safer
2. Information ie labelling
3. Voice concerns - clear communication
4. Choose - antitrust legislation and competition act protect competition from the government
5. Courtesy
6. Education ie risks
7. Fair pricing bur don’t eliminate profit incentive. Not gauging
8. Ethics in advertising and brands

Responsibility to Employees
- Hiring, promotion, compensating and training
- Provide business with talent, skills and labour

Actions
1. Responsibility hiring and promotion
2. Safe working conditions
3. Opportunities for advancement, not necessarily promotion at all times
4. Respectful treatment
5. Protection of whistleblowers

Responsibility to Investors
- Financial management and reporting

Why?
1. Provide you with the capital you need to expand
2. New regulations due to repeated irresponsbility, impact savings and retirement of users
a. More independence, new practices and new disclosure rules. Auditing and trusting
financial reports
b. Difference social attitude, canadian coalition for good governance
c. Legal action against directors and managers. Conrad Black
Actions
1. Focus on longer term on investment
2. Responsible management, reporting and transparency. Challenges the company faces and
how they can improve
3. No insider trading

Want stakeholders to support you.

Strategic Stakeholder Management

1. Importance of stakeholder varies by issue
2. Determined by - Ability or willingness to act or dependence or interdependence
3. Stakeholders can be - Threatening : Willing and able to create uncertainty or Cooperative

How to Strategically manage stakeholders

1. Identify key stakeholders
2. Diagnose and categorize them (supportive, non supportive, marginal or mixed blessed)
3. Enhance relationships
4. Implementation strategies to enhance relationships

Supportive
1. Always supportive and not willing to threaten (Unable, do not have a voice and not in their
interest to hurt you)
2. You must keep them informed because they can help the business grow.
3. Must be updated on controversy, keep them on their good sides
4. Might use their input and reasoning

Mixed blessing
1. Able and willing to threaten or support
2. Undecided voters, depending on the issue they are willing to change their votes. Willing to
change. They can help the company based on the situation. Must be involved and
collaborated, they can be understanding depending on the situation if they are informed

Mixed blessing stakeholders

1. Customers and suppliers - involved in product design
2. Competitors - If they feel threatened they may get in your way or go with you
3. Government - if a business helps the community or the area they may be supportive, if they
cause harm they will regulate and create challenges. Government must set safety or
technology standards with the government
4. Community - collab with the community.
5. Activist groups - Board of directors, seek input (be clear on business decisions so not one is
pissed off)
 6. Unions - Voice and representation of employees, when a union exists it can help and
improve agreements that are in favour of the company

Marginal and Non supportive

Marginal
1. Can’t threaten or support, powerless
2. Monitor - satisfy needs or demands because mixed stakeholders will watch out for marginal
ones
3. No need to involve or collaborate with them

Non Supportive
1. Will never support, able to threaten and willing to threaten
2. Reduce interdependence
3. No compromise
4. Use media to promote or defend actions
5. Encourage supportive stakeholders to voice their opinions

Demographics
1. Who - Based on David Foot’s work
2. What - study of human population, who were are a society
3. Why - Powerful predictor of behaviour/trends, certainty and simplicity of age data and
changes significantly impact business

Cohort - a demographic group

Key factors of a cohort
1. SIze of cohort - #number of people
2. Activity participation rate
Factors affecting the size of cohorts
1. Fertility rate - avg # children/women
2. Birth rate

What to look for in demographics

1. Cohort size
2. Cohort participation
3. Current characteristics
4. Future and trends

Using demographics
Factors
 1. Economics - what type of economy they grew up in and the impact it had (remembering the
great depression)
2. Technology - how you interact with technology and use it
3. World events/news - war and stuffs
4. Parenting - passing on values onto their kids

Characteristics
1. Values and priorities
2. Lifestyle
3. Habits
4. Mindset

Implications
1. How to attract them, retain and motivate. What are the customers needs?
2. What makes a product appealing?
3. How to attract consumers?
4. What messages and actions resonate?

