chapter 2 essays
Case Scenario 1: The Boys and Girls Club. The Boys and Girls Club (BGC) is a national non-profit organization geared to provide America's youth with the tools and skills they need to become healthy adults, responsible citizens, and effective leaders. By bringing parents, neighbors, educators, and civic leaders together with our youth, BGC believes it can instill these crucial life lessons at an age when they're most needed. The national organization is headquartered in Atlanta, GA, and serves as a service hub for over 3,700 club locations around the U.S. Each local club is directed by a volunteer board of directors and staffed by professional youth development workers (usually including an executive director, a program director, and an arts director) and many volunteers who just enjoy working with young people and want to make a difference in their lives. While affiliated with the national center, each local BGC is locally funded.
(Refer to Case Scenario 1) How are the various facets of the general environment (Table 2.1 in Strategic Management) likely to be important for BGC? ANS: The best answers will begin by noting that BGC has a mission focused on the education and social development of needy youth. Thus, the demographic, economic, and sociocultural segments may be the segments of primary importance. The global segment is also a natural discussion point since contexts far from home may not come to our attention until after a critical stage has been passed. For instance, the presence of immigrants and refugees in a community many affect the needs of the BGC's clientele. PTS: 1 2. (Refer to Case Scenario 1) Why would the recent focus on victims of global terrorism be a threat to the BGC? ANS: The best answers will observe that BGC is entirely dependent upon local donations for its operations and public focus on other causes will likely draw away donation dollars that had been historically earmarked for BGC. This alternative charitable giving serves donors as a substitute for donations to BGC. PTS: 1 3. (Refer to Case Scenario 1) How might the BGC respond to threats to their donations at both local and national levels? ANS: Since BGC is governed locally by a board of directors drawn from the community, the local organizations should use these members to rally support against their dwindling donation base. The board and BGC staff members can also reach out to other local organizations and community governments. At a national level, image ads and the lobbying of various national organizations (government, teachers associations, minority outreach organizations, etc.) can be initiated and managed through the BGC headquarters in Atlanta
Case Scenario 2: B.B. Mangler. B.B. Mangler is a top U.S. business-to-business distributor of maintenance, repair, and service equipment, components, and supplies such as compressors, motors, signs, lighting and welding equipment, and hand and power tools. Their industry is typically referred to as MRO, which is an acronym for maintenance, repair, and supplies. MRO products are typically small, fairly inexpensive (light bulbs and washers), but often needed on short notice. It states its strategy as being the "capacity to offer an unmatched breadth of lowest total cost MRO solutions to business." Mangler's GoMRO sourcing center for indirect spot buys locates products through its database of 8,000 suppliers and 5 million products. Mangler has 388 physical branches in the U.S., including Puerto Rico (90% of sales), 184 in Canada, and 5 in Mexico. Customers include contractors, service and maintenance shops, manufacturers, hotels, governments, and health care and educational facilities. Mangler also provides materials-management consulting services.
. (Refer to Case Scenario 2) Historically, Mangler appears to have relied on its physical locations for market presence in the U.S. and northern South America. What threats does the Internet pose to its location-based strategy? ANS: The best answers will start by noting that Mangler's location-based strategy is also likely to require quite a bit of investment in inventory (keeping all those parts on hand at each of its branches in the U.S., Canada, and Mexico). Given that it competes in a low-cost industry, and itself competes on cost, an Internet-based MRO competitor may be able to create an even lower cost structure (as Amazon.com did with books). The Internet seems like a natural fit for the MRO market. Such an online strategy may be particularly effective for those MRO items that are less time-critical. PTS: 1 5. (Refer to Case Scenario 2) What opportunities does the Internet provide to Mangler, both domestically and internationally? ANS: Answers to the first two questions suggest several different responses to the ways in which the Internet could be capitalized on domestically by Mangler. The best answers for the international strategy question will begin by noting that just as Mangler's many domestic locations provide a barrier to entry in its markets by potential competitors (i.e., it already has the market share to cover its high physical location costs and also is likely to have tremendous goodwill), so too have they been a barrier against Mangler's entry into other international markets like Europe, Asia, and other parts of Latin America. The Internet does away with this barrier to a great extent, which levels the playing field between Mangler and the incumbents of those respective international markets. PTS: 1 6. (Refer to Case Scenario 2) How should Mangler respond to the threat of new Internet-based entrants? ANS: There are several possible avenues and the best answers will note these alternatives. The most obvious response would be for Mangler to start up a web-based complement to its location-based delivery system. A related response might involve the centralization of low-demand, high-cost items to parts of the country, which could then be funneled rapidly to the actual local outlets using the Internet as an internal market. Finally, Mangler could hedge this threat by investing in the most promising online rivals. PTS: 1
Barracuda Inc. is a lamp fixture manufacturer that is considering an entry strategy into the U.S. home furnishings manufacturing industry. The existing landscape consists of many players but none with a controlling share. There are presently 2500 home furnishings firms, and only 600 of those have over 15 employees. Average net profit after tax is between 4 and 5%. While the industry is still primarily comprised of single-business family-run firms, which manufacture furniture domestically, imports are increasing at a fairly rapid rate. Some of the European imports are leaders in contemporary design. Relatively large established firms are also diversifying into the home furnishings industry via acquisition. Supplier firms to the home furnishings industry are in relatively concentrated industries (like lumber, steel, and textiles). Retailers, the intermediate customer of the home furnishings industry, have been traditionally very fragmented. Customers have many products to choose from, at many different price points, and few home furnishing products have strong brands. Also, customers can switch easily among high and low-priced furniture and other discretionary expenditures (spanning big screen TVs to the choice of postponing any furniture purchase entirely).
