MANA4322 Chapter 2 All

What are Porter's five forces of industry competition?

(1. Threat of new entrants (2. Bargaining power of buyers (3. Bargaining power of vendors (4. Threat of substitute products and services (5. Intensity of rivalry among competitors

Elements of the general environment interact with each other:

- Demographic trends have implications for economics. - Greater access to information technology affects both economics and global relationships. - Political/legal trends can have very different effects on different industries. - The Internet & digital technology has altered the way business is conducted in nearly every business domain.

A buyer group is powerful when:

- It is concentrated or purchases large volumes relative to seller sales. - The products it purchases from the industry are standard or undifferentiated. - The buyer faces few switching costs. - It earns low profits. - The buyers pose a credible threat of backward integration. - The industry's product is unimportant to the quality of the buyer's products or services.

Elements of the general environment interact with each other

-Demographic trends have implications for economics. -Greater access to information technology affects both economics and global relationships. -Political/legal trends can have very different effects on different industries. -Digital technology has altered the way business is conducted in nearly every business domain.

Interacting factors lead to intense rivalry

-Numerous or equally balanced competitors -Slow industry growth -High fixed or shortage costs -Lack of differentiation or switching costs -Capacity augmented in large increments -High exit barriers

Supplier groups are powerful

-Only a few firms dominate the industry. -There is no competition from substitute products. -Suppliers sell to several industries. -Buyer quality is affected by industry product. -Products are differentiated & have switching costs. -Forward integration is possible.

A supplier group will be powerful when:

-The supplier group is dominated by a few companies and is more concentrated than the industry it sells to. -The supplier group is not obliged to contend with substitute products for sale to the industry. -The industry is not an important customer of the supplier group. -The supplier's product is an important input to the buyer's business. -The supplier group's products are differentiated or it has built up switching costs for the buyer. -The supplier group poses a credible threat of forward integration.

Inputs to forecast

-environmental scanning -environmental monitoring -competitive intelligence

caveats of using industry analysis

-managers must not always avoid low-profit industries ( or low profit segments in profitable industries), -5 force analysis assumes a zero sum game, determining how a firm can enhance its position relative to the forces -5 force analysis is criticized for being essentially a static analyis

intense rivalry is the result of

-numerous or equally balanced competitors, -slow industry growth, -high fixed or storage costs, -lack of differentiation or switching costs, -capacity augmented in large increments, -high exit barriers (93)

What value is the strategic groups concept as an analytical tool?

-strategic groupings help a firm identify barriers to mobility that protect a group from attacks by other groups. -value of strategic grouping is that it helps a firm identify groups whose competitive position may be marginal or tenuous. -strategic groupings help chart the future directions of firms' strategies. -strategic groups are helpful in thinking through the implications of each industry trend for the strategic group as a whole.

Inputs to Forecasting

1) Environmental Scanning - study the environment, how the competitors are performing, etc - this will allow you to short list a few factors to monitor for changes, if there are any changes, then you are going to make certain forecasts for your own organization to make your next strategic move. 2) Environmental Monitoring 3) Competitive Intelligence **By doing scanning, monitoring, and gathering competitive intelligence, and using these inputs to develop forecasts. Then scenario planning and SWOT analysis can be used to help anticipate major future changes in the external environment, preparing the firm to do more extensive analysis of the forces in the general environment and the industry or competitive environment.

Threat of new entrants include: entry barriers

1. Economies of scale 2. Product differentiation 3. Capital requirements 4. Switching costs 5. Access to distribution channels 6. Cost disadvantages independent of scale

Critical Inputs to Forecasting

1. Environmental Scanning 2. Environmental Monitoring 3. Competitive Intelligence

Two of the key inputs to developing forecasts discussed in the text are

1. Environmental scanning 2. Competitor intelligence

Five Forces Model

1. The threat of new entrants 2. The bargaining power of buyers 3. The bargaining power of suppliers 4. The threat of substitute products and services 5. The intensity of rivalry among competitors in an industry

6 major sources of entry barriers

1. economies of scale. 2. product differentiation. 3. capital requirements. 4. switching costs. 5. access to distribution channels. 6. cost disadvantages independent of scale.

Gathering competitive intelligence ___________. A. is good business practice B. is illegal C. is considered unethical D. minimizes the need to obtain information in the public domain

A

In general, the threat of substitutes is heightened because the Internet ____________. A. introduces new ways to accomplish the same task B. lowers switching costs C. lowers barriers to entry D. increases output per unit of cost

A

SWOT analysis is a framework for analyzing the internal and external environment of a company. It consists of strengths, weaknesses, opportunities, and threats. According to a SWOT analysis, which of the following is not an aspect that the strategy of the firm must follow? A. build on its weaknesses B. remedy the weaknesses or work around them C. take advantage of the opportunities presented by the environment D. protect the firm from the threats

A

The most intense rivalry results from _____________. A. numerous equally balanced competitors, slow industry growth, high fixed or storage costs B. few competitors, slow industry growth, lack of differentiation, high fixed or storage costs C. numerous equally balanced competitors, manufacturing capacity increases only in large increments, low exit barriers D. a high level of differentiation

A

The threat of new entrants is high when there are _______. A. low economies of scale B. high capital requirements C. high switching costs D. high differentiation among competitors products and services

A

Which of the following would be an entry barrier? A. large economies of scale B. low switching costs C. easy access to raw materials D. low capital requirements

A

Porter's Five Forces Model

A a tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs. Includes the threat of new entrants; the bargaining power of buyers; the bargaining power of suppliers; the threat of substitute products and services; the intensity of rivalry among competitors in an industry. Each of these forces affects a firm's ability to compete in a given market. Together they determine the profit potential for a particular industry.

SWOT Analysis

A basic technique for analyzing firm and industry conditions: 1) Firm or internal conditions = (S)trengths & (W)eaknesses. **Where the firm excels or where it may be lacking. Environmental or external conditions = (O)pportunities & (T)hreats. **Developments that exist in the general environment. A framework for analyzing a company's internal and external environment and that stands for strengths, weaknesses, opportunities, and threats. The firm's strengths come from within, and are where your firm excels; the weaknesses are where your firm is lacking relative to competitors. The opportunities and threats can come from the general environment and/or from the specific industry's competitive environment. Forces managers to consider both internal & external factors simultaneously. - Makes firms act proactively. - Raises awareness about role of strategy. - A firm's strategy must build on its strengths - Remedy the weaknesses or work around them - Take advantage of the opportunities presented by the environment - Protect the firm from the threats

managers may view uncertainty as "black and white" while ignoring important "gray areas."

A danger of forecasting discussed in the text is that

Competitive Intelligence

A firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitor's strengths and weaknesses.

Competitive Intelligence

A firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths and weaknesses.

Competitive Intelligence

A firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths and weaknesses. Helps firms define & understand their industry. Identifies rivals' strengths & weaknesses: a) Collect data on competitors. b) Interpret intelligence data. Helps firms avoid surprises: a) Anticipate competitors' moves b) Decrease response time. Beware of the potential for unethical behavior while gathering intelligence, meaning you should NOT use certain practices, such as, phone tapping and other illegal activities. Always consider the "laws of the land." **Be careful - aggressive efforts to gather competitive intelligence may lead to unethical or illegal behaviors. Note Strategy Spotlight on Ethical Guidelines on Competitive Intelligence: United Technologies.

Environmental monitoring

A firm's analysis of the external environment that tracks the evolution of environmental trends, sequences of events, or streams of activities

Environmental Monitoring

A firm's analysis of the external environment that tracks the evolution of environmental trends, sequences of events, or streams of activities. Monitor the trends that have the potential to change the competitive landscape - what do you want to track? Firms need to CHOOSE the trends identified via the scanning activity and regularly monitor or track these specific trends to evaluate the impact of these trends on their strategy process, i.e. Johnson & Johnson tracking % of GDP spent on health care, or # of active hospital beds.

Environmental Monitoring

A firm's analysis of the external environment that tracks the evolution of environmental trends, sequences of events, or streams of activities. Enables firms to evaluate how dramatically environmental trends are changing the competitive landscape.

Backward Integration

A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it will result in improved efficiency and cost savings. For example, backward integration might cut transportation costs, improve profit margins and make the firm more competitive. An example of backward integration would be if a bakery business bought a wheat processor and a wheat farm. **Consumers rarely have any "buyer power" - can you negotiate the price of a movie ticket? Yet the chain of "buyers" in the movie industry is multi-layered - from production studio to distributor to theater owner, with each buyer group having different degrees of power.

backward integration

A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it will result in improved efficiency and cost savings

Forward Integration

A form of vertical integration whereby a firm expands activities to include control of the direct distribution of its products, e.g. a farmer sells his/her crops at the local market rather than to a distribution center for eventual sale to a supermarket, or the example of Delta Pride Catfish cutting out the large agribusiness processing plants by building their own.

SWOT Analysis

A framework for analyzing a company's internal and external environments and that stands for Strengths, Weaknesses, Opportunities, and Threats.

Internet Threat:

A global network of linked computers that use a common transmission format, exchange information and store data. The Internet and other digital technologies have fundamentally changed the ways businesses interact with each other and with consumers. These changes have affected industry forces in ways that have created many new strategic challenges. SEE Slide 31 on PowerPoint.

Internet

A global network of linked computers that use a common transmissions format, exchange information, and store data.

Industry

A group of firms that produce similar goods or services.

backward integration

A large fabricator of building components purchased a steel company to provide raw materials for its production process. This is an example of

Zero-Sum Game

A situation in which multiple payers interact, and winners win only by taking from other players.

Zero-Sum Game

A situation in which multiple players interact, and winners win only by taking from other players.

few substitute products

A supplier group would be most powerful when there is/are

Porter's Five Forces Model of Industry Competition

A tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs.

A danger of forecasting discussed in the text is that:

A) in most cases, the expense of collecting the necessary data exceeds the benefit. B) forecasting's retrospective nature provides little information about the future. C) managers may view uncertainty as "black and white" while ignoring important "gray areas." D) it can create legal problems for the firm if regulators discover the company is making forecasts. ANSWER: C

If you are considering opening a new pizza restaurant in your community, what would be the threat of new entrants? How would you evaluate Porter's other forces for this industry?

ANSWER: The threat of new entrants in the food industry is very high, which is why a majority of new food restaurants fail within their first year. The minimum requirements to open a pizza shop are an oven and a small amount of capital. The potential number of competitors is unlimited due to these factors. Based on other forces also, this industry is not very attractive: for instance there is no industry growth, and a lack of differentiation among competitor's products, so competition is based on cost or service, and the industry has low profit margins as it is.

Scenario Analysis

An in-depth approach to environmental forecasting that involves experts' detailed assessments of societal trends, economics, politics, technology, or other dimensions of the external environment.

Scenario Analysis

An in-depth approach to environmental forecasting that involves experts' detailed assessments of societal trends, economics, politics. technology, or other dimensions of the external environment. Asks what would happen if the environment should change dramatically? Addresses the need to consider a wider context than the narrow, traditional markets, laying down guidelines for at least 10 years in the future to anticipate rapid change.

