Mgmt 466 quiz 1
Scanning, monitoring, forecasting, and assessing are the
four parts of the external environmental analysis process. Effectively using this process helps the firm in its efforts to identify opportunities and threats.
External
opportunities and threats 1)Go global (opportunities) 2)competitors (threats)
Value Chain Analysis
outsource
general environment
politcal: tarrifs economic: tariffs social-cultural:war technology:keeping up
tangible resources
resources that have physical attributes and thus are visible
A mission
specifies the businesses in which the firm intends to compete and the customers it intends to serve
nonsubstitutable capabilities
are capabilities that do not have strategic equivalents
Costly-to-imitate capabilities
are capabilities that other firms cannot easily develop.
The Competitive Landscape
-Hypercompetition
Internal Organization
1)Resources 2)Capabilities 3)Core Competencies 4)Competitive Advantage
External Environmental Analysis
This analysis has four parts: 1)scanning 2)monitoring 3)forecasting 4)assessing
Lockheed Martin
vision:innovation/performance/quality mission:
Scanning Example
•Broadly speaking, the Internet provides a wealth of opportunities for scanning. Amazon.com, for example, records information about individuals visiting its website, particularly if a purchase is made.
Capital Requirements
•Competing in a new industry requires a firm to have resources to invest. In addition to physical facilities, capital is needed for inventories, marketing activities, and other critical business functions. Even when a new industry is attractive, the capital required for successful market entry may not be available to pursue the market opportunity.
if you can't find them internally you find them outsourcing
•Outsourcing is the purchase of a value-creating activity from an external supplier •Strategic Rationales for outsourcing •DO NOT outsource activities the firms can do itself •Do not outsource things that neutralize environmental threats •Right time for outsource
general environment
(P) political: tariffs (e)economic: tariffs (s)octal-culture: health (t)ethnology: vending machines
General Environment
(P)olitical legal • (e)conomic • (s)social cultural • (t)echnolgocial • Demographic • Global
• a firm's competitive actions and responses are influenced by the conditions in the three parts..
(the general, industry, and competitor) of its external environment and its understanding of those conditions
the external environment
(which includes the industry in which a firm competes as well as those against whom it competes) affects the competitive actions and responses firms take to outperform competitors and earn above-average returns.
Four Criteria of Sustainable Competitive Advantage
- Valuable - Rare - Costly to imitate - Nonsubstituable
Compared with the general environment, the industry environment...
- has a more direct effect on the firm's competitive actions and responses. -The five forces model of competition includes the threat of entry, the power of suppliers, the power of buyers, product substitutes, and the intensity of rivalry among competitors. -By studying these forces, the firm finds a position in an industry where it can influence the forces in its favor or where it can buffer itself from the power of the forces to achieve strategic competitiveness and earn above-average returns.
The Global Economy
-A global economy is one in which goods, services, people, skills, and ideas move freely across geographic borders. -Relatively unfettered by artificial constraints, such as tariffs, the global economy significantly expands and complicates a firm's competitive environment.
Industry Environment Analysis
-An industry is a group of firms producing products that are close substitutes. In the course of competition, these firms influence one another. -Typically, companies use a rich mix of different competitive strategies to pursue above-average returns when competing in a particular industry. -Compared with the general environment, the industry environment (measured primarily in the form of its characteristics) has a more direct effect on the competitive actions and responses a firm takes to succeed.
Threats of New Entrants:
-Identifying new entrants is important because they can threaten the market share of existing competitors. -One reason new entrants pose such a threat is that they bring additional production capacity. -Unless the demand for a good or service is increasing, additional capacity holds consumers' costs down, resulting in less revenue and lower returns for competing firms. -Economies of scale are derived from incremental efficiency improvements through experience as a firm grows larger. -Therefore, the cost of producing each unit declines as the quantity of a product produced during a given period increases. -A new entrant is unlikely to quickly generate the level of demand for its product that in turn would allow it to develop economies of scale.
Bargaining Power of Suppliers
-Increasing prices and reducing the quality of their products are potential means suppliers use to exert power over firms competing within an industry. -If a firm is unable to recover cost increases by its suppliers through its own pricing structure, its profitability is reduced by its suppliers' actions.
