978-1259912191 Chapter 4 Solutions Manual Part 2

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Chapter Four: External Analysis

Lecture Links

Lecture Link 4.1: The North American Industry Classification System (NAICS)

(LO 4-1)

www.census.gov/epcd/www/naics.html

The North American Industry Classification System (NAICS) are industry codes issued

by the government to gather data, publish data, and track data.

The two ways to find national industry types is to use the categories developed by the

North American Industry Classification System (NAICS) and issued by the government

to gather data, publish data and track data.

Direct competitor analysis. Use the research available online and through a college

library.

Use NAICS to research the national trends in your general industry.

Use NAICS to research national trends in your specific industry

National trends do not reveal opportunities in local competitive environments

Use NAICS codes to research competitors in your geographic area.

Lecture Link 4.2: External Analysis of Competitors

(LO 4-3)

One objective of defining your competitors is to study the market and gain valuable

insight about your competitors. New entrepreneurial business owners cannot afford to

hire consultants and other professionals to conduct this research. As a result, new small

business owners complete this research themselves.

First, go to zipcode.com and conduct a search. Next, visit mapquest.com and get

directions for each competitor that you defined in your analysis.

Develop a list of your competitors.

Create a questionnaire that contains all of the questions you want to discover about the

competitors. For example you might ask about the products or services offered at each

competitor, the volume of clients that frequent the competitor’s industry, how much each

competitor charges their clients, where the population growth is in your industry, and

what the client profiles are in your industry? These questions are only considerations.

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Chapter Four: External Analysis

You will want to expand and conform the questions you ask to your specific type of

industry. Complete the questionnaire after you visit each competitor.

What did you discover about your competitors? Who do you believe your major

competitor is?

Do field research.

Lecture Link 4.3: How about industry trends here? Discuss the competitive environment

related to the external environment and the adverse affects of the financial crisis.

(LO 4-4)

The Human Develop Indexi is a way to measure the standard of living in various

countries. The index is developed by The United Nations Development Program. The

data is based on economic factors and social progress, such as education levels.

What factors do you think contribute to high development versus low development?

Why do you think the standard of living is better in some countries versus others?

Lecture Link 4.4: Elasticity of Demand.

(LO 4-4)

There is no doubt that one of the most important stakeholders in businesses is the

community in which they operate. For example, when Panamanian Airline ordered

737’s from Boeing, a deal worth $1 billionii, the Chicago based company executives

weren’t the only happy ones. Portions of the plane are built in Gresham, Oregon which

could help keep jobs in this area, East of Portland, Oregon.

On the other hand, a community can suffer when a company isn’t doing well. When

Harley Davidson, Inc announced lower than expected revenues, it also announced it

would be cutting jobs and closing plants in the York, Pennsylvania area, where some of

the motorcycles are built. While on the surface this would only seem to affect those laid

off workers, it can affect everyone in the community. When workers are laid off, they

don’t have money to spend in stores, restaurants and on entertainment, affecting the

entire community.

“Closing these plants will be the worst thing,” says Liviu Hotea, the manager of the

Round the Clock Diner just down the road from the Harley plant. The diner feeds many

plant workers as they head to or off of their shifts; even tourists stop in before or after

touring the plant. Other businesses believe they will be affected to, as 70% of their

business comes from the plantiii.

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Chapter Four: External Analysis

Suppliers will also be affected by the plant closings, as Harley Davidson will not need as

many raw materials to produce their products when the plant closes. The idea of

stakeholders being an important part of business decision rings true, whether the news

is positive or negative.

Look at businesses in your area. Select one and list what effect the closing of that

business might have on the area.

Bonus Internet Exercises

Bonus Internet Exercise 4.1: Competitive Advantage

(LO 4.-4)

This chapter discussed the importance of competitive advantage as the fourth and final

element of the external analysis. Perform a Google search of competitive advantages in

the external environment within the financial sector. Review the policies of two different

companies and then answer the following questions.