Scenario Analysis

An in-depth approach to environmental forecasting that involves experts' detailed assessments on societal trends, economies, politics, technology, or other dimensions of the external environment. Seeks to explore possible developments that may only be connected to the past, that is, several scenarios are considered in order to envision the possible future outcomes.

forward integration

An independent group of suppliers, such as farmers, gather to form a cooperative to sell their products to buyers directly, replacing their former distributor. This is an example of

SWOT analysis?

Analysis of our internal + external environments Based on Strengths, Weaknesses, Opportunities, and Threats

The point of industry analysis is not to declare the industry attractive or unattractive but to understand the underpinnings of competition and the root causes of profitability.

As much as possible, analysts should look at industry structure quantitatively, rather than be satisfied with lists of qualitative factors. Many elements of 5 forces can be quantified: the percentage of the buyer's total cost accounted for by the industry's product (to understand buyer price sensitivity); the percentage of industry sales required to fill a plant or operate a logistical network to efficient scale (to help assess barriers to entry); and the buyer's switching cost (determining the inducement an entrant or rival must offer customers).

A supplier group would be most powerful when _________. A. there are many suppliers B. there are few substitute products C. there is a low differentiation of products supplied D. there is a high threat of backward integration by the buyers

B

Because the Internet lowers barriers to entry in most industries, it ________. A. decreases the threat of new entrants B. increases the threat of new entrants C. makes it easier to build customer loyalty D. increases supplier power

B

Emerging sociocultural changes in the environment include ____________. A. changes in the ethnic composition B. the increasing educational attainment of women in the past decade C. progressively less disposable income by consumers D. changes in the geographic distribution of the population

B

In the general environment, many relationships exist among the various elements. General environmental trends can have positive and negative impacts on various industries. For example, the aging population might have a ______ impact on the health care industry and a ______ impact on the baby product industry. These are called _____________ impacts. A. negative; positive; demographic B. positive; negative; technological C. negative; positive; sociocultural D. positive; negative; demographic

B

Incumbent firms may enjoy increased bargaining power because the Internet ___________. A. focuses marketing efforts on end users B. diminishes the power of many distribution channel intermediaries C. increases channel conflict D. has reduced the number of wholesalers and distributors

B

Interest-rate increases have a __________ impact on the residential home construction industry and a __________ effect on industries that produce consumer necessities such as prescription drugs or basic grocery items. A. positive; negligible B. negative; negligible C. negative; positive D. positive; negative

B

PPG Industries, the Pittsburgh-based manufacturer of paints, coatings, optical products, specialty materials, chemicals, glass, and fiber glass suffered serious failures in 1986 and 1987 when it attempted to diversify its offers. It used a technique to help it identify possible future strategies. What was it? A. crowdsourcing B. scenario analysis C. competitive intelligence D. monitoring

B

Scanning the general environment would identify information on _______________. A. substitute goods B. the aging population and ethnic shifts C. customer and firm bargaining power D. competitive rivalry Environmental scanning involves surveillance of the external environment of a firm to predict environmental changes and detect changes already under way. This alerts the organization to critical trends and events before changes develop a discernible pattern and before competitors recognize them.

B

Strategic groups consist of ________________. A. a group of top executives that makes strategies for a company B. a group of firms within an industry that follows similar strategies C. a group of executives drawn from different companies within an industry that makes decisions on industry standards D. a group of firms within an industry that decides to collude rather than compete with each other so that they can increase their profits

B

Supplier power has increased because of the Internet for all of the following reasons EXCEPT: A. the growth of new Web-based businesses has created more outlets for suppliers to sell to B. some suppliers have created Web-based purchasing systems that encourage switching C. the process of disintermediation makes it possible for some suppliers to reach end users directly D. software that links buyers to a supplier's website has created rapid, low-cost order capabilities

B

The aging of the population, changes in ethnic composition, and effects of the baby boom are ____. A. macroeconomic changes B. demographic changes C. global changes D. sociocultural changes

B

The value net is a game-theoretic approach that _____________. A. extends the value chain analysis B. is a way to analyze all the players in a game and analyze how their interactions affect the ability of a firm to generate and appropriate value C. helps us to understand the evolution of the five forces over time D. uses network analysis to understand the relationships among different companies

B

Which of the following statements about strategic groups is FALSE? A. Two assumptions are made: (1) no two firms are totally different, (2) no two firms are exactly the same. B. Strategic groupings are of little help to a firm in assessing mobility barriers that protect a group from attacks by other groups. C. Strategic groups help chart the future directions of firm strategies. D. Strategic groups are helpful in thinking through the implications of each industry trend for the group as a whole.

B

Which of the following would be considered part of a firm's general environment? A. decreased entry barriers B. higher unemployment rates C. increased bargaining power of the firm's suppliers D. increased competitive intensity

B

_____________ tracks the evolution of environmental trends, sequences of events, or streams of activities. A. Environmental scanning B. Environmental monitoring C. Environmental surveying

B. Environmental monitoring

Two of the key inputs to developing forecasts discussed in the text are: A. environmental scanning and stakeholder identification. B. environmental scanning and competitor intelligence. C. assessing internal strengths and environmental scanning. D. environmental scanning and a SWOT analysis.

B. environmental scanning and competitor intelligence.

The role of suppliers involves providing products or services to other businesses

B2B (business-to-business) refers to businesses that supply or sell to other businesses

increases the threat of new entrants

Because the Internet lowers barriers to entry in most industries, it

it is concentrated or purchases large volumes relative to seller sales

Buyer power will be greater when

A danger of forecasting discussed in the text is that _____________. A. in most cases, the expense of collecting the necessary data exceeds the benefit B. the retrospective nature of forecasting provides little information about the future C. managers may view uncertainty as black and white while ignoring important gray areas D. it can create legal problems for the firm if regulators discover the company is making forecasts

C

All of the following are important elements of the political/legal segment of the general environment EXCEPT: A. the deregulation of utilities B. the Americans with Disabilities Act (ADA) C. the increased use of Internet technology D. increases in the federally mandated minimum wage

C

An automobile manufacturer acquires a rental car company. This is an example of _____. A. backward integration B. economies of scale C. forward integration D. product differentiation

C

Firms would be most likely to face intense rivalry with competitors when they _________. A. are in a high growth industry with low fixed costs B. are in a protected market C. have high fixed costs D. have low exit barriers for easy transition to another industry

C

How do infomediaries and consumer information websites increase the intensity of competitive rivalry? A. by shifting customers away from issues of price B. by making competitors in cyberspace seem less equally balanced C. by consolidating the marketing message that consumers use to make a purchase decision to a few key pieces of information that the selling company has little control over D. by highlighting unique selling advantages of a firm

C

In the value net analysis, complementors are _________________. A. firms that produce substitute products B. customers who compliment the company for their good products and services C. firms that produce products or services that have a positive impact on the value of firm products or services D. firms that supply critical inputs to a company

C

Larger numbers of women entering the work force since the early 1970s is an example of ______. A. demographic changes B. political and legal environmental changes C. sociocultural changes D. technological developments

C

Product differentiation by incumbents act as an entry barrier because __________. A. new entrants cannot differentiate their products B. incumbents will take legal action if new entrants do not differentiate their products C. new entrants will have to spend heavily to overcome existing customer loyalties D. it helps a firm to derive greater economies of scale

C

Threat of substitute products comes from ____________. A. other companies in the same industry B. foreign companies which can use cheap labor in their countries C. firms in other industries that produce products or services that satisfy the same customer need D. new companies in the same industry

C

Which is considered a force in the Five-Forces model? A. increased deregulation in an industry B. the threat of government intervention C. rivalry among competing firms D. recent technological innovation

C

Which of the following firms would likely pose the least competitive threat? A. a firm in the same industry and in the same strategic group B. a firm that produces substitute goods to your product line C. a competitor to your product where a high switching cost exists D. a firm in the same industry and in the nearest strategic group looking to join your group

C

What makes up the Economic Segment?

Characteristics of the economy, including national income and monetary conditions

Economic Segment of the General Environment

Characteristics of the economy, including national income and monetary conditions.

Economic segment of the general environment

Characteristics of the economy, including national income and monetary conditions.

What are Strategic Groups?

Clusters of firms that share similar strategies

Strategic Groups

Clusters of firms that share similar strategies.

Strategic groups

Clusters of firms that share similar strategies.

Strategic Groups

Clusters of firms that share similar strategies: - Breadth of product & geographic scope - Price/quality - Degree of vertical integration - Type of distribution Dimensions should be considered that reflect the variety of strategic combinations in an industry. **Rivalry will be greater in firms that are alike. Strategic groups as an analytical tool: 1) Helps identify barriers to mobility that protect a group from attacks by other groups. 2) Helps identify groups whose competitive position may be marginal or tenuous. 3) Helps chart the future direction of firms' strategies. 4) Helps to think through the implications of each industry trend for the strategic group as a whole.

Competitive Intelligence is?

Collecting and interpreting data on competitors, their strengths and weaknesses

So you believe that younger workers, when compared to older workers - are less motivated, less healthy, resist change, are less trusting, have more trouble balancing work & family?

Compared to younger workers, older workers can be MORE motivated, more willing to implement change, are as healthy, as trusting, and do not have issues with work-family imbalance. However, older workers ARE less willing to participate in training & career development.

What are some key factors of the competitive environment? (3)

Competitors, customers, suppliers

Competitive Environment

Consists of many factors that are particularly relevant to a firm's strategy. These include competitors (existing and potential), customers, and suppliers.

Big Data

Corporations are increasingly collecting and analyzing data on their customers, including data on customer characteristics, purchasing patterns, employee productivity, and physical asset utilization. have the potential to enable firms to better customize their product and service offerings to customers while more efficiently and fully using the resources of the company.

Buyer power will be greater when _______. A. the products purchased are highly differentiated B. there are high switching costs C. the industry product is very important to the quality of the buyer end products or services D. it is concentrated or when a buyer group purchases large volumes relative to seller sales

D

End users are not ____________. A. the final consumers in a distribution channel B. usually the C in B2C C. likely to have greater bargaining power because of the Internet D. the first customers in a distribution channel

D

Environmental forecasting does not involve plausible projections about the ________ of environmental change. A. direction B. scope C. speed D. lack of intensity

D

Exit barriers do not arise from ________. A. specialized assets with no alternative use B. governmental and social pressures C. strategic interrelationships with other business units within the same company D. flexible costs of exit

D

In the Five-Forces model, conditions under which a supplier group can be powerful include all the following EXCEPT: A. lack of importance of the buyer to the supplier group B. high differentiation by the supplier C. dominance by a few suppliers D. readily available substitute products

D

New communication technology can impact seemingly unrelated industries such as the airline industry. This would be an example of a ______________. A. threat of entry B. backward integration C. forward integration D. threat of substitute products

D

The bargaining power of suppliers increases as ____________. A. more suppliers enter the market B. importance of buyers to supplier group increases C. switching costs for buyers decrease D. threat of forward integration by suppliers increases

D

The bargaining power of suppliers is enhanced under the following market condition: A. no threat of forward integration B. low differentiation of the supplier products C. greater availability of substitute products D. dominance by a few suppliers

D

The bargaining power of the buyer is greater than that of the supplier when __________. A. volume of purchase is low B. threat of backward integration by buyers is low C. cost savings from the supplier's product are minimal D. the buyer's profit margin is low

D

Which of the following is not an example of corporate competitive analysis? A. Banks tracking home loans B. Airlines changing hundreds of fares daily in response to competitor tactics C. Car manufacturers offering sales incentives based on rival offers D. Consumers comparing product offers online

D. Consumers comparing product offers online

Taking advantage of the increasing penetration of personal computers in American homes, the Mayo Clinic transformed itself as a provider of health-related knowledge and expertise. It took advantage of the ______ trends of the _______ in the prices of PCs and the ____________ presence of PCs in virtually every home in the U.S. A. soft; increase; increasing B. soft; decrease; decreasing C. hard; decrease; decreasing D. hard; decrease; increasing

D. hard; decrease; increasing

Economies of Scale

Decrease in cost per unit as absolute output per period increases.