Millennial Cohort
Prefer experiences over physical things

Changing echo generation

1. Children of boomers = relatively large group
2. More disposable income because parents provide essentials
3. Increasingly influence family purchases
4. Greater market impact

Changing households
1. One person houses growing faster than one family households
2. Highest among seniors
3. Smaller houses impacts buying because they may not need to buy in bulk (Less revenue for
wholesale)
4. Aging seniors living alone with smaller support networks

Changing Ethnic composition

1. Immigation increasing over the past decades, Canadian birth rate declining.
2. Immigrant younger and more likely to live in the city than the average Canadian
3. Interacting with marketplace difficult
4. Many customers have difficulty interacting with the marketplace

Changing geographic demographics

 1. Concentration in 4 areas - golden horseshoe, montreat, bc lower mainland + Vancouver and
calgary edmonton
2. Donut effect
3. Rural living predominates in Atlantic Canada, saskatchewan, territories
4. Net exodus of youth from rural area
5. Average median age in rural areas and access to goods and services

Political factors notes

Pest
Political and Legal factors
1. Laws and regulations
2. Taxes
3. Trade agreements or conditions
4. Political systems
5. Political stability

Significance
1. Protection of consumers
2. Support or protection and regulation of local businesses
3. Opportunities for foreign markets

How business influences government

1. Lobbying
a. Hired to represent companies and groups interest
b. Lobbying act - must register and follow the rules. Regulate activities and ensures
transparency
c. Trade associations - small business/individuals join and lobby as an industry group
d. Influence decision making
2. Collaboration/Input
a. CRTC consults with industry members
b. Mixed blessing stakeholders, levy rules
3. Advertising
a. Corporations influences voters
b. Get to the government through the voters

Government rules
1. Customers
2. Competitor
3. Taxation Agent
a. Collected by all three levels of government
b. Types - business and personal
4. Approaches - progressive (tax rate gets bigger as you earn more money or dollar value gets
bigger), regressive (more impact on income the lower the income, HST sales tax if you make
 less the % of expenditure is more on tax), and restrictive (restrict consumption tobacco or
carbon tax, sin taxes, make product more expensive and discourage consumption)
5. Subsidies (financial support that a company is doing, the government can subsidize costs
for business pollution decreasing equipment) , tax breaks (small towns, if you locate here
we won’t charge tax), supportive services for small and large business, research and
findings and bailouts (provide funding to businesses that are going bankrupt, pretty rare)

Government provides services

1. Education

Regulator/Lawmaker
1. Regulates business activity, influences technology - CRTC
2. Purpose
a. Promotes competition, competition act, small business support
b. Promotes innovation - intellectual property rights
c. Protects consumers - hazardous products acts
i. Protect employees (CSR)
d. Achieve social goals - universal health care, education (this varies)
e. Protection of the environment - canada water act, fisheries act

Connects to FIVE FORCES ALL OF THEM

lINKS TO OTHER PEST FACTORS

1. hOW DOES THE GOVERNMENT INFLUENCE ECONOMIC, SOCIAL AND TECH FACTORS

Example
1. Canada signs new ASEAN trade agreement
2. Economic?
3. Social?
4. Tech?

Links to CSF?

Intellectual property rights

1. What?
a. Legal rights that results you exclusive use of the innovation
b. Benefit financial, creates advantage since no one has it
c. Industrial, literary, scientific and artistic
d. Patents, copyrights and trademarks
Why?
1. Creates incentive to innovate allowing you to benefit
Trademarks?
1. Words, symbol, shape, or combination
2. Identifies product or company or organizations
a. Why
i. Establishes, protects reputation/brand
ii. One of your most valuable assets
iii. Facilitates licensing

Copyright
1. Original literary, dramatic and musical or artistic work
2. From the moment it is created, no registration is needed
3. Owner is creator, paid work = owner is employer
4. Duration - life of the owner + 50 years is public domain
5. Caution - Doesn’t cover ideas, only the form is which they are expressed
a. Why?
i. Receive credit for your work
ii. Receive royalties for your work

Patents
1. Government grants that give inventors exclusive rights to their invention
2. Has to be a realistic functional thing, show ingenuity
3. Must be new to the work
4. Can be a product, composition, apparatus, process, or improvement on any of these
5. Protection 20 year

Why?^
1. Provides protection to the owners
2. Can licence and receive loyalties
3. Provides valuable information and inspiration for further research and innovation
a. Details disclosed to the public after 18 months

Forms of ownership

Sole proprietorship - owned by one person (entrepreneurship)

1. Easy to create and formation
2. Low barriers to entry and government support
3. Complete control over profits and decisions
4. Unlimited liability
a. All debts and things go directly through the one owners
5. Difficult to obtain outside financing (Entrepreneurship financing) less bank investment
unless you can guarantee the money back, invest in owner not business
6. Taxed as personal income, advantage if the business has losses) Higher tax
Partnership - 2 or more, max 50
1. Easy to create and formation - partnership agree is a choice
2. Few regulations and government support
3. More resources (more people)
4. Shared profits and decision
5. Difficult to obtain outside financing
6. Taxed as personal income (advantage is losses)
7. In theory, unlimited liability’