Porter's 5 Forces-- industry
-Rivalry among competitors; (low for Dr. P & Pepsi)(high for Fanta & SunnyD) -Threat of new entrants; (high->anybody can make soda) (low->if its hard to initiate the product) 1)Distribution 2)Product Differention 3)Capital 4)Economies of scale 5)switching cost -Threat of substitute products;(high-> you can substitute dr.p for coke) (low-> if you can't substitute the product) -Bargaining power of buyers; (high) -Bargaining power of suppliers; (low -> lots of suppliers) (high->little suppliers)
What are the most important factors in the external environment that are relevant to the European airline market? How does the company deal with each of these factors at present?
-The EU is trying promote train transportation (which will affect the airplane system)
Scanning
-Through scanning, firms identify early signals of potential changes in the general environment and detect changes that are already under way. -Scanning activities must be aligned with the organizational context; a scanning system designed for a volatile environment is inappropriate for a firm in a stable environment. - Scanning often reveals ambiguous, incomplete, or unconnected data and information that require careful analysis.
In a competitor analysis, the firm seeks to understand the following:
-What drives the competitor, as shown by its future objectives. -What the competitor is doing and can do, as revealed by its current strategy. -What the competitor believes about the industry, as shown by its assumptions. - What the competitor's capabilities are, as shown by its strengths and weaknesses.
Forecasting
-When forecasting, analysts develop feasible projections of what might happen, and how quickly, as a result of the events and trends detected through scanning and monitoring.
Monitoring
-When monitoring, analysts observe environmental changes to see if an important trend is emerging from among those spotted through scanning. -Critical to successful monitoring is the firm's ability to detect meaning in environmental events and trends. -Effective monitoring requires the firm to identify important stakeholders and understand its reputation among these stakeholders as the foundation for serving their unique needs.
Value Chain Activities
-are activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers.
core competencies
-are capabilities that serve as a source of competitive advantage for a firm over its rivals. -Core competencies distinguish a company competitively and reflect its personality. -Core competencies emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities.
Hypercompetition
-describes competition that is excessive such that it creates inherent instability and necessitates constant disruptive change for firms in the competitive landscape. -Hypercompetition results from the dynamics of strategic maneuvering among global and innovative combatants.
Vision
-is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. - In other words, a vision statement points the firm in the direction of where it would like to be in the years to come. -The vision is the foundation for the firm's mission
Strategic Management Process
-is a rational approach firms use to achieve strategic competitiveness and earn above-average returns. -the strategic management process examined in this book calls for disciplined approaches to serve as the foundation for developing a competitive advantage. Therefore, it has a major effect on the performance (P) of the firm.
Strategic flexibility
-is a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment. -Thus, strategic flexibility involves coping with uncertainty and its accompanying risks
A strategy
-is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. -When choosing a strategy, firms make choices among competing alternatives as the pathway for deciding how they will pursue strategic competitiveness. In this sense, the chosen strategy indicates what the firm will do as well as what the firm will not do.
Risk
-is an investor's uncertainty about the economic gains or losses that will result from a particular investment. - The most successful companies learn how to effectively manage risk.
The strategic management process
-is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average. -The process involves analysis, strategy and performance (the A-S-P model)
Rare capabilities
-re capabilities that few, if any, competitors possess. -A key question to be answered when evaluating this criterion is "how many rival firms possess these valuable capabilities? " Capabilities possessed by many rivals are unlikely to become core competencies for any of the involved firms.
the I/O model has four underlying assumptions.
1)First, the external environment is assumed to impose pressures and constraints that determine the strategies that would result in above-average returns. 2)Second, most firms competing within an industry or within a segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources. 3)Third, resources used to implement strategies are assumed to be highly mobile across firms, so any resource differences that might develop between firms will be short-lived. 4)Fourth, organizational decision makers are assumed to be rational and committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors.
Resources
1)Tangible 2)Intangible
To study an industry, the firm examines five forces that affect the ability of all firms to operate profitably within a given industry. (PORTER 5 FORCES)
1)Threats of New Entrants 2)Threat os Substitute products 3)Bargaining Power of Suppliers 4)Bargaining Power of Buyers 5)Rivalry among competing firms
Competitor analysis informs the firm about the future
1)objectives 2)current strategies 3)assumptions, 4)capabilities of the companies with which it competes directly. A thorough competitor analysis examines complementors that support forming and implementing rivals' strategies.