Economies of Scale

Decreases in cost per unit as absolute output per period increases.

Economies of scale

Decreases in cost per unit as absolute output per period increases.

Economies of Scale

Decreases in cost per unit as absolute output per period increases. Forces the new entrant to come in at a large scale and risk strong reaction from existing firms, or come in at a small scale and accept a cost disadvantage.

What is an Economy of Scale? (Barrier to Entry)

Decreases in cost per unit as output increases

Product differentiation

Degree that a product has strong brand loyalty or customer loyalty.

What six segments make up the General Environment?

Demographic, Sociocultural, Political, Technological, Economic, and Global

Forecasting is?

Development of plausible projections about the direction of environmental change

Environmental forecasting

Development of plausible projections about the direction, scope, speed, and intensity of environmental change.

Demographics

Easily observable characteristics of a population, including the levels and growth of age, density, sex, race, ethnicity, education, geographic region, and income. **Demographics are the most easily understood and quantifiable elements of the general environment. However, there are still myths that abound, illustrating how misconceptions of the impact of a demographic trend can affect strategy.

Economic Forces

Economic forces affect all industries: - Interest rates - Unemployment - Consumer Price - Index - Trends in GDP & net disposable income. - Changes in stock market valuations.

the increasing educational attainment of women in the past decade

Emerging sociocultural changes in the environment include

A. the final consumers in a distribution channel. B. usually the C in B2C. C. likely to have greater bargaining power because of the Internet. (D. all of these.)

End users are

A. direction B. scope C. speed (D. all of these)

Environmental forecasting involves developing plausible projections about the ________ of environmental change.

_____________ tracks the evolution of environmental trends, sequences of events, or streams of activities

Environmental monitoring

A. specialized assets with no alternative use. B. governmental and social pressures. C. strategic interrelationships with other business units within the same company. (D. all of these.)

Exit barriers arise from

What is the General Environment composed of?

Factors external to an industry and usually beyond control of the company

General Environment

Factors external to an industry, and usually beyond a firm's control, that affect a firm's strategy.

General environment

Factors external to an industry, and usually beyond a firm's control, that affect a firm's strategy.

General Environment

Factors external to an industry, and usually beyond a firm's control, that affect a firm's strategy. **Although the effects of these factors can vary across industries, EVERY industry has to anticipate the affect of each factor on its firm's long-term strategies. Complosed of SIX factors that are hard to predict and difficult to control: 1) Demographic 2) Sociocultural 3) Political/Legal 4) Technological 5) Economic 6) Global

General Environment

Factors external to an industry, and usually beyond a firm's control, that affect a firm's strategy. Six Segments: 1. demographic 2. sociocultural 3. political/legal 4. technologies 5. economic 6. global

Competitive Environment is?

Factors that pertain to an industry and affect a firm's strategies

Competitive Environment

Factors that pertain to an industry and affect a firm's strategies.

Competitive environment

Factors that pertain to an industry and affect a firm's strategies.

Competitive Environment

Factors that pertain to an industry and affect a firm's strategies. Involves: 1) Competitors (existing and potential) 2) Customers (or buyers) 3) Suppliers (including those suppliers currently providing you raw materials considering forward integration. Monitor THAT supplier to make sure you are not caught off guard in your strategies to respond accordingly to that suppliers choice of forward integration.)

True or False? A soft trend is a projection based on measurable facts, events, or objects. It is something that will happen.

False. A hard trend is a projection based on measurable facts, events, or objects. It is something that will happen.

True or False? A hard trend is something that might happen and for which the probability that it might happen can be estimated.

False. A soft trend is something that might happen and for which the probability that it might happen can be estimated.

True or False? The power of a buyer group is increased if the buyer group has less concentration than the supplier group.

False. A buyer group is powerful when it is concentrated or purchases large volumes relative to seller sales. If a larger percentage of a supplier sales are purchased by a single buyer, the importance of the buyer business to the supplier increases.

True or False? Supplier power tends to be highest in industries where products are vital to buyers, where switching from one supplier to another is very costly, and where there are many suppliers.

False. A supplier group will be powerful when the supplier group is dominated by a few companies, the supplier product is an important input to the buyer business, or the supplier has built up switching costs for the buyer.

True or False? Competitive intelligence generally does not benefit very much from gathering information on competitors from sources in the public domain.

False. Competitive intelligence is frequently done effectively through public sources of information. Examples are evident in daily newspapers and periodicals such as The Wall Street Journal, BusinessWeek, and Fortune. For example, banks continually track home loan, auto loan, and certificate of deposit (CD) interest rates charged by rivals. Major airlines change hundreds of fares daily in response to competitor tactics.

True or False? Complement products typically have no impact on the value of products and services of the firm.

False. Complements typically are products or services that have a potential impact on the value of products or services of the firm. Powerful hardware is of no value to a user, unless there is software that runs on it.

True or False? There is generally a weak relationship between equity markets (e.g., New York Stock Exchange) and economic indicators.

False. Economic indicators are associated with equity markets. When stock market indexes increase, consumer discretionary income rises and there is often an increased demand for luxury items such as jewelry and automobiles.

True or False? Even with all of the advances in recent years, forecasting is typically considered more of an art than a science and it is of little use in generating accurate predictions.

False. Environmental forecasting involves the development of plausible projections about the direction, scope, speed, and intensity of environmental change. Its purpose is to predict change.

True or False? Rivalry is the most intense when there are high exit barriers and high industry growth.

False. Intense rivalry is the result of several interacting factors including: numerous or equally balanced competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching costs, capacity augmented in large increments, and high exit barriers.

True or False? Reintermediation is responsible for an overall reduction in business opportunities.

False. Just as the Internet is eliminating some business functions, it is creating an opening for new functions. These new activities are entering the value chain by a process known as reintermediation.

True or False? Scenario planning is usually concerned with short-term forecasts.

False. Scenario analysis is an in-depth approach to environmental forecasting that involves detailed assessments by experts of societal trends, economics, politics, technology, or other dimensions of the external environment.

True or False? The use of the strategic group concept is generally not helpful in charting the future directions of the strategies of a firm.

False. Strategic groupings help chart the future directions of the strategies of a firm. Arrows emanating from each strategic group can represent the direction in which the group (or a firm within the group) seems to be moving. If all strategic groups are moving in a similar direction, this could indicate a high degree of future volatility and intensity of competition.

True or False? Because of the Internet and digital technologies, it is very difficult for suppliers to create purchasing techniques that lower switching costs.

False. Suppliers may be able to create Web-based purchasing arrangements that make purchasing easier and discourage their customers from switching.

True or False? Switching costs for an end user are likely to be much higher because of the Internet.

False. Switching costs for an end user are also potentially much lower because of the Internet. Switching may involve only a few clicks of the mouse to find and view a competing product or service online.

True or False? The Internet and digital technologies suppress the bargaining power of buyers by providing them with more information to make buying decisions.

False. The Internet and wireless technologies may increase buyer power by providing consumers with more information to make buying decisions and by lowering switching costs.

True or False? The Opportunities and Threats of a SWOT analysis refer to the internal conditions of the firm.

False. The Opportunities and Threats are environmental conditions external to the firm. These could be factors either in the general or competitive environment. In the general environment, one might experience developments beneficial for most companies, such as improving economic conditions, that lower borrowing costs or trends that benefit some companies and harm others.

True or False? The Strengths and Weaknesses of a SWOT analysis refer to the external conditions of the firm.

False. The Strengths and Weaknesses refer to the internal conditions of the firm in which a firm excels (strengths) and where it may be lacking relative to competitors (weaknesses).

True or False? The strategic groups in the worldwide automobile industry have been very stable and unchanging in recent years.

False. The auto market has been very dynamic and competition has intensified in recent years. Many firms in different strategic groups compete in the same product markets.

True or False? Michael Porter's Five-Forces analysis is a dynamic tool for analyzing industry attractiveness.

False. The five-forces analysis also has been criticized for being essentially a static analysis. External forces as well as strategies of individual firms are continually changing the structure of all industries.

True or False? The Porter Five-Forces model is designed to help us understand how social attitudes and cultural values impact U.S. businesses.

False. The five-forces model developed by Michael E. Porter has been the most commonly used analytical tool for examining the competitive environment. It describes the competitive environment in terms of five basic competitive forces.

True or False? Although changes in the general environment may often adversely or favorably impact a firm, they seldom alter an entire industry.

False. The general environment is composed of factors that can have dramatic effects on firm strategy.

Competitive intelligence

Firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths/weaknesses.

have high fixed costs, in a slow growth industry with high exit barriers.

Firms would be most likely to face intense rivalry with competitors when they

SWOT analysis

Framework for analyzing a company's internal/external environment and that stands for strengths, weaknesses, opportunities, and threats.

Demographic Segment of the General Environment

Generic and observable characteristics of a population, including the levels of growth of age, density, sex, race, blah blah you get it.

Demographic Segment of the General Environment

Genetic and observable characteristics of a population, including the levels and growth of age, density, sex, race, ethnicity, education, geographic region, and income.

Demographic segment of the general environment

Genetic and observable characteristics of a population, including the levels and growth of age, density, sex, race, ethnicity, education, geographic region, and income.

What makes up Demographics?

Genetic and surface level characteristics of a population eg. age, density, sex, race, income

Internet

Global network of linked computers that use a common transmission format, exchange information and store data.

Doing a Good Industry Analysis

Good industry analysis looks rigorously at the structural underpinnings & root causes of profitability Must choose the appropriate time frame Must consider quantitative factors as well as qualitative

Good Industry Analysis

Good industry analysis looks rigorously at the structural underpinnings & root causes of profitability. Must choose the appropriate time frame: - Consider the industry business life cycle - Average profitability over 3-5 years or longer Must consider quantitative factors as well as qualitative: - Get numbers to quantify five forces factors **Percentages of total cost or sales accounted for by the industry, actual switching costs.

What is an Industry?

Group of firms that produce similar goods or services

Industry

Group of firms that product similar goods or services.