1. What two companies did you research?

2. What is the main focus of their diversity policy?

3. Any company can create a policy, but how might it go about actually making sure

the policy is implemented?

4. Think of the place where you work or the last place you worked. Did that

company have a diversity policy? Do you think it was effective? Why or why

not?

Bonus Internet Exercise 4.2: Bureau of Economic Analysis, U.S. Department of

Commerce (LO 4-5)

Non-profit organizations are also a type of business. Visit the Bill and Melinda Gates

Foundation website at http://www.gatesfoundation.org and answer the following

questions.

1. What are the key values and mission of the foundation?

2. When was the foundation created?

3. Who are the key officers of the organization?

4. What kinds of grants does the foundation give? Name three and the amounts

awarded.

5. What is an endowment? What is the total endowment of the organization?

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Chapter Four: External Analysis

Bonus Internet Exercise 4.2: Bureau of Economic Analysis, U.S. Department of

Commerce (LO 4-5) – Notes

1. What are the key values and mission of the foundation? The Bill & Melinda

2. When was the foundation created? It was created in 1997.

3. Who are the key officers of the organization? Bill, Melissa and William Gates,

4. What kinds of grants does the foundation give? Name three and the

amount awarded. Grant making areas are global development program, global

5. What is an endowment? What is the total endowment of the organization?

Bonus Internet Exercise 4.3: Society: An Entrepreneurial Approach to Analysis

(LO 4-4)

The authors in the text discussed that entrepreneurs must analyze their external

environment to gain a competitive advantage in a particular industry. New small

business owners evaluate the external environment when they conduct research in their

competitive analysis.

One interesting component of the external environment is society. Entrepreneurs could

evaluate the society as a whole and make decisions about various products and

services. The Small Business Administration has a research division that promotes

economic research for small business growth. Search their site at

www.sba.gov.research

1. What did you find most interesting about this resource? How is it different from

the other resources that you might use to evaluate business opportunities as a

result in societal trends?

2. How might this data be useful if you were starting a business?

3. Click on the links tab and review the available resources. Choose one topic and

discuss how it might assist you with your new small business.

4. Discuss how society impacts the trends associated with the external analysis.

Explain your logic.

Critical Thinking Exercises

Critical Thinking Exercise 4.1: Draw Your Competitive Map

(LO 4-1, 4-2, 4-3, 4-4, 4-5)

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As we know from the text, in a competitive map there are three different classifications

of businesses size. They are: microenterprises, SME’s and large businesses. How

many of each type do you think exist in the United States?

COMPETITIVE MAP

Competitor

Data to Evaluate

Number of Households

Household Income

Average Age in Area

Number of Competitors

Number of Clients

Week Day

Number of Clients

Weekend

Number of Clients per

Hour

Peak Flow of Customer

Average

Charge/Transaction

1. Develop a competitive map specific to the industry type for your business

venture.

2. Complete each column based on the specific criteria for your competitors and the

respective data.

3. Add other criteria that you can evaluate based on your specific industry type.

Critical Thinking Exercise 4.2: The External Environment

(LO 4-1, 4-3, 4-4)

The authors in the text emphasized that entrepreneurs gain a competitive advantage

when they assess their external environment independently. Recall the eight critical

steps discussed in the analysis of the external environment. The last step in the

assessment was to determine your competitive advantage.

You are a motivated entrepreneur and your new business goal is to open an

independent insurance agency. You started your business plan and the next item on

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Chapter Four: External Analysis

your agenda is to analyze the external environment. The final step in your external

analysis is to assess how you will gain a competitive advantage in your industry.

Discussion Questions:

1. Perform a google search with the key words “insurance agency” in the location

where you plan to open your new insurance agency.

2. How many insurance agencies did you find?

3. What is the distance between where you want to open your agency versus the

location of the other insurance competitors?

