BUSINESS DECISION MAKING ADMN2167

1. BUSINESS DECISION MAKINGADMN2167 Professor: Bob Carpenter

2. Today’s Agenda • Analysis and analytical tools • General Management • Expectations for final exam • Course evaluation

3. What analysis is … Analysis means separating constituent parts to understand each part’s value, kind, quantity or quality. Effective analysis requires experience, good inputs, intuition, models and organized thinking.

4. Problems with analysis • Tool rut …. One size fits all • B-school recipe…. Doesn’t always need acounting precision • Ratio blinders …. May tell you what but not why or how to fix • Convenience shopping …. Analyse data you have rather than get the right data

5. Analytical Tools we talked about … you presented PEST/STEEP Issues Analysis Porter’s Five Forces Industry Analysis Competitior Analysis S.W.O.T. Analysis BCG (Boston Consulting Group) Value Chain Analysis Financial Ratios

6. Case solution and analysis • Title page • Table of Contents • Situational Analysis • Environment • Industry • Organization • Strategy • Issues / Problems • Statement of primary issue / problem • Evidence of issue / problem • Effects of issue / problem • Statement of secondary issues / problems • Evidence of issue / problem • Effects of issue / problem You don’t have to think in the same sequence !

7. Case solution and analysis • Title page • Table of Contents • Situational Analysis • Environment • Industry • Organization • Strategy • Issues / Problems • Statement of primary issue / problem • Evidence of issue / problem • Effects of issue / problem

8. Situational Analysis • Environment • PEST • Issue analysis • Industry • Competitors • SWOT • Porter’s Five Forces • Organization • BCG for multi product company • financial • SWOT • Strategy • Value chain analysis • SWOT

9. The Boston Consulting Group Model Anthony Aquino J.F Garneau Paul Hesch Richard Jeschke

10. What is it? The BCG model is a well-known portfolio management tool used in Product life cycle theory that was invented in the early 1970’s by the Boston Consulting Group. The BCD model can be used to determine what priorities should be given in the product portfolio of a business unit. Placing products in the BCG model results in 4 categories in a portfolio of a company. 1. Stars 2. Question Marks 3. Cash Cows 4. Dogs

11. Stars -high growth, high market share -high market share in a growing market • generate large amounts of cash because of their strong relative market share, • but also consume a lot of cash due to their growth rate -If market share is kept, Stars are likely to grow into cash cows

12. Question Marks • These products are in growing markets but have low market share. • Question marks are essentially new products where buyers have yet to discover them. • The marketing strategy is to get markets to adopt these products. • Question marks have high demands and low returns due to low market share. • These products need to increase their market share quickly or they become dogs. • - The best way to handle Question marks is to either invest heavily in them to gain • market share or to sell them.

13. Cash Cows • Cash cows are in a position of high market share in a mature market. • - If competitive advantage has been achieved, cash cows have high profit • margins and generate a lot of cash flow. • Because of the low growth, promotion and placement investments are low. • - Investments into supporting infrastructure can improve efficiency and increase • cash flow more. • - Cash cows are the products that businesses strive for.

14. Dogs • Dogs are in low growth markets and have low market share. • Dogs should be avoided and minimized. • - Expensive turn-around plans usually do not help.

15. Limitations -Market growth rate is only one factor for industry attractiveness, and relative market share is only one factor in competitive advantage. The BCG model overlooks many other important details in these two determinants of profitability. -The framework assumes that each business is independent of the others. In some cases where a business is a “dog” may be helping other business gain a competitive advantage. - The model depends heavily upon the size of the breadth of the defenition of the market. A business may dominate its small niche, but have very low market share in the rest of the overall industry. In this case, this can be the difference between a cash cow and a dog.

16. Financial Ratios Group 4: Taylor, Tim, Tanja and Pam

17. What is a Financial Ratio It is a fraction showing the past performance of the company. The numbers that are inserted into the fractions are taken from the companies financial statements.