Strategic Groups as an Analytic Tool

Helps identify barriers to mobility that protect a group from attacks by other groups Helps identify groups whose competitive position may be marginal or tenuous Helps chart the future direction of firms' strategies Helps to think through the implications of each industry trend for the strategic group as a whole

What makes up the Legal Segment?

How a society creates and exercises power e.g. laws, taxes, rules

Political/Legal Segment of the General Environment

How a society creates and exercises power, including rules, laws, and taxation policies.

Political/legal segment of the general environment

How a society creates and exercises power, including rules, laws, and taxation policies.

Political/Legal

How a society creates and exercises power, including rules, laws, and taxation policies. Federal legislation such as Sarbanes-Oxley not only affected how corporations managed their corporate governance processes, but helped create new businesses such as professional accounting services. Any immigration reform will affect how businesses find and keep needed employees - see the Strategy Spotlight on how immigration affects new job creation. The Affordable Care Act (Obama-care) and changes in how to process Medicare reimbursements will have the same effect on health care delivery mechanisms.

by consolidating the marketing message that consumers use to make a purchase decision to a few key pieces of information that the selling company has little control over

How do infomediaries and consumer information websites increase the intensity of competitive rivalry?

readily available substitute products

In Porter's Five-Forces model, conditions under which a supplier group can be powerful include all the following EXCEPT

introduces new ways to accomplish the same task

In general, the threat of substitutes is heightened because the Internet

Buyer channel intermediaries are the wholesalers, distributors, and retailers who serve as intermediaries between manufacturers and end users.

In some industries, they are dominated by powerful players that control who gains access to the latest goods or the best merchandise. The Internet and wireless communications, however, make it much easier and less expensive for businesses to reach customers directly. so the Internet may increase the power of incumbent firms relative to that of traditional buyer channels.

firms that produce products or services that have a positive impact on the value of a firm's products or services

In the value net analysis, complementors are

Scenario analysis

In-depth approach to environmental forecasting that involves experts' detailed assessments of societal trends, economics, politics, technology, or other dimensions of the external environment.

Scenario Analysis is?

In-depth approach to forecasting that involves the opinions of experts

sociocultural changes

Increasingly larger numbers of women entering the work force since the early 1970s is an example of

diminishes the power of many distribution channel intermediaries

Incumbent firms may enjoy increased bargaining power because the Internet

What makes up the Global Segment?

Influences from foreign countries e.g. opportunities, competition, and new capital markets

Global Segment of the General Environment

Influences from foreign countries, including foreign market opportunities, foreign-based competition, and expanded capital markets.

Global segment of the general environment

Influences from foreign countries, including foreign market opportunities, foreign-based competition, and expanded capital markets.

Global Forces

Influences from foreign countries, including foreign market opportunities, foreign-based competition, and expanded capital markets. Globalization provides both opportunities to access larger potential markets and a broad base of production factors such as raw materials, labor, skilled managers, and technical professionals. ie; currency exchange rates, NAFTA, etc.

What makes up the Tech Segment?

Innovation and general knowledge in industrial arts, engineering, applied sciences, and pure science Their interaction w/ society

Technological Segment of the General Environment

Innovation and state of knowledge in industrial arts, engineering, applied sciences, and pure science; and their interaction with society.

Technological Developments

Innovation and state of knowledge in industrial arts, engineering, applied sciences, and pure science; and their interaction with society. PHYSIOLECTICS - linking wearable computing devices with data analysis and quantified feedback to improve performance. NOTE: some trends or events can affect multiple segments of the general environment, i.e. crowdsourcing. CROWDSOURCING - practice wherein the Internet is used to tap a broad range of individuals and groups to generate ideas and solve problems. This activity links technology with globalization and economic forces, having an effect on nearly every business domain by "tapping the latent talent of the (online) crowd." (ie; GoFundMe & KickStarter)

Technological Segment of the General Environment

Innovation and state of knowledge in industrial arts, engineering, applied sciences, and pure sciences; and their interaction with society.

Technological segment of the general environment

Innovation and state of knowledge in the industrial arts, engineering, applied sciences, and pure science; and their interaction with society.

negative; negligible

Interest-rate increases have a __________ impact on the residential home construction industry and a __________ effect on industries that produce consumer necessities such as prescription drugs or basic grocery items

End users are the final customers in a distribution channel

Internet sales activity that is labeled "B2C" (business-to- consumer) is concerned with end users. The Internet is likely to increase the power of these buyers because, -Internet provides large amounts of consumer information (This gives end users the information they need to shop for quality merchandise and bargain for price concessions). -an end user's switching costs are potentially much lower because of the Internet (Switching may involve only a few clicks of the mouse to find and view a competing product or service online). bargaining power of distribution channel buyers may decrease because of the Internet

Using Industry Analysis CAVEATS

Managers must not always avoid low profit industries - these can still yield high returns for players who pursue sound strategies. Five forces analysis implicitly assumes a zero-sum game - yet mutually beneficial relationships can still be established with buyers & suppliers. Five forces analysis is essentially a static analysis - yet external forces can still change the structure of all industries: - See the value net Vertical dimension = suppliers & customers, and - Horizontal dimension = substitutes & complements. Industry analysis helps a firm evaluate the profit potential of an industry and consider various ways to strengthen its competitive position. However, strategists must be wary - it's not always simple. ZERO-SUM GAME: A situation in which multiple players interact, and winners win only by taking from other players. COMPLIMENTS: Products or services that have an impact on the value of a firm's products or services. **For instance, Apple's iTunes was software that made the iPod hardware such a popular product.

Using Industry Analysis: A Few Caveats

Managers must not always avoid low profit industries; these can still yield high returns for players who pursue sound strategies. Five forces analysis implicitly assumes a zero-sum game. Yet mutually beneficial relationships can still be established with buyers & suppliers. Five forces analysis is essentially a static analysis, yet external forces can still change the structure of all industries.

Porter's Five Forces Model of Industry Competition.

Must commonly used analytical tool for examining the competitive environment. Describes the competitive environment in terms of 5 basic competitive forces: 1. threat of new entrants 2. bargaining power of buyers 3. bargaining power of suppliers 4. threat of substitute products and services 5. intensity of rivalry among competitors in an industry

good industry analysis

Needs to yield an understanding of the structural underpinnings and root causes of profitability within the industry by choosing the appropriate time frame and doing a rigorous qualification of the five forces

Two unassailable assumptions in industry analysis

No two firms are totally different No two firms are exactly the same

Good industry analysis looks rigorously at the structural underpinnings of profitability. A first step is to understand the time horizon.

One of the essential tasks in industry analysis is to distinguish short-term fluctuations from structural changes. A good guideline for the appropriate time horizon is the full business cycle for the particular industry. For most industries, a 3-5 year horizon is appropriate. (However, for some industries with long lead times, such as mining, the appropriate horizon may be a decade or more) It is average profitability over this period, not profitability in any particular year, which should be the focus of analysis.

Switching Costs

One-time costs that a buyer/supplier faces when switching from one supplier/buyer to another.

Switching cost

One-time costs that a buyer/supplier faces when switching from one supplier/buyer to another.

What are Switching Costs? (Barrier to Entry)

One-time costs that a buyer/supplier faces when switching from one to another

Access to Distribution Channels

Other advantages that existing competitors might have include proprietary products; favorable access to raw materials; government subsidies; or favorable government policies.

The best CEOs are always aware of what's going on outside their company. Their _____________________ allows them to sense what's coming.

Perceptual Acuity

Porter's 5 Forces

Porter's 5 Forces: -threat of new entrants, -bargaining power of buyers, -bargaining power of suppliers, -threat of substitute products/services -intensity of rivalry among competitors in an industry

Threat of new entrants

Possibility that the profits of established firms in the industry may be eroded by new competitors.

Crowdsourcing

Practice wherein the internet is used to tap a broad range of individuals and groups to generate ideas and solve problems.

What are Data Analytics?

Process of examining large data sets to uncover hidden patterns and customer preferences

new entrants will have to spend heavily to overcome existing customer loyalties

Product differentiation by incumbents act as an entry barrier because

Substitute Products and Services

Products and services outside the industry that serve the same customer needs as the industry's products and services.

Substitute products and services

Products and services outside the industry that serve the same customer needs as the industry's products and services.

Substitute Products & Services

Products and services outside the industry that serve the same customer needs as the industry's products and services. Identifying substitute products might involve searching for other products or services that can perform the same function as the industry's offerings. This may lead a manager into businesses seemingly far removed from the industry. An example is ice cream - an expensive summer time treat. Frozen fruit smoothies are a substitute.

Complements are?

Products or services that have an impact on the value of a firm's products or services

Complements

Products or services that have an impact on the value of a firm's products or services.

Hard trend

Projection based on measurable facts, events, or objects. It's something that will happen.

How the Internet Increases Rivalry EXAMPLE:

Read & Study Slide 32 on PowerPoint.

World Automobile Industry: Strategic Groups

SEE Slide 39 on PowerPoint.

Forecasting is made up of what three things?

Scanning, monitoring, and competitive intelligence

Zero-sum game

Situation in which multiple players interact, and winners win only by taking from other players.

Using Competitive Intelligence: EXAMPLE

Slide 8 of PowePoint

Cost Disadvantages Independent of Scale, entry barrier

Some existing competitors may have advantages that are independent of size or economies of scale. These derive from: • Proprietary products. • Favorable access to raw materials. • Government subsidies • Favorable government policies.

Soft trend

Something that might happen and for which the probability that it might happen can be estimated.

__________ have a disadvantage - it takes a lot of time to be ready for the market - someone else can get there first.

Startups

a group of firms within an industry that follow similar strategies

Strategic groups consist of

SWOT Analysis

Strengths, weaknesses, opportunities, threats.

some suppliers have created Web-based purchasing systems that encourage switching

Supplier power has increased because of the Internet for all of the following reasons EXCEPT

Environmental scanning

Surveillance of a firm's external environment to predict environmental changes and detect changes already under way.

Environmental Scanning

Surveillance of a firm's external environment to predict environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint of the industry/competition, looking for key indicators of emerging trends - what catches your eye? Alerts the firm to critical trends before changes have developed a discernible pattern and before competitors recognize them.

Environmental Scanning

Surveillance of a firm's external environment to predict environmental changes and detect changes already under way. Alerts the organization to critical trends and events before changes develop a discernible pattern and before competitors recognize them.

Rivalry

Tactics include price competition, advertising battles, new product introductions, increased customer service or warranties. Interacting factors lead to intense rivalry: - Numerous or equally balanced competitors - Slow industry growth - High fixed or storage costs - Lack of differentiation or switching costs - Capacity augmented in large increments - High exit barriers **Rivalry between firms is often based solely on price, but it can involve other factors. Rivalry occurs when competitors sense the pressure or act on an opportunity to improve their position.

How the Internet and Digital Technologies Affect Competitive Forces

The Internet and other digital technologies have fundamentally changed the ways businesses interact with each other and with consumers. These changes have affected industry forces in ways that have created many new strategic challenges.