4. Summarize how you will gain a competitive advantage over the competition.

Critical Thinking Exercise 4.2: The External Environment – Notes

Note: Answers will vary based on student research outcomes

1. Students will list the number of competitors in their specific industry

2. Students will list the number of competitors in their specific industry

3. Students will discuss the location of the competitors related to their business

4. Answers will vary. Students are expected to discuss how they will gain a

competitive advantage over other firms in their industry

Follow up discussion for students

1. Will you open your insurance agency?

2. Based on student responses, discuss possible competitive advantages for them

to consider. For example, will they sell a specific insurance product?

Critical Thinking Exercise 4.3: Usual or unique?

(LO 4-6)

Ask students to consider a particular business and differentiate between ordinary

unique business resources and capabilities.

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Chapter Four: External Analysis

Critical Thinking Exercise 4.4: Reading for Information

(LO 4-4)

One of the important things helpful for understanding the business environment is for

people to read. If they read, they can begin to understand how each of the five areas

can affect their business. As each of the article titles listed have been actual articles in

the news. For each article, brainstorm which kinds of businesses the article might affect

(could be more than one). Then discuss how this knowledge might help a

businessperson.

1. The World Economy: It Has Stopped Shrinking

2. Ann Taylor Tops Profit Estimates

3. U.S. Immigration Battle Heats Up

4. Southwest Airlines to Provide Onboard Wi-Fi

5. The Hard-Sell on Anti-Aging Products

6. Home Sales Rally Stocks

7. Spas Take Off in Asia

8. Renovating Home Depot

9. World’s Most Admired Companies

10.The End of Phones As We Know Them

Bonus Cases

Bonus Case 4.1: Pop’s Pizza Palace: Assessing the Environment

(LO 4-1, 4-2, 4-3, 4-4, 4-5, 4-6)

Imagine that you were just informed that you inherited a business from a distant relative

in another state. Visualize yourself as the beneficiary of this small business. You never

had the opportunity to visit the relative or the state where the business operates; and

the shop that you inherited is small and outdated. It is located is in a small recessed

area next to a Pizza King, the favorite local hang out in the county.

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Since yours is an established business called Pop’s Pizza Palace and you are in the

process of completing your Entrepreneurial course, you want to apply some of the skills

that you learned in the class. You have already examined the eight critical steps of the

external environment and your competitive map includes the following information:

1. There is inadequate parking at your shop so you have no clients.

2. Pizza King owns their own parking lot so they have an abundance of parking

3. Your family pizza shop is located in a rural area two miles away from the main

highway

4. Pizza King is located on the main highway

5. The other shops in your building are either closed or going out of business

6. Pizza King has their own building with a play ground, video games, and internet

access

7. There are only two tables in your small shop

8. Pizza King can seat one hundred clients

9. Your shop’s decor is run down and out of date

10.Pizza King is newly renovated

11. Your shop’s prices are so low there is not enough profit to cover the cost of your

supplies and salaries

12.Pizza King’s prices are outrageous; however, the clients love the atmosphere

13.Your product is better Pizza King’s

14.Your relative and cousin are the only employees

15.Pizza King has fifteen employees

16.You were at the shop for two days and you realized there were only two

customers. Those customers were your relatives

17.You own the pizza shop and the buildings in the shopping center and there are

no mortgages or liens on the building or the propert

18.Your assessment from researching public records research revealed that Pizza

King owes over $500,000 in loans and the owners do not handle their finances in

an efficient manner. As a result, they are delinquent on their mortgage and their

small business loans. You also heard through the grape vine that an employee

over at the Pizza King complained that her check bounced

Discussion Questions:

1. Summarize the state of your new business.

2. Would you consider selling your pizza shop, the land, and the surrounding

business? Why or why not?

3. Discuss whether or not you would offer to purchase the popular Pizza King shop.

Why or why not?

