Mgmt 110 Quiz 1
External analysis involves
(1) an examination of the competition and the forces that shape industry competition and profitability; and (2) customer analysis to understand what customers really want.
What factors determine the intensity of rivalry?
(1) the number and size of competitors; (2) standardization and perishability of products; (3) costs to buyers of switching to another product; (4) growth in demand for products; (5) levels of unused production capacity or fixed costs; and (6) the difficulty for firms of leaving the industry
What are three keys to the successful implementation of a company strategy?
1 Functional strategies need to be well aligned with delivering the unique value identified in the overall strategy. 2 Structure, systems, staff, skills, style, and shared values need to be designed to facilitate the execution of the strategy.
What Alternatives are Available to Customers(Threat of Substitutes)
1. Direct substitution with similar or the same functionality 2. Be Your Own Substitute
Successful strategies (plans) 4 things
1. The attractives of a market, where to compete In a market that allows incumbents to make a lot of profits, selecting a market that is attractive to compete 2. Once in market, offer unique value relative to competition (how outperform, how to compete) 3. Resources or capabilities (distinctive, dynamic) are necessary to deliver unique value 4. How to sustain a competitive advantage once it has been achieved
Effective implementation typically requires the following:
1. The functional strategies within the company are well aligned with delivering the unique value identified in the overall strategy Implementation is generally more successful when a company can measure how effectively functional activities are being performed to support the overall strategy. 2. The organization's structure, systems, staff , skills, style (culture), and shared values are designed to facilitate the execution of the strategy.
Good Strategies have barriers to imitation (3 q's) If competitors can quickly and easily imitate, then it raises all rivals costs without creating advantage
1. What is the cost to build barriers that competition can't overcome in short period of time 2. How long will it take for competitors to imitate 3. Is there a barrier to imitation
What are the four strategic questions
1. Where do we compete? 2.What unique value do we bring? 3.What resources and capabilities do we utilize? 4.How do we sustain our value?
What can be done to neutralize bargaining power of buyers?
1. differentiate your offering so it uniquely responds to only certain buyer needs 2. narrow the options of the buyer through market consolidation or exclusive alliances 3. create switching costs for buyers
How to analyze 5 forces
1. identify specific factors relevant to each of the five forces 2. analyze the strength of each force 3. estimate the overall strength of the combined five forces to determine the attractiveness of the industry
two generic strategies to offer unique value
1. low cost = reducing costs below competitors Achieve through: -Economies of scale -Lower-cost inputs -Proprietary production know-how 2. differentiation = offering features, quality, convenience, or image that customers can't get from competitors
What are the four choices that are part of strategy formulation
1. markets to pursue 2. unique value to be offered 3. resources + capabilities that allow firm to deliver unique value (better than competitors) 4. sustain advantage (prevent imitation)
What can be done to neutralize bargaining power of suppliers?
1. narrow the sell options of the supplier through market consolidation 2. develop alternative sources of supply 3. ally with supplier and encourage supplier to make non-redeployable investments to provide inputs to you as the customer at lowest possible cost 4. diversity your product offerings to diminish dependence of your business on particular supplier
Why Industries are More or Less "Competitive"(Nature of Focus on Rivalry)
1. number of direct competitors and substitutes 2. industry growth rates (high rivalry with slow growth and in high growth when there are strong first mover advantages) 3. exit barriers 4. fixed costs (high rivalry when fixed to variable cost ratio is high) 5. lack of product differentiation 6. switching costs
Five Forces Analysis of Competitive Strategy "industry structure" perspective
1. rivalry 2. threat of new entrants 3. bargaining power of suppliers 4. bargaining power of buyers 5. threat of substitutes
Mission
A company's primary purpose that often specifies the business or businesses in which the firm intends to compete—or the customers it intends to serve.
Emergent Strategy
A plan or pattern of action that develops and emerges over time in an organization despite a mission or goals.
Deliberate Strategy
A plan or pattern of action that is formulated through a deliberate planning process that is then carried out to achieve the mission or goals of an organization.
What are substitutes?
A product that is fundamentally different yet serves the same basic function or purpose as another product.
Strategy Vehicles
Activities and strategic choices—such as make versus buy, acquisitions, and strategic alliances—that influence a firm's ability to enter particular markets, deliver unique value to customers, or create barriers to imitating its product.
Differentiation Advantage product differentiation is above industry average price
An advantage a firm has over its competitors by making a product more attractive by offering unique qualities in the form of features, reliability, and convenience that distinguishes it from competing products.