Perceptual Acuity is?

The ability to sense what is coming. Detecting anomalies, keeping pace with changes in the external environment can sustain a competitive advantage.

demographic changes

The aging of the population, changes in ethnic composition, and effects of the baby boom are

threat of forward integration by suppliers increases

The bargaining power of suppliers increases as

dominance by a few suppliers

The bargaining power of suppliers is enhanced under the following market condition:

the buyer's profit margin is low

The bargaining power of the buyer is greater than that of the supplier when

Product Differentiation

The degree that a product has strong brand loyalty or customer loyalty. New entrants must spend heavily to overcome existing customer loyalties.

product differentiation

The degree to which a product has strong brand loyalty or customer loyalty

Product Differentiation

The degree to which a product has strong brand loyalty or customer loyalty.

What is Product Differentiation? (Barrier to Entry)

The degree to which a product has strong loyalty

Environmental Forecasting

The development of plausible projections about the direction, scope, speed, and intensity of environmental change.

numerous equally balanced competitors, slow industry growth, high fixed or storage costs

The most intense rivalry results from

Threat of New Entrants

The possibility that the profits of established firms in the industry may be eroded by new competitors.

Threat of New Entrants

The possibility that the profits of established firms in the industry may be eroded by new competitors. Depends on existing barriers to entry: 1) Economies of scale 2) Product differentiation 3) Capital requirements 4) Switching costs 5) Access to distribution channels 6) Cost disadvantages independent of scale

Data Analytics

The process of examining large data sets to uncover hidden patterns, market trends, and customer preferences.

Data analytics

The process of examining large data sets to uncover hidden patterns, market trends, and customer preferences.

data analytics

The process of examining large data sets to uncover hidden patterns, market trends, and customer preferences.

Scanning is?

The surveillance of a company's external environment to predict changes and detect changes already under way

Threat of Substitute Products and Services

The threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitability charge without losing too many customers to substitute products.

Threat of Substitute Products and Services

The threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitable charge without losing too many customers to substitute products.

low economies of scale

The threat of new entrants is high when there are

Threat of Substitute Products and Services?

The threat of substitutes placing a ceiling on prices being placed in an industry

What is the Bargaining Power of Buyers?

The threat that buyers may force down prices or bargain for more quality

Bargaining Power of Buyers

The threat that buyers may force down prices, bargain for higher quality or more services, and play competitors against each other.

Bargaining Power of Buyers

The threat that buyers may force down prices, bargain for higher quality or more services, and play competitors against each other. These actions will erode overall industry profitability, forcing all firms to pay attention. Firms therefore need to know who the important buyers are: is there a single buyer, or ones who purchase in high volume? These buyers will have the ability to dictate terms. In addition, if the products needed by buyers are standard or undifferentiated, such as commodity grain products, buyers can play one company against another. Also, if the buyer's profits are low and it won't cost much to switch suppliers, this is an incentive for buyers to bargain.

What is Intensity of Rivalry Among Competitors in an Industry?

The threat that customers will switch their business to competitors within the industry

Intensity of Rivalry Among Competitors in an Industry

The threat that customers will switch their business to competitors within the industry.

What is the Bargaining Power of Suppliers?

The threat that suppliers may raise or reduce the quality of purchased goods and services

Bargaining Power of Suppliers

The threat that suppliers may raise prices or reduce the quality of purchased goods and services. Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of purchased goods and services. Supplier groups are powerful when: - Only a few firms dominate the industry - No competition from substitute products - Suppliers sell to several industries - Buyer quality is affected by industry product - Products are differentiated & have switching costs. - Forward integration is possible. **Firms need to pay attention to their suppliers because powerful suppliers can squeeze the profitability of firms so far that they can't recover the costs of raw material inputs.

Bargaining Power of Suppliers

The threat that suppliers may raise prices or reduce the quality of purchased goods or services.

Bargaining Power of Suppliers

The threat that suppliers may rise prices or reduce the quality of purchased goods and services.

is a way to analyze all the players in a game and analyze how their interactions affect a firm's ability to generate and appropriate value

The value net is a game-theoretic approach that

The Value Net

The value net is based on GAME-THEORY, and represents all the players in the game, analyzing how their INTERACTIONS affect a firm's ability to generate and appropriate value. The VERTICAL DIMENSION of the net includes suppliers and customers. The firm has DIRECT TRANSACTIONS with them. On the HORIZONTAL DIMENSION are substitutes and complements, players with whom a firm INTERACTS but may not necessarily transact. Yet complements are products or services that have a potential impact on the value of a firm's own products or services. A firm must acknowledge its potential partnerships here.

Sociocultural Segment of the General Environment

The values, beliefs, and lifestyles of a society.

Sociocultural

The values, beliefs, and lifestyles of a society. These forces might enhance the sales of products and services in many industries but depress sales in others. For instance, increase of women in the workforce enhances the sale of women's business attire (see Case 10: Ann Taylor) but reduces demand for baking products and cooking staples (see Case 17: Campbell Soup).

Sociocultural Segment of the General Environment

The values, beliefs, and lifestyles of society.

How do managers tend to view Barriers to Entry?

They tend to overestimate them. In reality, new firms can find innovative ways to successfully enter new industries

Threat of substitute products and services

Threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge without losing too many customers to substitute products.

Threat of Substitute Products & Services

Threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge without losing too many customers to substitute products. Substitute products & services limit the potential returns of an industry. Substitutes come from another industry. Can perform the same function as the industry's offerings. Place a ceiling on prices that firms in an industry can profitably charge: - The more attractive the price/performance ratio, the more the substitute erodes industry profits.

firms in other industries that produce products or services that satisfy the same customer need.

Threat of substitute products comes from

Bargaining power of buyers

Threat that buyers may force down prices, bargain for higher quality or more services, and play competitors against each other.

Intensity of rivalry among competitors in an industry

Threat that customers will switch their business to competitors within the industry.

Bargaining power of suppliers

Threat that suppliers may raise prices or reduce the quality of purchased goods and services.

macroeconomic, political/legal, economic

To illustrate interrelationships among different segments of the general environment: The persistence of large U.S. trade deficits (__________) has led to greater demand for protectionist measures, such as trade barriers and quotas (__________). These measures lead to higher prices for U.S. consumers and fuel inflation (__________).

Porter's 5 forces model of industry competition

Tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs.

Monitoring does what?

Tracks the evolution of trends, events, or activities

True or False? The aging of the population is a hard trend.

True. A hard trend is a projection based on measurable facts, events, or objects. It is something that will happen.

True or False? A number of choices government officials make are based on projections about future interest rates. The projections are soft trends.

True. A soft trend is something that might happen and for which the probability that it might happen can be estimated.

True or False? Environmental monitoring deals with tracking changes in environmental trends that are often uncovered during the environmental scanning process.

True. Environmental monitoring tracks the evolution of environmental trends, sequences of events, or streams of activities.

True or False? Environmental scanning and competitor intelligence provide important inputs for forecasting activities.

True. Three important processes (scanning, monitoring, and gathering competitive intelligence) are used to develop forecasts.

True or False? In some industries, high switching costs can act as an important barrier to entry.

True. A barrier to entry is created by the existence of one-time costs that the buyer faces when switching from one supplier's product or service to another.

True or False? Buyer power tends to be higher if suppliers provide undifferentiated or standard products.

True. A buyer group is powerful when the products it purchases from the industry are standard or undifferentiated. Confident they can always find alternative suppliers, buyers play one company against the other.

True or False? The power of suppliers will be enhanced if they are able to maintain a credible threat of forward integration.

True. A supplier group will be powerful when the supplier group poses a credible threat of forward integration. This provides a check against the industry ability to improve the terms by which it purchases.

True or False? The Internet heightens the threat of substitutes because it creates new ways to accomplish the same task.

True. Along with traditional marketplaces, the Internet has created a new marketplace and channel. In general, the threat of substitutes is heightened, because the Internet introduces new ways to accomplish the same tasks.

True or False? Competitor Intelligence (CI) is a tool that can provide management with early warnings about both threats and opportunities.

True. Competitive Intelligence (CI) helps firms define and understand their industry and identify strengths and weaknesses of rivals. Done properly, competitive intelligence helps a company avoid surprises by anticipating competitor moves and decreasing response time.

True or False? Technological innovations can create entirely new industries and alter the boundaries of industries.

True. Developments in technology lead to new products and services and improve how they are produced and delivered to the end user. Innovations can create entirely new industries and alter the boundaries of existing industries.

True or False? Industries characterized by high economies of scale typically attract fewer new entrants.

True. Economies of scale refers to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the absolute volume per period increases. This deters entry by forcing the entrant to come in at a large scale and risk strong reaction from existing firms, or come in at a small scale and accept a cost disadvantage. Both are undesirable options.

True or False? Five-Forces analysis implicitly assumes a zero-sum game, a perspective that can be short-sighted.

True. Five-forces analysis implicitly assumes a zero-sum game, determining how a firm can enhance its position relative to the forces. Yet such an approach can often be short-sighted. It can overlook the many potential benefits of developing constructive win-win relationships with suppliers and customers.

True or False? To understand the business environment of a particular firm, you need to analyze both the general environment and the firm industry and competitive environment.

True. Generally, firms compete with other firms in the same industry. An industry is composed of a set of firms that produce similar products or services, sell to similar customers, and use similar methods of production. Gathering industry information and understanding competitive dynamics among the different companies in your industry is key to successful strategic management. To understand the business environment of a particular firm, you need to analyze both the general environment and the firm industry and competitive environment.

True or False? Crowdsourcing is used by companies to develop products.

True. In June 2006, Wired magazine defined crowdsourcing as the tapping of the latent talent of the (online) crowd. It has become the term of choice for a process that is infiltrating many aspects of business life and has claimed some well-known successes, particularly on the product development front.

True or False? In most industries, new entrants will be a bigger threat because the Internet lowers entry barriers.

True. In most industries, the threat of new entrants has increased because digital and Internet-based technologies lower barriers to entry. For example, businesses that reach customers primarily through the Internet may enjoy savings on other traditional expenses such as office rent, salesforce salaries, printing, and postage. This may encourage more entrants who, because of the lower start-up expenses, see an opportunity to capture market share by offering a product or performing a service more efficiently than existing competitors. Thus, a new cyber entrant can use the savings provided by the Internet to charge lower prices and compete on price despite the incumbent's scale advantages.

True or False? A major sociocultural trend in the United States is the increased educational attainment by women.

True. Increased educational attainment by women in the workplace has led to more women in upper management positions. Given such educational attainment, it is hardly surprising that companies owned by women have been one of the driving forces of the U.S. economy.

True or False? Competition tends to be more intense among firms within a strategic group than between strategic groups.

True. Strategic groups are clusters of firms that share similar strategies. Rivalry tends to be greater among firms that are alike.

True or False? The same environmental trend or event may have a very different impact on different strategic groups within the same industry.