18. How Financial Ratios are used Pg.64 “Financial ratio analysis is a useful financial management tool developed to assist in identifying, interpreting and evaluating changes in the financial performance and condition of a business over a period of time. Its purpose is to provide information about the business entity for decision making for both external and internal users.”

19. Users of Financial Ratios External Creditors: lending decisions. Shareholders: investing decisions. Local community: job opportunities / sustainability. Internal: Managers: operating and financing decisions. Employees: stability of employers.

20. Ratio Categories Profitability Liquidity Efficiency Stability Growth

21. Profitability Ratios Cost of goods sold to sales Gross income to sales Operating expenses to sales Net earnings to net sales Return on equity Average years equity

22. Efficiency Ratios Average daily sales Age of accounts receivable Average daily cost of COGS Age of inventory Average daily purchases Age of accounts payable Inventory turnover Fixed assets turnover Total assets turnover

23. Liquidity Ratios Current ratio Acid test ratio / quick ratio Working capital

24. Stability Ratios Net worth to total assets Total debt to total assets Total debt to equity Interest coverage

25. Growth Ratios Sales growth Profit growth Asset growth

26. Notes About Ratios No precise guidelines Companies must be consistent in using the same ratios. Change in price levels. Comparison between companies is almost impossible. Historical information.

27. Q & A THE END

28. S.W.O.T. ANALYSIS Rachel Roy Cassandra Quizon Kyle Yantha Jared Walton Ivan Lulic

29. OVERVIEW OF PRESENTATION 1. S.W.O.T. Analysis Framework 2. Introduction 3. What is a S.W.O.T. analysis? 4. Purpose of S.W.O.T. 5. S.W.O.T. Matrix 6. Strengths 7. Weaknesses 8. Opportunities 9. Threats 10. Example of a S.W.O.T. analysis

30. S.W.O.T. ANALYSIS FRAMEWORK Environmental Scan / \ Internal Analysis External Analysis / \ / \ Strengths – Weaknesses Opportunities – Threats

31. INTRODUCTION • An important tool used in the Strategic Planning Process • Strategic Planning Process defined • Evaluates the Strength, Weaknesses, Opportunity & Threats of a company • Coordinates firms resources and capabilities to competitive environment

32. S.W.O.T… WHAT IS IT? • S.W.O.T. analysis - the evaluation of the Strengths, Weaknesses, Opportunities, and Threats of a company. • Evaluates internal factors - strengths and weaknesses • Internal factors - things that the company can control. Example - price or location. • Evaluates external factors - opportunities and threats. • External factors are elements that the company cannot control. Example - social trends or economic trends.

33. PURPOSE OF S.W.O.T. • S.W.O.T. analysis is used in coordination of marketing planning.  • “It provides guidance for developing marketing strategies." • Allows a company to  identify key strengths which can be exploited. • S.W.O.T. analysis is also used to evaluate a company's competition. • S.W.O.T. analysis should match a company's strengths and opportunities, while overcoming their weaknesses. • Used for marketing elements such as brand management or competitor analysis.

34. THE S.W.O.T. MATRIX

35. STRENGTHS • Internal factors that create value to your company • Include - assets, skills, or resources that a company has at it’s disposal, compared to it’s competitors. • The VIRO test - A good way to understand if your strength is actually going to positively effect your company. • VIRO TEST: • Value- does the strength generate efficiency or more effectiveness? • Imitability – hard to copy/imitate? • Rare- is the strength also possessed by many competitors? • Organizational – can it be exploited by this organization? • Common Strengths: • Specialist marketing expertise • New, innovative product or service • Location of your business • Strong brand or reputation

36. WEAKNESSES • The downsides to a company or business. • What a company lacks or fails to achieve/accomplish. • Weaknesses can lead to detrimental effects on a company. • Reputation can diminish depending on the severity of a weakness. • A minor weakness could have little to no effect on a company, while a major weakness could bring down a company if exposed to the public or left untreated or unresolved. • If a weakness can be overcome, it can become one of a company’s strengths. • Things to think about when trying to rectify a weakness: • What can we do better? • What are we getting criticized for? • Where are we vulnerable?