Cost Advantage low cost is below industry average price
An advantage that a firm has over its competitors in the activities associated with producing a product or service, thereby allowing it to produce the same product at lower cost.
Third Option to deliver unique value
Best value for the price providing a combo of features and price between low prices + premium value offerings ie. Charles Schwab, Costco
Who are the four primary stakeholder groups that influence strategic decisions in a company?
Capital market (shareholders, banks) Product market (customers, suppliers) Organizational (employees) Community (communities, gov, activists)
Rivalry-
Competition among firms within an industry. Typically this involves firms putting pressure on each other and limiting each other's profit potential by attempting to steal profits and/or market share.
Strategy rests on competencies (activities) that allow firms to deliver unique value
Competitive Advantage: doing different things doing similar things differently
What are the seven general environmental factors that affect industry profitability?
Complementary products or servicesTechnological changeGeneral economic conditionsPopulation demographicsGlobal competitive forcesPolitical, legal, and regulatory forces,Social/Cultural forcesEcological/Natural Environment
threats
Conditions in the competitive environment that endanger the profitability of a firm
functional strategy
Decisions about how to effectively implement the business unit strategy within functional areas like finance, product development, operations, information technology, sales and marketing, and customer service.
business unit strategy
Decisions about how to gain and sustain advantage, made at the manager level for each standalone business unit within a company.
Corporate strategy
Decisions about what markets to compete in, made by executives at the corporate level of an organization.
External Analysis
Examining the forces that influence industry attractiveness, including opportunities and threats that exist in the environment.
How should a firm decide what industry it is in?
Firms should use the U. S. Government's NAICS codes to determine their industry.
How does each of the eight general environmental factors influence industry profitability? General economic conditions
General economic conditions—General economic conditions, such as interest rates, affect the cost of capital as well as consumer's overall willingness to spend.
How does each of the eight general environmental factors influence industry profitability? global competitive forces
Global competitive forces can drive down profitability by removing trade barriers and inviting global competitors to enter the market. However, globalization also helps profitability by giving firms access to new, and sometimes very large, markets.
Explain why increased buyer concentration would increase buyer power.
Increased buyer concentration (fewer buyers relative to the number of sellers) gives buyers increased pricing leverage over the firm. This is because firms have to compete to sell to fewer buyers, and orders tend to be larger.
Firm's landscape
Industry in which firm competes Product and geographic markets within that industry that the firm targets
What are the elements of a complete external analysis?
Managers should begin by defining the industry. They should then analyze and evaluate the 5 forces, and then they should examine the current—and future—impacts of the eight general environmental forces on the industry. A complete analysis will consider how each force or element has changed over time, and what future changes might be expected.
Do Barriers To Entry Thwart Firms From Attempting Entry On Profitable Markets?
No - The Top 10 most profitable markets have almost five times as many entrants as less profitable markets
Who Benefits from a good business strategy
Organizations have four primary stakeholder groups: Capital market (shareholders, banks) Product market (customers, suppliers) Organizational (employees) Community (communities, gov, activists)
Shareholders
Owners of a company.
How does each of the eight general environmental factors influence industry profitability? pop demographics
Population demographics—affect the composition, and number, of customers. An aging population is bad for toys and games, but good for vacations and retirement living.
Resources vs. Capabilities
Resources are the tangible and intangible assets a firm employs to create value and competitive advantage Capabilities are the processes and activities that a firm develops using its resources Firms need to assess resources and capabilities in order to allocate them properly to achieve key objectives.
Barriers to Entry What factors keep potential competitors out?
Scale economies capital requirements scope economies -> Do related activities that serve entire org rather than letting individual units do it by themselves switching costs access to scarce resources learning curve product complexity entry deterring regulations
Why is it important for a firm to accurately determine what industry it is in?
So that executives can identify who their real competitors are and the economic forces that will influence the strategies they hope to pursue. Industries also differ in terms of their profitability and performance, and identifying the right industry tells managers and investors what types of returns to expect.
Who is responsible for business strategy
Strategic Leaders- Organizational leaders charged with formulating and implementing a strategy with the objective of ensuring the survival and success of an organization.
SWOT Analysis
Strategic planning method used to evaluate the strengths, weaknesses, opportunities, and threats involved in a business.
How does each of the eight general environmental factors influence industry profitability? Technological change—
Technological change—technology can either enhance profitability (by creating new complements) or it can destroy profitability by creating a new and better substitute product.