True. Strategic groups are helpful in thinking through the implications of each industry trend for the strategic group as a whole. Such analysis can help in making predictions about industry evolution. A sharp increase in interest rates, for example, tends to have less impact on providers of higher-priced goods (e.g., Porsche 911) than on providers of lower-priced goods (e.g., Chevy Cobalt) whose customer base is much more price-sensitive.

True or False? The more attractive the price/performance ratio of substitute products, the tighter it constrains the ability of an industry to charge high prices.

True. Substitutes limit the potential returns of an industry by placing a ceiling on the prices that firms in that industry can charge profitably. The more attractive the price/performance ratio of substitute products, the tighter the lid will be on the profits of that industry.

True or False? The Internet is a leading component in the rising emergence of digital technology.

True. The Internet has been a leading and highly visible component of a broader technological phenomenon -- the emergence of digital technology. These technologies are altering the way business is conducted and are having an effect on nearly every business domain.

True or False? The five-forces model helps to determine both the nature of competition in an industry and the profit potential for the industry.

True. The five-forces model developed by Michael E. Porter describes the competitive environment in terms of five basic competitive forces that affect the ability of a firm to compete in a given market. Together, they determine the profit potential for a particular industry.

True or False? The impact of a demographic trend varies across industries.

True. The impact of a demographic trend, like all segments of the general environment, varies across industries. Rising levels of affluence in many developed countries bode well for brokerage services as well as for upscale pets and supplies. However, this trend may adversely affect fast food restaurants because people can afford to dine at higher-priced restaurants.

True or False? Rivalry will be the most intense when there is a lack of differentiation or switching costs.

True. Where the product or service is perceived as a commodity or near commodity, the buyer's choice is typically based on price and service, resulting in pressures for intense price and service competition. Lack of switching costs has the same effect.

The Value Net: COMPLIMENTS

Typically products or services that have a potential positive impact on the value of a firm's own products or services. Firms that produce complements are referred to as "complementors:" - Savvy firms will offer complementary products or services, i.e. Apple's iTunes is a complement to the iPod. Complements help increase the performance and efficiency of products or services of a particular industry, improving the competitive situation **Substitute products or services serve the same purpose that the products and services from a chosen industry serve, thereby accentuating competition, while complements in essence help to increase the performance and efficiency of products or services of a particular industry and thus improve their competitive situation vis-à-vis other products and substitutes.

What makes up the Sociocultural Segment?

Values, beliefs, and lifestyles of a society

Sociocultural segment of the general environment

Values, beliefs, and lifestyles of a society.

The Value Net

Vertical dimension = suppliers & customers Horizontal dimension = substitutes & complements

What is Backwards Integration?

When a company purchases its supplier

When are buyers more powerful?

When it poses a threat of backward integration or earns low profits

When are suppliers powerful?

When they pose a threat of forward integration

Rivalry among competing firms

Which is considered a force in the "Five-Forces" model?

A competitor to your product where a high switching cost exists.

Which of the following firms would likely pose the least competitive threat

Strategic groupings are of little help to a firm in assessing mobility barriers that protect a group from attacks by other groups

Which of the following statements about strategic groups is FALSE?

large economies of scale

Which of the following would be an entry barrier?

Higher unemployment rates.

Which of the following would be considered part of a firm's general environment

Using Industry Analysis: A Few Caveats

Zero sum game and complements

For industry analysis to be valuable

a company must collect and evaluate a wide variety of information

Competitive intelligence

a firm's activities of collecting and interpreting data on competitors' strengths and weaknesses.

Competitive intelligence

a firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths and weaknesses

competitive intelligence

a firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths and weaknesses

Competitive Intelligence

a firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths and weaknesses. Be careful - aggressive efforts to gather competitive intelligence may lead to unethical or illegal behaviors.

environmental monitoring

a firm's analysis of the external environment that tracks the evolution of environmental trends, sequences of events, or streams of activities

Backward Integration

a form of vertical integration that involves the purchase of suppliers

Forward Integration

a form of vertical integration whereby a firm expands activities to include control of the direct distribution of its products

Forward integration

a form of vertical integration whereby a firm expands activities to include control of the direct distribution of its products, e.g. a farmer sells his/her crops at the local market rather than to a distribution center for eventual sale to a supermarket

SWOT analysis

a framework for analyzing a company's internal and external environment and that stands for strengths, weaknesses, opportunities, and threats

SWOT analysis

a framework for analyzing a company's internal and external environment and that stands for strengths, weaknesses, opportunities, and threats. provides raw material a basic listing of conditions both inside & surrounding your company

SWOT analysis

a framework for analyzing a company's internal and external environment and that stands for strengths, weaknesses, opportunities, and threats. The firm's strengths come from within, and are where your firm excels; the weaknesses are where your firm is lacking relative to competitors. The opportunities and threats can come from the general environment and/or from the specific industry's competitive environment.

SWOT analysis

a framework for analyzing a company's internal and external environment and that stands of strengths, weaknesses, opportunities, and threats.

SWOT analysis

a framework for analyzing a company's internal and external environments and that stands for strengths, weaknesses, opportunities, and threats

The internet

a global network of linked computers that use a common transmission format, exchange information, and store data

Industry

a group of firms that produce similar goods or services

industry

a group of firms that produce similar goods or services

hard trend

a projection based on measurable facts, events, or objects. it is something that will happen.

if entry barriers are high & or the newcomer can anticipate

a sharp retaliation from established competitors the threat of entry is low

zero-sum game

a situation in which multiple players interact, and winners win only by taking from other players

Porter's five-forces model of industry competition

a tool for examining the industry level competitive environment, specially the ability of a firm to set prices and minimize cost - The treat of new entrants - the bargaining power of buyers -the bargaining power of supplies -the treat of substitute products and services - The intensity of rivalry among competitions in an industry

Porter's Five Forces Model of Industry Competition

a tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs

Porter's five forces model of industry competition

a tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs

porter's five forces of industry competition

a tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs

Porter's five forces model of industry competition

a tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs. Includes the threat of new entrants; the bargaining power of buyers; the bargaining power of suppliers; the threat of substitute products and services; the intensity of rivalry among competitors in an industry.

SWOT analysis is a framework for analyzing the internal and external environment of a company. It consists of strengths, weaknesses, opportunities, and threats. According to a SWOT analysis, which of the following is not an aspect that the strategy of the firm must follow? a. build on its weaknesses b. remedy the weaknesses or work around them c. take advantage of the opportunities presented by the environment d. protect the firm from the threats

a. build on its weaknesses The general idea of SWOT analysis is that a firm's strategy must build on its strengths, remedy its weaknesses or work around them, take advantage of the opportunities presented by the environment, and protect the firm from the threats. Despite its apparent simplicity, the SWOT approach has been very popular. First, it forces managers to consider both internal and external factors simultaneously. Second, its emphasis on identifying opportunities and threats makes firms act proactively rather than reactively. Third, it raises awareness about the role of strategy in creating a match between the environmental conditions and the firm's internal strengths and weaknesses. Finally, its conceptual simplicity is achieved without sacrificing analytical rigor.

In general, the threat of substitutes is heightened because the Internet __________. a. introduces new ways to accomplish the same task b. lowers switching costs c. lowers barriers to entry d. increases output per unit of cost

a. introduces new ways to accomplish the same task Along with traditional marketplaces, the Internet has created a new marketplace and a new channel. In general, therefore, the threat of substitutes is heightened because the Internet introduces new ways to accomplish the same tasks.

Gathering competitive intelligence __________. a. is good business practice b. is illegal c. is considered unethical d. minimizes the need to obtain information in the public domain

a. is good business practice Competitive Intelligence (CI) helps firms define and understand their industry and identify strengths and weaknesses of rivals. This includes the intelligence gathering associated with collecting data on competitors and interpreting such data.

Which of the following would be an entry barrier? a. large economies of scale b. low switching costs c. easy access to raw materials d. low capital requirements

a. large economies of scale Among the major sources of entry barriers are economies of scale, product differentiation, capital requirements, switching costs, and access to raw materials and distribution channels.

The threat of new entrants is high when there are __________. a. low economies of scale b. high capital requirements c. high switching costs d. high differentiation among competitors products and services

a. low economies of scale High entry barriers discourage new competitors. Among the major sources of entry barriers are economies of scale, product differentiation, capital requirements, and switching costs.

The most intense rivalry results from __________. a. numerous equally balanced competitors, slow industry growth, high fixed or storage costs b. few competitors, slow industry growth, lack of differentiation, high fixed or storage costs c. numerous equally balanced competitors

a. numerous equally balanced competitors, slow industry growth, high fixed or storage costs Intense rivalry is the result of several interacting factors, including the following: numerous or equally balanced competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching costs, capacity augmented in large increments, or high exit barriers.

Demographic

aging population, rising affluence, changes in ethnic composition, geographical distribution of population, greater disparities in income levels

Scenario Analysis

an in-depth approach to environmental forecasting that involves experts' detailed assessments of societal trends, economics, politics, technology, or other dimensions of the external environment

scenario analysis

an in-depth approach to environmental forecasting that involves experts' detailed assessments of societal trends, economics, politics, technology, or other dimensions of the external environment

__________ tracks the evolution of environmental trends, sequences of events, or streams of activities. a. Environmental scanning b. Environmental monitoring c. Environmental surveying d. Competitive intelligence

b. Environmental monitoring Environmental monitoring tracks the evolution of environmental trends, sequences of events, or streams of activities. Monitoring enables firms to evaluate how dramatically environmental trends are changing the competitive landscape.

Which of the following statements about strategic groups is FALSE? a. Two assumptions are made: (1) no two firms are totally different, (2) no two firms are exactly the same b. Strategic groupings are of little help to a firm in assessing mobility barriers that protect a group from attacks by other groups c. Strategic groups help chart the future directions of firm strategies d. Strategic groups are helpful in thinking through the implications of each industry trend for the group as a whole

b. Strategic groupings are of little help to a firm in assessing mobility barriers that protect a group from attacks by other groups. In an industry analysis, two assumptions are unassailable: (1) no two firms are totally different, and (2) no two firms are exactly the same. What value is the strategic group concept as an analytical tool? First, strategic groupings help a firm identify barriers to mobility that protect a group from attacks by other groups. They also help chart the future direction of firm strategies and are helpful in thinking through the implications of each industry trend for the strategic group as a whole.

Strategic groups consist of __________. a. a group of top executives that makes strategies for the company b. a group of firms within an industry that follows similar strategies c. a group of executives drawn from different companies within an industry that makes decisions on industry standards d. a group of firms within an industry that decides to collude rather than compete with each other so that they can increase their profits.

b. a group of firms within an industry that follows similar strategies Strategic groups are clusters of firms that share similar strategies. Rivalry tends to be greater among firms that are alike.

The aging of the population, changes in ethnic composition, and effects of the baby boom are __________. a. macroeconomic changes b. demographic changes c. global changes d. sociocultural changes

b. demographic changes Demographics are genetic and observable characteristics of a population, including elements such as the aging population, rising or declining affluence, changes in ethnic composition, geographic distribution of the population, and disparities in income level.

