Managing in Complex Environments Professor Robert Atkin FINAL EXAM FINAL A COMPLEX ENVIRONMENT is Marked by rapid large scale and uncertain change in many underlying business drivers each with a different set of dynamics The more complex the environment The faster the rate of change The greater the magnitude of change The greater the uncertainty of change The greater number of drivers potential sources of change The more varied and complicated the dynamics of the drivers All business environments are complex The only real issue is how complex MANAGING IN COMPLEX ENVIRONMENTS means Attending to anticipating understanding responding to and leading developments in many areas while efficiently using resources making a profit being a decent corporate citizen and operating within the law Or Knowing understanding and discharging one s work place responsibilies within the authority granted of the firm in business economics characterized by many complex drivers that are subject to rapid large scale and hard to predict changes Firms usually have multiple goals which likely vary across firms and time In most US firms most of the time profit emerges as either the dominant goal or at least a dominant goal even if profit maximizing isn t usually possible Sellers must estimate demand and decide what attributes to provide before actual demand is known Firms often try to escape or avoid perfect competition on the sell or output side while seeking the benefits of perfect competition on the input side They try to escape by product differentiation process enhancement change of business model or some combinations of these This is not true in their roles as buyers when they prefer perfect competition 2 VOCABULARY Adjustments regular modifications that the firm will use under specific conditions or for specific products Price skimming Setting the highest possible price for a product during the introduction stage of its life cycle Penetration pricing Setting low prices during product introduction in an attempt to build market share and perhaps inhibit the entry of other possible sellers Price Discrimination The same seller in an oligopoly can often price differently in different market segments ex movie ticket prices are different in adults and students charging different prices to different classes of customers Sales The act of offering for purchase a product or group of products at a reduced price for a limited period of time Life Cycle pricing a planned adjustment to price as the product moves through its life cycle Agency Problem the situation when employees may wish to maximize their own personal returns rather than to maximize the firm s profits Authority certain rights the firm builds into a position includes rights to make certain decisions and rights to commit certain resources of the firm Backwards Channels market channels which link the end user backward to the retailer wholesaler or manufacturer Bohs Fide transaction a freely entered non coerced actual exchange among parties that have some form of communication and produces benefits to all parties typically assisted by third parties Brand an identifier identifies a product from a known source Names terms symbols designs or some combination of these that identify a particular product a particular product line a particular product mix a particular product producer or a particular product seller Brand names brand identifiers that can be spoken ex DKNY Brand marks brand identifiers that are distinctive symbols or designs Trademarks brand marks or brand names that are legally registered and protected Trade name the complete and legal name of the firm Brand extension occurs when the firm applies an existing brand identifier to a new product in a new product line Brand equity refers to the total value of the brand of the firm It tends to increase with brand awareness brand loyalty perceived quality and other positive brand associations and other assets such as patents and trademarks 3 Break Even Quantity The number of units that must be sold in the period for the total revenue from all units sold to equal exactly the total cost of all units produced for the period OK we know At Break even or P V Q F NI P V Q F NI 0 P V Q F or Break even quantity Q F P V Break Even Price A similar bit of algebra can be used to solve for break even price which is P F VQ Q Bottleneck Problem occurs when the production of one product is delayed waiting for a piece of equipment that is already in use Capital Budgeting Problem concerns whether a firm should invest in this or that or no long term project given expected costs expected benefits the time value of money the cost of capital tax effects and perhaps other issues Capitalism practiced by nations characterized by market driven economies Captive supplier downstream player attempts to control the supplier by becoming the suppliers only customer or overwhelmingly largest customer Centrally Planned Economy a government in which the state usually sets prices determines product mix and controls the means of distribution Channels complex links among parties to transactions Supply channels entire set of links that trace from raw material suppliers to end users Marketing channels shorter set of links between potential sellers and buyers at any point in the entire supply chain Communication channels provide information that could range from advertising to inquiries about products via Internet Distribution channels display and deliver product Selling channels effect transactions Channel mix the specific set of decisions a firm uses to manage its market channels Competition occurs when parties compete for the same dollar but with generally non substitutable products Form competition occurs when the options are substitutable in the most general sense Industry competition occurs when the options are from the same industry but not head to head substitutes Brand competition a form of head to head competition which occurs when options have strong brand identification 4 Price competition occurs when all products are generic or otherwise substitutable Conglomerate extreme form of diversification unusual today ex ITT 350 businesses Cost of hierarchy the cost of building and operating the new unit Customer Relationship Marketing CRM actual set of activities used to accomplish relationship marketing orientation Deliberately Structured Tasks everyone in an organization does different things and the allocation of tasks to people usually