In general, a firm's resources are classified into three categories:
1)physical 2) human 3) organizational capital
Resource based model of above average returns
1. Identify the firm's resources. Study its strengths and weaknesses compared to competitors 2. Determine the firm's capabilities. 3. Determine the potential of firm's resources and capabilities in terms of competitive advantage. 4. Locate an attractive industry 5. Select a strategy that best allow the firm to utilize its resources and capabilities in terms of a competitive advantage.
The external environment has three major parts:
1. The general environment (segments and elements in the broader society that affect industries and the firms competing in them) Scanning, monitoring, forecasting, and assessing 2. The industry environment (factors that influence a firm, its competitive actions and responses, and the industry's profitability potential) 5 forces 3. The competitor environment (in which the firm analyzes each major competitor's future objectives, current strategies, assumptions, and capabilities).
I/O Model of Above-Average Returns
1. study the external environment(general, industry, competitor), especially the industry environment 2. locate an industry with high potential for above average returns. 3. identify the strategy called for by the attractive industry to earn above average returns. 4. develop or acquire assets and skills needed to implement the strategy. 5.use the firms strengths to implement the strategy.
Industries are populated with different strategic groups.
A strategic group is a collection of firms following similar strategies along similar dimensions. Competitive rivalry is greater within a strategic group than between strategic groups.
Cost Leadership
Being more efficient/ cost reduction
Product Differentiation
Over time, customers may come to believe that a firm's product is unique. This belief can result from the firm's service to the customer, effective advertising campaigns, or being the first to market a good or service. Greater levels of perceived product uniqueness create
•Access to Distribution Channels
Over time, industry participants commonly learn how to effectively distribute their products. After building a relationship with its distributors, a firm will nurture it, thus creating switching costs for the distributors.
Does Ryanair possess any unique and hard-to-imitate resources that give the company a sustainable competitive advantage over other European airlines?
Ryanair was the first airline introducing the low fares model in Europe. But the times are changing and new threats are emerging from the external environment and the budget airline industry. More and more competitors try to imitate the Ryanair's model and they are increasing in size and scope.
Cost Disadvantages Independent of Scale
Sometimes, established competitors have cost advantages that new entrants cannot duplicate.
Company seeks to do is recognize trends in each segment of the general environment and then predict each trend's effect on it.
True
Dr. Pepper Snapple Group
Vision: best beverage in america Mission: Refresh fun Flavor
The general environment is composed of dimensions in the broader society that influence an industry and the firms within it.
We group these dimensions into seven environmental segments: 1)demographic 2)economic 3)political/legal 4)sociocultural 5)technological 6)global 7)sustainable physical.
Economies of scale
When more units of a good or a service can be produced on a larger scale, yet with (on average) fewer input costs, economies of scale are said to be achieved. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs.
Valuable capabilities
allow the firm to exploit opportunities or neutralize threats in its external environment. By effectively using capabilities to exploit opportunities or neutralize threats, a firm creates value for customers.
Core competencies
are capabilities that serve as a source of competitive advantage for a firm over its rivals.
Resources
are inputs into a firm's production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers.
Above-average returns
are returns in excess of what an investor expects to earn from other investments with a similar amount of risk.
Switching costs
are the one-time costs customers incur when they buy from a different supplier. The costs of buying new ancillary equipment and of retraining employees, and even the psychological costs of ending a relationship, may be incurred in switching to a new supplier.
Intangible resources
assets that are rooted deeply in the firm's history, accumulate over time, and are relatively difficult for competitors to analyze and imitate ex)Brand has long been a valuable intangible resource for Coca-Cola Company -intangible resources are a superior source of capabilities and subsequently, core competencies. -In fact, in the global economy, a firm's intellectual capital often plays a more critical role in corporate success than do physical assets.
The Resource-Based Model of Above-Average Returns
assumes that each organization is a collection of unique resources and capabilities.
How companies gather and interpret information about their competitors is called?
competitor analysis.
Segments of the General Environment
demographic segment economic environment political/legal segment sociocultural segment technological segment global segment sustainable physical environment segment
An analysis of the general environment
focuses on environmental trends and their implications.