. (Refer to Case Scenario 3) Using the five-forces framework, summarize the opportunities and threats facing Barracuda as it considers entry into the home furnishings manufacturing industry. Which threats are greatest to current incumbents? ANS: The best answers will be based on an application of the five forces model to the scenario. From this model students should be able to point out that the most significant threats are the power of consumers, lack of economic power with suppliers, and increasing presence of imports. These characteristics plus the highly fragmented nature of the industry itself are likely to translate into near-perfect competition leaving no single player with a clear advantage. Opportunities may exist in particular niches, depending on the internal strengths of new entrants. In terms of the larger market, there appears to be an opportunity for a large firm to consolidate the industry and add brand power, thereby potentially gaining power over suppliers and customers. PTS: 1 8. (Refer to Case Scenario 3) How intense is competitive rivalry likely to be among incumbents of the home furnishings manufacturing industry? ANS: The best answers will be able to walk through the determinants of rivalry spelled out in pages 57 through 59. The fact that this industry is fairly characterized as having nearly perfect competition suggests that rivalry is high. Larger players are likely to have significant exit barriers, particularly given the slow growth, high fixed costs, lack of differentiation, and low profitability of the market overall. Thus, new larger entrants to this industry may further escalate the degree of competition. PTS: 1 9. (Refer to Case Scenario 3) Is the furniture industry described above attractive? ANS: Astute students may begin by noting that this industry is attractive if you are in a position that is currently less attractive than that demonstrated by the home furnishings business. Beyond that, discussion should generally lead to the recognition that this industry is currently unattractive-summarized by its paltry profit margins, fragmented membership, lack of power over suppliers and customers, and high degree of rivalry.
Describe the six segments of the general environment.
1) The demographic segment encompasses factors such as population size, geographic distribution, age structure, ethnic mix, and income distribution. 2) The economic segment involves the nature and direction of the economy in which a firm competes or may compete, domestic as well as global. 3) The political/legal segment is the arena in which organizations compete for attention, resources, and a voice in laws and regulations guiding the interactions among nations. 4) The sociocultural segment is concerned with society's attitudes and cultural values. 5) The technological segment includes institutions and activities involved with creating new knowledge and transforming it into new outputs, products, processes, and materials. 6) The global segment includes new global markets, existing markets that are changing, international political events, and critical cultural and institutional characteristics of global markets.
Identify the five forces that underlie the five forces model of competition. Explain briefly how they affect industry profit potential.
1) Threat of new entrants: New entrants threaten existing firms' market share. They increase production capacity in an industry which results in lower profits for all firms, unless demand is increasing. The new entrant may force the existing firms to be more effective and efficient in production, and to compete on new dimensions. 2) Power of suppliers: Suppliers with high power can increase prices and decrease the quality their products sold to the firm. If firms are unable to pass along price increases to customers, their profits diminish. 3) Power of buyers: When buyers (customers) have high power they can force prices down, and require increases in quality and service levels, thus driving profits down. 4) Substitutes: Substitutes perform the same or similar functions of the firm's product. The price of the substitute places an upper limit on prices firms can charge for the original product, limiting industry profits. 5) Intensity of competitive rivalry affects the firm's ability to make a profit as competitors actions challenge the firm or competitors try
. What do firms need to know about their competitors? What legal and ethical intelligence gathering techniques can be used to obtain this information?