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Bonus Case 4.1: Pop’s Pizza Palace: Assessing the Environment

(LO 4-1, 4-2, 4-3, 4-4, 4-5, 4-6) – Notes

This case works well as a group exercise. Have the students read the eighteen points

about the two pizza businesses. An aid to analyzing the information is to have the

students list the advantages and disadvantages of each business. Then, using that

information, compare the different options – keep Pop’s Pizza Palace open, sell it, close

it, buy Pizza King, merge with Pizza King or just go home and forget the whole thing.

Also consider the effect that having to move to another state would have on your own

personal life.

One of the major challenges facing businesses today is how to create a work

environment that meets the needs of all generations that work within a given business.

We know that Baby Boomers and Generation Xers work differently. For example, Baby

Boomers started their careers with a strong work ethic because of the strong work ethic

they were shown by their parentsiv. However, many Baby Boomers entered the

workforce as dual-career couples, managing busy home and work lives. Generation

Xers saw the toll that “trying to have it all” took on the family and, as a result, they try to

manage a better work/life balance. In a survey by the Families and Work Institutev, 52%

of Generation Xers that put family first, while only 41% of Boomers said that family

comes first.

Discussion Questions

1. Why do you think generation plays such a large role in our work/life balance? Do

you see this at your own workplace?

2. What can companies do to create better work/life balance for employees? Make

a list of 5 things.

3. Do you think the individual is also responsible for his or her own work/life

balance? Explain your answer.

In this chapter, we discussed ways in which the government could help businesses be

successful. Among many, for example, the government implements standards, such as

the UPC code for retail products (this is the bar code required on products for sale in

retail stores) and UCC Code. The UCC code stands for the Uniform Commercial Code

and sets codes that govern companies doing business.

The UCC Code was developed by private organizations, but a version of the code has

been adopted by all states. Some states have made structural changes to the code,

although the code in all 50 states stays relatively the same.

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Chapter Four: External Analysis

The UCC code sets standards for banking transactions between companies and

between banks. It also addresses how transactions should take place between B2B

buyers and sellersvi. In a sense, this code is a way to write contracts so that all

businesses are using the same rules and language in their contracts.

The government, in setting up these type of guidelines, makes it easier to do business

because all businesses are playing by the same set of rules. Imagine if there were not

one set of rules for transactions; there would be a greater chance for corruption in

business, affecting the entire economy.

1. What are the other things that government can do to make businesses

successful?

2. How involved do you think the government should be in setting regulations for

businesses? Why?

3. What laws have been implemented recently to reduce corruption?

1. What are the other things that government can do to make businesses

2. How involved do you think the government should be in setting regulations

for businesses? Why? The government should be proactive in safeguarding

3. What laws have been implemented recently to reduce corruption? Many

Endnotes

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i United Nations Development Program, (2009). HDI Report, Retrieved August 20, 2009:

http://hdr.undp.org/en/reports/

ii Portland Business Journal. (July 16, 2009). Panamanian Airline Orders 21 737’s. Retrieved July 16,

2009 from Portland Business Journal:

http://www.bizjournals.com/portland/stories/2009/07/13/daily38.html

iii Burfer, T.W. (May 18, 2009). Closing of York County Harley Davidson plant would Impact Entire

Community. Retrieved July 16, 2009 from Patriot News:

http://www.pennlive.com/midstate/index.ssf/2009/05/shutting_down_york_harleydavid.html

iv Huff, C. (2005). Families and Work Institute. Retrieved July 15, 2009, from Workforce Management:

http://www.nysscpa.org/cpajournal/2007/207/images/ex1p56.pdf

vHuff, C. (2005) Families and Work Institute. Retrieved July 15,2009

http://www.nysscpa.org/cpajournal/2007/207/images/ex1p56.pdf

vi The American Law Institute. (2005-2009). University of Cornell Law School: UCC Codes. Retrieved August

21, 2009: http://www.law.cornell.edu/ucc/2/2-102.html