Incumbent firms may enjoy increased bargaining power because the Internet __________. a. focuses marketing efforts on end users b. diminishes the power of many distribution channel intermediaries c. increases channel conflict d. has reduced the number of wholesalers and distributors

b. diminishes the power of many distribution channel intermediaries In some industries, buyer channel intermediaries are dominated by powerful players that control who gains access to the latest goods or the best merchandise. The Internet and wireless communications, however, make it much easier and less expensive for businesses to reach customers directly. Thus, the Internet may increase the power of incumbent firms relative to that of traditional buyer channels.

Two of the key inputs to developing forecasts discussed in the text are: a. environmental scanning and stakeholder identification b. environmental scanning and competitor intelligence c. assessing internal strengths and environmental scanning d. environmental scanning and a SWOT analysis

b. environmental scanning and competitor intelligence Three important processes (scanning, monitoring, and gathering competitive intelligence) are used to develop forecasts.

Which of the following could be considered part of a firm's general environment? a. decreased entry barriers b. higher unemployment rates c. increased bargaining power of the firm's suppliers d. increased competitive intensity

b. higher unemployment rates The general environment is divided into six segments: demographic, sociocultural, political/legal, technological, economic, and global.

Because the Internet lowers barriers to entry in most industries, it __________. a. decreases the threat of new entrants b. increases the threat of new entrants c. makes it easier to build customer loyalty d. increases supplier power

b. increases the threat of new entrants In most industries, the threat of new entrants has increased because digital and Internet-based technologies lower barriers to entry. Internet businesses may enjoy savings on traditional expenses which may encourage more entrants who see an opportunity to capture market share by offering a product or performing a service more efficiently than existing competitors.

The value net is a game-theoretic approach that __________. a. extends the value chain analysis b. is a way to analyze all the players in a game and analyze how their interactions affect the ability of a firm to generate and appropriate value c. helps us to understand the evolution of the Five Forces over time d. uses network analysis to understand the relationships among different companies

b. is a way to analyze all the players in a game and analyze how their interactions affect the ability of a firm to generate and appropriate value Based on game-theoretic considerations, Brandenburger and Nalebuff recently introduced the concept of the value net, which in many ways is an extension of the Five Forces analysis. The value net represents all the players in the game and analyzes how their interactions affect a firm's ability to generate and appropriate value.

Interest-rate increases have a __________ impact on the residential home construction industry and a __________ effect on industries that produce consumer necessities, such as prescription drugs and basic grocery items. a. positive; negligible b. negative; negligible c. negative; positive d. positive; negative

b. negative; negligible Interest-rate increases have a negative impact on the residential home construction industry but a negligible (or neutral) effect on industries that produce consumer necessities, such as prescription drugs or common grocery items.

PPG Industries, the Pittsburgh-based manufacturer of paints, coatings, optical products, specialty materials, chemicals, glass, and fiberglass suffered serious failures in 1986 and 1987 when it attempted to diversify its offers. It used a technique to help it identify possible future strategies. What was it? a. crowdsourcing b. scenario analysis c. competitive intelligence d. monitoring

b. scenario analysis Scenario analysis is a more in-depth approach to forecasting. It draws on a range of disciplines and interests, among them economics, psychology, sociology, and demographics. It usually begins with a discussion of participant thoughts on ways in which societal trends, economics, politics, and technology may affect an issue. Developing strategies based on possible future scenarios seems to be paying off for PPG Industries. The company currently boasts a return on equity of 19.1%, and its stock has had a return of over 43% over the most recent 52-week period.

Supplier power has increased because of the Internet for all of the following EXCEPT: a. the growth of new Web-based businesses has created more outlets for suppliers to sell to b. some suppliers have created Web-based purchasing systems that encourage switching c. the process of disintermediation makes it possible for some suppliers to reach end users directly d. software that links buyers to a supplier's website has created rapid, low-cost order capabilities

b. some suppliers have created Web-based purchasing systems that encourage switching. Several factors contribute to stronger supplier power. First, Web-based business may create more downstream outlets for suppliers to sell to. Second, Web-based purchasing arrangements make purchasing easier and discourage customers from switching. Online procurement systems directly link suppliers and customers, reducing transaction costs and paperwork. Third, the use of proprietary software that links buyers to a supplier website may create a rapid, low-cost ordering capability that discourages the buyer from seeking other sources of supply. Finally, suppliers will have greater power to the extent that they can reach end users directly without intermediaries.

Scanning the general environment would identify information on __________. a. substitute goods b. the aging population and ethnic shifts c. customer and firm bargaining power d. competitive rivalry

b. the aging population and ethnic shifts Environmental scanning involves surveillance of the external environment of a firm to predict environmental changes and detect changes already underway. This alerts the organization to critical trends and events before changes develop a discernible pattern and before competitors recognize them.

Emerging sociocultural changes in the environment include __________. a. changes in the ethnic composition b. the increasing educational attainment of women in the past decade c. progressively less disposable income by consumers d. changes in the geographic distribution of the population

b. the increasing educational attainment of women in the past decade Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples include an increased educational attainment by women in the workplace.

A supplier group would be most powerful when __________. a. there are many suppliers b. there are few substitute products c. there is a low differentiation of products supplied d. there is a high threat of backward integration by the buyers

b. there are few substitute products A supplier group will be powerful when the supplier group is dominated by a few companies and is more concentrated (few firms dominate the industry) than the industry it sells to; the supplier group is not obligated to contend with substitute products for sale to the industry; the supplier group's products are differentiated or it has built up switching costs for the buyer; or the supplier group poses a credible threat of forward integration.

Which of the following firms would likely pose the least competitive threat? a. a firm in the same industry and in the same strategic group b. a firm that produces substitute goods to your product line c. a competitor to your product where a high switching cost exists d. a firm in the same industry and in the nearest strategic group looking to join your group

c. a competitor to your product where a high switching cost exists The competitive threat of intense rivalry can result from lack of differentiation or switching costs. When switching costs are high, this threat is lowered.

How do infomediaries and consumer information websites increase the intensity of competitive rivalry? a. by shifting customers away from issues of price b. by making competitors in cyberspace seem less equally balanced c. by consolidating the marketing message that consumers use to make a purchase decision to a few key pieces of information that the selling company has little control over d. by highlighting unique selling advantages of a firm

c. by consolidating the marketing message that consumers use to make a purchase decision to a few key pieces of information that the selling company has little control over Some shopping infomediaries, such as CNET, not only search for the lowest prices on many different products, but also rank the customer service quality of different sites that sell similarly priced items. They increase rivalry by consolidating the marketing message that consumers use to make a purchase decision into a few key pieces of information over which the selling company has little control.

Threat of substitute products comes from __________. a. other companies in the same industry b. foreign companies which can use cheap labor in their countries c. firms in other industries that produce products or services that satisfy the same customer need d. new companies in the same industry

c. firms in other industries that produce products or services that satisfy the same customer need Substitute products are those products or services that can perform the same function as the industry offerings. They may be offered by businesses seemingly far removed from the industry.

In the value net analysis, complementors are __________. a. firms that produce substitute products b. customers who compliment the company for their good products and services c. firms that produce products or services that have a positive impact on the value of firm products or services d. firms that supply critical inputs to a company

c. firms that produce products or services that have a positive impact on the value of firm products or services Complements typically are products or services that have a potential impact on the value of a firm's own products or services. Those who produce complements are usually referred to as complementors. Powerful hardware is of no value to a user unless there is software that runs on it.

An automobile manufacturer acquires a rental car company. This is an example of __________. a. backward integration b. economies of scale c. forward integration d. product differentiation

c. forward integration An example of forward integration in the text is an automobile manufacturer acquiring a rental car company. In this case, the automobile manufacturer is a potential competitor who is using forward integration to increase marketplace power.

Firms would be most likely to face intense rivalry with competitors when they __________. a. are in a high growth industry with low fixed costs b. are in a protected market c. have high fixed costs d. have low exit barriers for easy transition to another industry

c. have high fixed costs Intense rivalry is the result of several interacting factors, including the following: numerous or equally balanced competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching costs, capacity augmented in large increments, or high exit barriers.

A danger of forecasting discussed in the text is that __________. a. in most cases, the expense of collecting the necessary data exceeds the benefit b. the retrospective nature of forecasting provides little information about the future c. managers may view uncertainty as black and white while ignoring important grey areas d. it can create legal problems for the firm if regulators discover the company is making forecasts

c. managers may view uncertainty as black and white while ignoring important grey areas A danger of forecasting is that managers may view uncertainty as black and white and ignore important grey areas. The problem is that underestimating uncertainty can lead to strategies that neither defend against threats nor take advantage of opportunities.

Product differentiation by incumbents act as an entry barrier because __________. a. new entrants cannot differentiate their products b. incumbents will take legal action if new entrants do not differentiate their products c. new entrants will have to spend heavily to overcome existing customer loyalties d. it helps a firm to derive greater economies of scale

c. new entrants will have to spend heavily to overcome existing customer loyalties When existing competitors have strong brand identification and customer loyalty, differentiation creates a barrier to entry by forcing entrants to spend heavily to overcome existing customer loyalties.

Which is considered a force in the Five-Forces model? a. increased deregulation in an industry b. the threat of government intervention c. rivalry among competing firms d. recent technological innovation

c. rivalry among competing firms The Five-Forces model describes the competitive environment in terms of five basic competitive forces: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in an industry.

Larger numbers of women entering the workforce since the early 1970s is an example of __________. a. demographic changes b. political and legal environment changes c. sociocultural changes d. technological developments

c. sociocultural changes Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples include a higher percentage of women in the workforce.

All of the following are important elements of the political/legal segment of the general environment EXCEPT: a. the deregulation of utilities b. the Americans with Disabilities Act (ADA) c. the increased use of Internet technology d. increases in the federally mandated minimum wage

c. the increased use of Internet technology Political processes and legislation influence environmental regulations with which industries must comply. Some elements of the political/legal arena include the Americans with Disabilities Act (ADA) of 1990, deregulation of utilities, and increases in the federally mandated minimum wage.

the aging population and ethnic shifts

canning the general environment would identify information on

Economic Segment

characteristics of the economy, including national income and monetary conditions

economic segment of the general environment

characteristics of the economy, including national income and monetary conditions

strategic groups

clusters of firms that share similar strategies

Strategic groups

clusters of firms that share similar strategies -Breadth of product & geographic scope -Price/quality -Degree of vertical integration -Type of distribution

Strategic Groups

clusters of firms that share similar strategies: - helps identify barriers to mobility that protect a group from attacks by other groups - helps identify groups whose competitive position may be marginal or tenuous - helps chart the future directions of firms' strategies - helpful in thinking through the implications of each industry trend for the strategic group as a whole

Perceptual acuity can be improved by

constantly meeting with people & searching out information

big data

corporations collecting & analyzing data on their customers, including customer characteristics, purchasing patterns, employee productivity, & physical asset utilization

Which of the following is not an example of corporate competitive analysis? a. Banks tracking home loans b. Airlines changing hundreds of fares daily in response to competitor tactics c. Car manufacturers offering sales incentives based on rival offers d. Consumers comparing product offers online

d. Consumers comparing product offers online Corporate competitive intelligence is the activity of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitor strengths and weaknesses in order to avoid surprises by anticipating competitor moves and decreasing response time.