Internal Analysis
The analysis of a firm's resources and capabilities, its strengths and weaknesses, to assess how effectively the firm is able to deliver the unique value (value proposition) that it hopes to provide to customers.
Attractiveness of an Industry-
The degree to which an average firm in the industry can earn good profits.
What are the five major industry forces? How do they shape average profitability in an industry?
The five forces are: Barriers to (or threat of) Entry, Supplier Power, Buyer Power, Presence of Substitutes, and Competitive Rivalry. The impacts on average profitability are Threat of Entry—the lower the threat the higher the average profitability Supplier Power—the lower supplier power, the higher the average profitability Buyer Power—the lower buyer power, the higher the average profitability Substitution—the lower the threat of substitution, the higher the average profitability Rivalry—the lower the degree of rivalry, the higher the average profitability.
How do the eight general environmental factors affect the five industry forces?
The general environmental forces work primarily to make the five forces dynamic. Often changes in the larger environment cause a significant shift in each of the 5 forces.
What factors determine the intensity of the threat of new entrants?
The presence of economies of scale, experience, or learning or other cost advantages; capital requirements to enter the industry; network effects, government policies and regulations.
Strategic Management Process
The process by which organizations formulate a plan and allocate resources to achieve competitive advantage that involves making four strategic choices: (1) markets to compete in; (2) unique value the firm will offer in those markets; (3) the resources and capabilities required to offer that unique value better than competitors; and (4) ways to sustain the advantage by preventing imitation.
Strategy Implementation
The translation of a chosen strategy into organizational action so as to effectively implement the activities required to achieve strategic goals and objectives.
Explain what it means for suppliers to have a credible threat of forward integration
This happens when a supplier can easily compete with the firm because it may have the same technology or distribution system. With very little expenditure, the supplier could produce and sell the same product.
Stakeholders
Those who have a share or an interest in the activities and performance of an organization
How do Profitable Firms successfully enter attractive markets?
Through Indirect Assault Successful entrants use strategies that allow them to stay under the radar screen of powerful incumbents and avoid incumbent retaliationIn general, the more indirect the assault, the more successful it is
opportunities
Ways of taking advantage of conditions in the environment to become more profitable
Do entrants to the most attractive markets encounter entry barriers?
Yes, new entrants to most profitable markets make less than entrants elsewhere but, considering profitable entrants , they earn more than other entrants in top markets and more than profitable entrants elsewhere
define strategy
a plan to achieve competitive advantage
Internal analysis involves
an analysis of the company's set of resources and capabilities that can be deployed—or should be developed—to deliver unique value to customers
Sources of Superior Profitability
attractive industry and strategy to offer unique value
How are strategies formulated
corporate strategy (what market to compete in) -> business unit strategy (how I'm going to compete) -> functional unit (how they're going to support/implement the business unit strategy) -> strategy vehicles: activities and choices about how to deliver that (make vs. buy; make it or buy if from somewhere else; acquisitions; strategic alliances)
important to understand business strategy
developing strategy is primary job if at top; if junior level, developing and implementing ideas that are consistent with corporate strategy could lead to early promotions evaluate potential success of companies that you may work for by understanding strategy
How does each of the eight general environmental factors influence industry profitability? ecological/natural environment
emerging concerns about the natural environment may open new and profitable industries, such as renewable energy. Threats of ecological damage can invite government regulations or activist concerns. These would drive down profitability.
According to Michael Portor's Five Forces model, why do some firms earn higher profits than others
firms with higher profits may be in an industry with higher average profitability
Strategies and tactics of the ------ ----- should align with and implement the overall business unit strategy
functional areas
Network effects = growth in demand for a firm's product that results from a growth in the number of existing customers
ie. more suppliers, which gets more buyers, which gets more suppliers (eBay)
How does each of the eight general environmental factors influence industry profitability? complementary products or services
raise the attractiveness of the industry's products, and hence its price
How does each of the eight general environmental factors influence industry profitability? political, legal, and regulatory forces
regulations can increase the costs of doing business, or make some products and services less attractive to buyers. Conversely, government regulations can also raise barriers to entry and increase industry profitability.
who is responsible for company's strategy
strategic leaders = develop strategy through strategic management process; turn to Board and other top management for guidance
How does each of the eight general environmental factors influence industry profitability? social/cultural forces
this force influences consumer tastes and preferences. Changes in tastes can reduce profitability (think of the fast food industry), or it can raise profitability (think of all the accessories that make your smartphone more attractive and easier to use).