Competitor analysis helps firms identify: 1) what drives the competitors by understanding the competitor's future objectives); 2) what the competitor is doing and is capable of doing by understanding the competitor's current strategy; 3) what the competitor believes about the industry by understanding the assumptions made by the competitor; and 4) what the competitor's capabilities are by understanding the competitor's strengths and weaknesses. Firms can legally and ethically gather public information, such as annual reports, SEC reports, UCC filings, court records, and advertisements. Firms can also attend trade fairs to obtain competitors' brochures, view exhibits, and discuss products. This data combines to form competitive intelligence.
What are high exit barriers and how do they affect the competition within an industry
Exit barriers are economic, strategic, and emotional factors causing companies to remain in an industry, even though the profitability of doing so is in question. The following are common sources of exit barriers: 1) specialized assets which cannot be used in another business or location; 2) fixed costs of exit, such as labor agreements which penalize a firm for ceasing operation; 3) strategic interrelationships or mutual dependence of business units wherein one business of a corporation serves another corporate business; 4) emotional barriers that cause owners to be sentimentally attached to the business or to their own role in it; 5) government and social restrictions that prevent a firm from closing, often in order to prevent the loss of jobs in a country or community.
Explain why it is important for organizations to analyze and understand the external environment.
Organizations do not exist in isolation. The external environment of the organization presents threats and opportunities which the organization must address in its strategic actions. Parts of the organization's external environment are changing rapidly, such as technology, and the organization must constantly adjust to these changes. The information that the organization gathers about competitors, customers and stakeholders is used to build the organization's capabilities or to build relationships with stakeholders in the external environment. The information that the organization gathers about the external environment must be matched with its knowledge of its internal environment to form its vision, to develop its mission, and to take actions that result in strategic competitiveness and above-average returns
Describe the factors that raise the competitive nature of an industry's rivalry
The competitive rivalry in an industry can be based on price, product quality, and product innovation in an attempt to differentiate the firm's product from its rivals' products. The factors that can increase competitive rivalry include the following: 1) numerous and equally balanced competitors; 2) slow or no industry growth; 3) high fixed costs, high storage costs of inventory, or perishable products; 3) lack of differentiated products or low cost of product switching by customers; 4) high strategic stakes for the competitors; and 5) high barriers for firms wishing to exit the industry, causing firms to remain in an industry where they cannot reasonably expect to make a profit.
Identify and describe the three major parts of the external environment. What is the purpose of the firm's collecting information about these aspects of its environment?
The external environment has three major parts. The first is the general environment, which is composed of dimensions in the broader society that affect industries and their firms. These environmental segments are: demographic, economic, political/legal, sociocultural, technological, and global. The second part of the external environment is the industry environment, which involves five factors that influence a firm, its competitive actions and responses, and the industry's profit potential. These five factors are: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors. The competitor environment is the third part of the external environment. The firm must be able to predict competitors' actions, responses, and intentions. With the information collected about these aspects of its external environment, the firm can develop its vision, mission, and strategic actions.
Describe and discuss the four activities of the external environmental analysis process.
The external environmental analysis process includes four steps: scanning, monitoring, forecasting and assessing. The scanning of the environment includes the study of all segments of the general environment in order to detect changes that may occur in the future or already are occurring. This is critical in a volatile environment. Scanning often deals with ambiguous, incomplete, or unconnected data and information. When analysts monitor the environment, they observe environmental changes to see if an important trend is emerging from those spotted by scanning. It is critical for the firm to detect meanings in these events and trends so that it can be prepared to take advantage of opportunities these trends provide. Forecasting builds on scanning and monitoring to develop feasible projections of what might happen, and how quickly it will occur. Forecasting is important in helping the firm adjust sales to meet demand. Finally, through assessing, the analyst determines the timing and the significance of the effects of environmental changes and trends on the strategic management of the firm. Assessment must specify the competitive relevance of the data.
What is a firm's strategic group? What effect does the strategic group have on the firm?
The firm's strategic group is the set of firms using similar strategic dimensions to use a similar strategy. The firms in a strategic group occupy similar positions in the market, offer similar goods to similar customers, and may make similar decisions about production technology and organizational features. Competition among firms in a strategic group is more intense than the competition among a firm and those firms outside its strategic group. Actions of members in the firm's strategic group affect its strategic decisions in many areas including pricing, product quality, and distribution