•an analysis of the industry environment
focuses on the factors and conditions influencing an industry's profitability potential, and an analysis of competitors is focused on predicting competitors' actions, responses, and intentions.
Support functions
include the activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing.
The global segment
includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets.
The technological segment
includes the institutions and activities involved in creating new knowledge and translating that knowledge into new outputs, products, processes, and materials.
What is Ryan Air Mission/Vision statement?
is "to offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost containment and efficiency operation."
An opportunity
is a condition in the general environment that, if exploited effectively, helps a company reach strategic competitiveness
Strategic competitiveness
is achieved when a firm successfully formulates and implements a value-creating strategy.
The general environment
is composed of dimensions in the broader society that influence an industry and the firms within it.
The demographic segment
is concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution.
Value
is measured by a product's performance characteristics and by its attributes for which customers are willing to pay. Firms create value by innovatively bundling and leveraging their resources to form capabilities and core competencies.
The political/legal segment
is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies.
A capability
is the capacity for a set of resources to perform a task or an activity in an integrative manner.
Outsourcing
is the purchase of a value-creating activity or a support function activity from an external supplier.
Competitor intelligence
is the set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities.
External Analysis
opportunities -global -private sector threats -budget cuts -competitors -regulations
The economic environment
refers to the nature and direction of the economy in which a firm competes or may compete
The sustainable physical environment
segment refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to those changes with the intent of creating a sustainable environment.
Internal Analysis
strengths -long-term contracts -vast portfolio -government weaknesses -1 customer -backlogs
The sociocultural segment
t is concerned with a society's attitudes and cultural values.
When assessing,
the objective is to determine the timing and significance of the effects of environmental changes and trends that have been identified.
Different techniques are used to create competitor intelli-gence:
the set of data, information, and knowledge that allow the firm to better understand its competitors and thereby predict their likely competitive actions and responses. Firms absolutely should use only legal and ethical practices to gather intelligence. The Internet enhances firms' ability to gather insights about competitors and their strategic intentions.
The industry environment
the set of factors that directly influences a firm and its competitive actions and responses: 1)the threat of new entrants 2)the power of suppliers 3) the power of buyers 4)the threat of product substitutes 5)the intensity of rivalry among competing firms
Government Policy
their decisions about issues such as the granting of licenses and permits, governments can also control entry into an industry. Liquor retailing, radio and TV broadcasting, banking, and trucking are examples of industries in which government decisions and actions affect entry possibilities.
Porter's Five Forces---industry
threat of entry: Low -> you just can't make an airplane threat of substitute: (high->the USA can switch to another company) supplier power: high-> not many suppliers -It is dominated by a few large companies and is more concentrated than the industry to which it sells. buyer power: high-> one buyer -Consumers armed with greater amounts of information about the manufacturer's costs and the power of the Internet as a shopping and distribution alternative have increased bargaining power in many industries. competitive rivalry: high->because there is only 5 competitors -. Competitive rivalry intensifies when a firm is challenged by a competitor's actions or when a company recognizes an opportunity to improve its market position.
Above-average returns (in excess of what investors expect to earn from other investments with similar levels of risk) provide the foundation needed to simultaneously satisfy all of a firm's stakeholders.
true
Above-average returns are earned when the firm uses its valuable, rare, costly-to imitate, and non-substitutable resources and capabilities to compete against its rivals in one or more industries. Evidence indicates that both models yield insights that are linked to successfully selecting and using strategies.
true
Competitive advantage results only when firms develop and exploit valuable capabilities that become core competencies and that differ from those shared with competitors.
true
Competitor analysis focuses on each company against which a firm competes directly. The Coca-Cola Company and PepsiCo, Home Depot and Lowe's, Carrefour SA and Tesco PLC, and Amazon and Google are examples of competitors that are keenly interested in understanding each other's objectives, strategies, assumptions, and capabilities.
true
Firms analyze the external environment and their internal organization, then formulate and implement a strategy to achieve a desired level of performance (A-S-P)
true
Firms use the strategic management process to achieve strategic competitiveness and earn above-average returns.
true
Firms use two major models to help develop their vision and mission when choosing one or more strategies in pursuit of strategic competitiveness and above-average returns.
