Chapter 3

economies of scale

Economies of scale are cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

general environment

external forces in this environments are ones that managers have little direct influence over, like macroeconomic factors (ex. interest rates, currency rates}

task environment

factors that managers do have some influence over, like composition of their strategic groups or industry structure

economic factors (in PESTEL)

growth rates, interest rates, levels of employment, price stability, currency exchange rates

Five forces model

helps managers understand the profit potential of different industries and how they can position their respective firms to gain and sustain competitive advantage.

external environment

industry in which the firm operates and the competitive forces that surround the firm from the outside.

Complement

is a product, service, or competency that adds value to the original product offering when the two are used in tandem. {ex. Tivo to cable)

threat of substitutes

is the idea that products or services available from outside the given industry will come close to meeting the needs of current customers. For example, many software products are substitutes to professional services, at least at the lower end. Tax preparation software such as Intuit's TurboTax

economies of scale, network effects, customer switching costs, capital requirements, advantages independent of size, government policy, threat of incumbent retaliation

list the entry barriers (as part of threat of new entrants)

threat on new entrants, power of buyers, power of suppliers, threat of substitutes, rivalry among existing competitors

list the five forces in Porter's Model

strategic group model

which clusters different firms into groups based on a few key strategic dimensions.

co-opetition

which is cooperation by com-petitors to achieve a strategic objective. Samsung and Google cooperate as complimentors to compete against Apple's strong position in the mobile device industry,

Complementor

A company is a _____ to your company if customers value your product or service offering more when they are able to combine it with the other company's product or service. [Ex. Google and Samsung]

network effects

the positive effect one user of a product or service has on the value of that product or services for other users. [ex. Ebay, facebook]

industry

a group on incumbent companies that face more or less the same set of suppliers and buyers

industry convergence

a process whereby formerly unrelated industries begin to satisfy the same customer need. [ex. digital media and print media]

PESTEL framework

allows us to scan, monitor, and evaluate changes and trends in the firms macroenvironment

factors effecting rivalry among existing competitors

competitive industry structure, industry growth (more growth less competition), strategic commitments, exit barriers

industry analysis

provides a more rigorous basis to identify an industry's profit potential and to derive implications for one firm's strategic position within an industry.

strategic position

relates to its ability to create value for customers ( V ) while containing the cost to do so ( C ).

strategic group

set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage

Sixth force

strategic role of complements