Types of partnerships
1. General partnership, all partners have joint and several liability
a. Joint liability, together share liability
b. Several liability - 1 may have to pay all
2. Limited partners
a. Limited partners liability = investments
b. Limited partners can not be active in mamagements
c. At least one general partners
d. Can’t be held accountable if you are not fully behind the cause of all the losses

Corporation
1. Separate entity from owners (Shareholders)
2. 3 types of corporations
a. Public
b. Private
c. Crown

Partnership - Two or more owners, max 50. One legal entity (Debts income are 1, 1 tax return, no
distinction)
- Characteristics
- Ease of formation - partnership agreement
- Few regulations, government support
- More resources (more knowledge very sole) (vs sole)
- You work individually when you can manage work on your own or there are skilled
gaps (specialization of the overall work)
- Share profits and decisions
- Difficult to obtain outside financing because you are small (slightly more inclined to
be given money by the banks)
- Taxed as personal income, the government does not care if profits are for the
business or personal usage. (Higher personal income tax rate)
- Unlimited liability***
Types of Partnerships*** Kind of liability
1. All partners have joint and several liability
a. Joint liability - together share liability (predetermined allocation of liabilities)
b. Several liability - 1 may be liable for all (if the business owes a liability and one of
the partners does not pay their share the outside company can come for other
members of the partnership. One of the partners may be required to pay more
because one chooses not to

Limited Partnership
- Limited partners liability - investment, since you are not involved and is just the investment
it's only fair that you are only limited to share of losses
- Limited partners cannot be active in management
- At least one general partner

Corporation
1. Separate entity from owners (shareholders)
2. Corporations are not necessarily big. Can be a one owner (Person) corporation
a. Types
i. Private (IPO) E of Pest - Investment bankers
ii. Private - Owners and company are separate but private shares trade hands
privately. Few owners hold shares sometimes.
iii. Crown - Owned by the government (Canada Post)
Interest represents of board of directors
1. Inside
2. Outside

Private corporation
1. Shares not publicly traded - less than 50 shareholders, owners/business = separate entities
Characteristics
1. Flat rates (Percentage for every dollar of profit), lower than public and individual rates)
2. Potential for limited liability if personal assets are not used as collateral (Most lose is
investment, owner assets is separate from business assets)
3. Low regulation relatively, encourage entrepreneurship
4. Secrecy - only people the business has to share financial is to other owners
5. Moderate complex formation
6. Double taxation (Dividends, pay taxes on profits and distributes dividends personal income
tax)

Public coration
1. Share = owners
2. Flat tax rates (lower than individual rates)
3. Limited liability
 4. Continuity, ease of transferring ownership. Owner changes business changes
5. Easy to raise money, access public funding and purchase shares (no limit to shareholders)
6. Double taxation (dividend issue)
7. Most costly and complex of formation
8. Regulation
9. Zero secrecy

INTERNATIONAL BUSINESS
- World is becoming a single interdependent system
- Globalization
- Increasing awareness of benefits, access to new products, suppliers and markets.
Porters (cheaper supplies, more buyers lowers buyer power, new technology makes
it cheaper easy and faster)
- Technology makes it faster, easier and cheaper
- Competitive pressure to be aware and respond to foreign competition

Should I go international?
3 components
1. Should we do it (Diamond E), does it make sense
a. Is there a demand for our product?
i. Do we have the money, how much do they spend on these products
b. Can the product be modified to fit the foreign market
i. Do I have the ability to change and produce the changed products
c. Is there foreign business climate suited to imports
i. Laws, regulations, tariffs, bureaucracy, competition and 5 forces
d. Do we have or can get needed assets and skills
i. Understand customer, distribution, management, export and money

Must be all yes to all to go domestic^

2. What are the barriers (trade related) and how can we overcome them, these barriers
influence entry strategy
a. Internal
i. Knowledge/capabilities
ii. Production
iii. Control preference
iv. Finances
b. External
i. 5 forces - distribution, competition, suppliers, substitutes
ii. Economic - exchange rates, GDP
 iii. Technological - IP (intellectual property, likely to imitate trademarks and
violating copyrights and copy laws but you can’t do anything about it
because of IP laws) laws, technology standards
iv. Political - quotas (Limits the imports of certain goods), tariffs, subtitles
operations of local business, protectionism, local content, laws, Business
practice laws - dumping
v. Social and cultural - customer needs, customer values, language and norms
3. Overall entry strategy
a. Licensing - Lose marketing control
b. Hire local agents - gain local marketing knowhow
c. Set up branches/sales office - complete control of marking, what is said about the
product sales and information.
d. Alliance with local firms - Complementary skills that you may not have
e. Establishing a foreign subsidiary- riskies and it may not be approved, may not gey
approved.