true
Flowing from the vision, the mission specifies the business or businesses in which the firm intends to compete and the customers it intends to serve.
true
For example, Subway links its fresh ingredients with several other resources including the continuous training it provides to those running the firm's fast food restaurants as the foundation for customer service as a capability; customer service is also a core competence for Subway.
true
Identifying opportunities and threats is an important objective of studying the general environment.
true
In general, the stronger the competitive forces, the lower the potential for firms to generate profits by implementing their strategies.
true
In the current competitive landscape, the most effective organizations recognize that strategic competitiveness and above-average returns result only when core competencies (identified by studying the firm's internal organization) are matched with opportunities (determined by studying the firm's external environment).
true
No competitive advantage lasts forever. Over time, rivals use their own unique resources, capabilities, and core competencies to form different value-creating propositions that duplicate the focal firm's ability to create value for customers. Because competitive advantages are not permanently sustainable, firms must exploit their current advantages while simultaneously using their resources and capabilities to form new advantages that can lead to future competitive success.
true
Performance is reflected in the firm's ability to achieve strategic competitiveness and earn above-average returns.
true
Scanning and monitoring are concerned with events and trends in the general environment at a point in time.
true
Strategic competitiveness is achieved when a firm develops and implements a value-creating strategy.
true
Strategic leaders are people located in different areas and levels of the firm using the strategic management process to help the firm achieve its vision and fulfill its mission.
true
The I/O model challenges firms to find the most attractive industry in which to compete.
true
The core assumption of the resource-based model is that the firm's unique resources, capabilities, and core competencies have more of an influence on selecting and using strategies than does the firm's external environment.
true
The firm's first step in the process is to analyze its external environment and internal organization to determine its resources, capabilities, and core-competencies—on which its strategy likely will be based.
true
The five forces model of competition is an analytical tool used to help firms find the industry that is the most attractive for them.
true
The logic supporting the I/O model suggests that above average returns are earned when the firm locates an attractive industry or part of an industry and successfully implements the strategy dictated by that industry's characteristics.
true
Typically, the model suggests that firms can earn above-average returns by producing either standardized goods or services at costs below those of competitors (a cost leadership strategy) or by producing differentiated goods or services for which customers are willing to pay a price premium (a differentiation strategy).
true
Understanding the firm's competitor environment complements the insights provided by studying the general and industry environments.
true
Vision and mission are formed to guide the selection of strategies based on the information from the analyses of the firm's internal organization and external environment.
true
Vision and mission provide direction to the firm and signal important descriptive information to stakeholders.
true
Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve.
true
resources cover a spectrum of individual, social, and organizational phenomena. By themselves, resources do not allow firms to create value for customers as the foundation for earning above-average returns. Indeed, resources are combined to form capabilities.
true
the I/O model is used to understand the effects an industry's characteristics can have on a firm when deciding what strategy or strategies to use in competing against rivals.
true
the core assumption of the I/O model is that the firm's external environment has a large influence on the choice of strategies more than do the firm's internal resources, capabilities, and core competencies.
true
•Because most firms are assumed to have similar valuable resources that are mobile across companies, their performance generally can be increased only when they operate in the industry with the highest profit potential and learn how to use their resources to implement the strategy required by the industry's structural characteristics. To do so, they must imitate each other.
true
•For all firms, the challenge is to effectively manage current core competencies while simultaneously developing new ones. •Only when firms are able to do this can they expect to achieve strategic competitiveness, earn above-average returns, and remain ahead of competitors in both the short and long term.
true
A firm has a competitive advantage....
when it implements a strategy that creates superior value for customers and that its competitors are unable to duplicate or find too costly to imitate."
Disruptive technologies
—technologies that destroy the value of an existing technology and create new markets —surface frequently in today's competitive markets.
Valuable capabilities (ex)
• For example, Groupon created the "daily deal" marketing space; the firm reached $1 billion in revenue faster than any other company in history. In essence, the opportunity Groupon's founders pursued when launching the firm in 2008 was to create a marketplace through which businesses could introduce their goods or services to customers who would be able to experience them at a discounted price. Restaurants, hair and nail salons, and hotels are examples of the types of companies making frequent use of Groupon's services.