37. OPPORTUNITIES • Opportunities pertain to the attractiveness of a particular industry or market segment. • Opportunities refer to potential opportunities in the market to achieve increased profitability; for example, expansion in consumer demand, or access to new markets. • Opportunity is part of the external environment in S.W.O.T.. This is where you identify what you could do to improve your business/marketing scheme and how your going to achieve this.

38. THREATS • Threat is the other external factor of S.W.O.T. Threats are basically anything that could have a potential negative impact on your company or what your trying to achieve. • Threats refer to potential reductions in profitability, such as market shrinkage. • Any unfavourable situation in the organization's external environment that is potentially damaging to its strategy. The threat may be a barrier, a constraint, or anything external that might cause problems.

39. EXAMPLE – Nipissing University • Strengths • small class sizes • Intimate learning environment • Weaknesses • lack of food service/quality (no Mr. Sub anymore, lack of organic food, variety of meals, etc.), • unstable wi-fi (library for example) • lack of student/academic services (Career counseling services, study spaces, career placement services received a C+ on the globe and mail report card) • low variety/number of courses to choose from. • Opportunities • the expansion of the school and it’s library, which will help Nipissing expand, grow, and improve the level of education. • Threats • The new library going over budget or taking longer than expected to complete the project. • Lower tuition offered by other Universities • Other schools offering more of a variety of programs and courses

40. POP QUIZ • What was one of our Strengths in the Nipissing Example? Can you think of others? • Weakness – Internal or External Factor? • Opportunity – Internal or External Factor? • Explain the term ‘Threat’.

41. REFERENCES • Canadian Marketing in Action 6th Edition by Keith J. Tuckwell p.182 publisher Pearson Education Canada Inc Toronto Ont. 2004 • The Marketing Plan Handbook 3rd Edition by Marian Burk Wood  p.34 Pearson Education Canada Inc. Toronto Ont. 2008 • http://www.quickmba.com/strategy/swot/ • http://www.quickmba.com/strategy/strategic-planning/ • http://www.theglobeandmail.com/education/ • http://www.quickmba.com/strategy/swot/ • http://www.work911.com/planningmaster/planningarticles/swotanalysis.htm • http://www.stfrancis.edu/ba/ghkickul/stuwebs/btopics/works/swot.htm • http://www.bizhelp24.com/marketing/swot-analysis---understanding-your-business-3.html • http://www.axi.ca/tca/Sep2003/facilitationrole_1.shtml • http://en.wikipedia.org/wiki/SWOT_analysis • http://www.ifm.eng.cam.ac.uk/dstools/paradigm/swot.htm

42. Porter’s Five Forces Model Jesse, Michelle, & Mariah

43. Porter’s Five Forces: • Developed by Harvard Business Professor Michael Porter • Used to analyze a firm’s operating environment to help firms in their decision-making • Widely used in business as a way of estimating industry conditions and profit potential

45. The Five Forces: • Threat of entry of new or potential competitors • Rivalry among incumbent firms • The bargaining power of suppliers • The bargaining power of buyers • The threat of substitute products

46. Threat of entry of new or potential competitors • The threat of new entrants • Profitable markets usually draw new firms to the market • Incumbent firms may block new firms from entering the market • Profit will fall to a competitive level

47. Rivalry among incumbent firms • Refers to the intensity of competition among existing firms in an industry • If rivalry is weak, firm’s can earn above-average profits • If rivalry is strong, price wars occur and a firm’s profit potential is minimized

48. The bargaining power of suppliers • Depends on ability of the supplier to negotiate price and delivery terms. • A strong supplier will adversely affect a firm’s profitability.

49. Suppliers are powerful when: • Only a few or single supplier has a dominant market share. • The product being supplied is unique and has no substitutes. • Suppliers have proprietary technology. • The buyer firm must incur a high cost to switch suppliers. • The buyer cannot make supplies in-house.

50. The bargaining power of buyers • The impact that consumers have on the product industry. • The bargaining power of buyers can be strong or weak.