The bargaining power of suppliers is enhanced under the following market condition: a. no threat of forward integration b. low differentiation of supplier products c. greater availability of substitute products d. dominance by a few suppliers

d. dominance by a few suppliers A supplier group will be powerful when the supplier group is dominated by a few companies and is more concentrated (few firms dominate the industry) than the industry it sells to; the supplier group is not obligated to contend with substitute products for sale to the industry; the supplier group's products are differentiated or it has built up switching costs for the buyer; or the supplier group poses a credible threat of forward integration.

Exit barriers do not arise from __________. a. specialized assets with no alternative use b. governmental and social pressures c. strategic interrelationships with other business units within the same company d. flexible costs of exit

d. flexible costs of exit Exit barriers are economic, strategic, and emotional factors that keep firms competing even though they may be earning low or negative returns on their investments. Some exit barriers are specialized assets, fixed costs of exit, strategic interrelationships (e.g., relationships between the business units and others within a company in terms of image, marketing, shared facilities, and so on), emotional barriers, and government and social pressures (e.g., governmental discouragement of exit out of concern for job loss).

Taking advantage of the increasing penetration of personal computers in American homes, the Mayo Clinic transformed itself as a provider of health-related knowledge and expertise. It took advantage of the __________ trends of the __________ in the prices of PCs and the __________ presence of PCs in virtually every home in the U.S. a. soft; increase; increasing b. soft; decrease; decreasing c. hard; decrease; decreasing d. hard; decrease; increasing

d. hard; decrease; increasing A hard trend is a projection based on measurable facts, events, or objects. It is something that will happen. The aging of the population is a hard trend. So is the increasing speed and decreasing cost of computers.

Buyer power will be greater when __________. a. the products purchased are highly differentiated b. there are high switching costs c. the industry product is very important to the quality of the buyer end products or services d. it is concentrated or when a buyer group purchases large volumes relative to seller sales

d. it is concentrated or when a buyer group purchases large volumes relative to seller sales A buyer group is powerful when it is concentrated or purchases large volumes relative to seller sales, the products it purchases from the industry are standard or undifferentiated, the buyer faces few switching costs, or the industry product is unimportant to the quality of the buyer products or services.

Environmental forecasting does not involve plausible projections about the __________ of environmental change. a. direction b. scope c. speed d. lack of intensity

d. lack of intensity Environmental forecasting involves the development of plausible projections about the direction, scope, speed, and intensity of environmental change. Its purpose is to predict change.

In the general environment, many relationships exist among the various elements. General environmental trends can have positive and negative impacts on various industries. For example, the aging population might have a __________ impact on the health care industry and a __________ impact on the baby product industry. These are called __________ impacts. a. negative; positive; demographic b. positive; negative; technological c. negative; positive; sociocultural d. positive; negative; demographic

d. positive; negative; demographic The general environment is divided into six segments: demographic, sociocultural, political/legal, technological, economic, and global. The aging population is a demographic trend that could positively affect the health care industry and negatively affect the baby product industry.

In the Five-Forces model, conditions under which a supplier group can be powerful include all the following EXCEPT: a. lack of importance of the buyer to the supplier group b. high differentiation by the supplier c. dominance by a few suppliers d. readily available substitute products

d. readily available substitute products A supplier group will be powerful when the supplier group is dominated by a few companies and is more concentrated (few firms dominate the industry) than the industry it sells to; the supplier group is not obligated to contend with substitute products for sale to the industry; the supplier group's products are differentiated or it has built up switching costs for the buyer; or the industry is not an important customer of the supplier group.

The bargaining power of the buyer is greater than that of the supplier when __________. a. volume of purchase is low b. threat of backward integration by buyers is low c. cost savings from the supplier's product are minimal d. the buyer's profit margin is low

d. the buyer's profit margin is low A buyer group is powerful when it is concentrated or purchases large volumes relative to seller sales, it earns low profits, or the buyers pose a credible threat of backward integration.

End users are not __________. a. the final consumers in a distribution channel b. usually the C in B2C c. likely to have greater bargaining power because of the Internet d. the first customers in a distribution channel

d. the first customers in a distribution channel End users are the final customers in a distribution channel. Sales activity that is labelled B2C is concerned with end users. The Internet is likely to increase the power of these buyers, in part because the Internet provides large amounts of consumer information.

The bargaining power of suppliers increases as __________. a. more suppliers enter the market b. importance of buyers to supplier group increases c. switching costs for buyers decrease d. threat of forward integration by suppliers increases

d. threat of forward integration by suppliers increases A supplier group will be powerful when the supplier group is dominated by a few companies and is more concentrated (few firms dominate the industry) than the industry it sells to; the industry is not an important customer of the supplier group; the supplier group's products are differentiated or it has built up switching costs for the buyer; or the supplier group poses a credible threat of forward integration.

New communication technology can impact seemingly unrelated industries such as the airline industry. This would be an example of a __________. a. threat of entry b. backward integration c. forward integration d. threat of substitute products

d. threat of substitute products Identifying substitute products involves searching for other products or services that can perform the same function as the industry's offerings. This many lead a manager into businesses seemingly far-removed from the industry. For example, the airline industry might not consider video cameras much of a threat. But as digital technology has improved and wireless and other forms of telecommunication have become more efficient, teleconferencing has become a viable substitute for business travel.

economies or scale, entry barrier

decrease in cost per unit as absolute output per period increases. spreading the costs of production over the number of units produced.

Economies of scale

decreases in cost per unit as absolute output

economies of scale

decreases in cost per unit as absolute output per period increases

Economies of Scale

decreases in cost per unit as absolute output per period increases. Forces the new entrant to come in at a large scale and risk strong reaction from existing firms, or come in at a small scale and accept a cost disadvantage

general environment is divided into 6 segments

demographic, sociocultural, political/legal, technological, economic, & global

the threat of new entrants has increased because

digital & internet based technologies lower barriers to entry

2 types of buyers:

end users & buyer channel intermediaries

General Environment

factors external to an industry, and usually beyond a firm's control, that affect a firm's strategy

general environment

factors external to an industry, and usually beyond a firm's control, that affect a firm's strategy

competitive environment

factors that pertain on an industry and affect a firm's strategy

Competitive Environment

factors that pertain to an industry and affect a firm's strategies

competitive environment

factors that pertain to an industry and affect a firm's strategies

competitive environment

factors that pertain to an industry and affect a firm's strategies. includes competitors (existing or potential), customers, & suppliers

competitve intelligence

firms activities of collecting & interpreting data on competitors, defining, & understanding the industry, & identifying competitors' strengths

general idea of SWOT

firms strategy must: -build on its strengths, -remedy the weaknesses or work around them, -take advantage of the opportunities presented by the environment, -protect the firm from the threats

big data has the potential to enalbe

firms to better customize their product/service offerings to customers while more efficiently & fully using the resources of the company

process' used to develop forecast

forecasts: -environmental scanning, -environmental monitoring, -competitive intelligence

demographic segment of the general environment

genetic and observable characteristics of a population, including the levels and growth of age, density, sex, race, ethnicity, education, geographic region, and income

Demographic Segment

genetic and observable characteristics of a population, including the levels and growth of age, density, sex, race, ethnicity, education, geographic region, and income.

Demographic segment of the general environment

genetic and observable characteristics of a population, including the levels and growth of age, density, sex, race, ethnicity, education, geographic region, and income.

demographic segment of the general environment

genetic and observable characteristics of a population, including the levels of age, density, sex, race, ethnicity, education, geographic region, and income

technologies may also suppress the power of traditional buyer channels that have concentrated buying power in the hands of a few

giving buyers new ways to access sellers

the internet

has a significant impact on nearly every industry

political/legal segment of the general environment

how a society creates & exercises power, including rules, laws, & taxation

political/legal segment of the general environment

how a society creates and exercise power, including rules, laws, and taxation policies.

Political/legal segment

how a society creates and exercises power, including rules, laws, and taxation policies

Political/legal segment of the general environment

how a society creates and exercises power, including rules, laws, and taxation policies

political/legal segment of the general environment

how a society creates and exercises power, including rules, laws, and taxation policies

Rivalry Tactics

include price competition, advertising battles, new product introductions, increased customer service or warranties

global

increase global trade, currency exchange rates, indian & chinese economies emerge, trade agreements, wto, increased risk associated with terrorism

global segment of the general environment

influence from foreign countries, including foreign market opportunities, foreign based competition, and expanded capital markets

global segment of the general environment

influences for foreign countries, including foreign market opportunities, foreign-based competition, and expanded capital markets

global segment of the general environment

influences from foreign countries, including foreign market opportunities, foreign-based competition, and expanded capital markets

Global Segment

influences from foreign countries, including foreign market opportunities, foreign-based competition, and expanded capital markets. Globalization provides both opportunities to access larger potential markets and a broad base of production factors such as raw materials, labor, skilled managers, and technical professionals.

technological segment of the general government

innovation and sate of knowledge in industrial arts, engineering, applied sciences, & pure science, & their interaction with society

technological segment of the general environment

innovation and state of knowledge in industrial arts, engineering, applied sciences, and pure science; and their interaction with society

Technological segment

innovation and state of knowledge in industrial arts, engineering, applied sciences, and pure science; and their interaction with society lead to new products & services. They can create new industries & alter existing ones

technological segment of the general environment

innovation and state of knowledge in industrial arts. engineering, applied science, and pure science; and their interaction with society.

technological segment of the general environment

innovation and state of of knowledge in industrial arts, engineering, applied sciences, and pure science; and their interaction with society

economic

interest rates, unemployment rates, consumer price index, gdp trends, changes in stock market valuations

economy key indicators include

interest rates, unemployment rates, consumer price index, gross domestic product 7 net disposable income

Value Net

is based on game-theory, and represents all the players in the game, analyzing how their interactions affect a firm's ability to generate and appropriate value

General Environment

is composed of factors that are both hard to predict and difficult to control -Demographic -Sociocultural -Political/Legal -Technological -Economic -Global

Rivalry is more intense when switching costs are

low and product or service differentiation is minimized

firms strategy may be good at one point in time but go astray when

managements frame of reference gets out of touch with realities of the actual business situation

Sociocultural

more women, increase temp workers, greater concern for fitness & environment, postponement of family formation

capital requirements, entry barrier

need to invest large financial resources to compete. creates a barrier to entry especially if the capital is required for risky or unrecoverable up-front advising or research & development

executives must be careful to focus on traditional competitors that they ignore

new competitors

Access to distribution channels, entry barrier

new entrants need to secure distribution for its product can create a barrier to entry

Switching Cost

one-time costs that a buyer/supplier faces when switching from one supplier/buyer to another

switching cost

one-time costs that a buyer/supplier faces when switching from one supplier/buyer to another

switching costs

one-time costs that a buyer/supplier faces when switching from one supplier/buyer to another

switching costs, entry barrier

one-time costs that a buyer/supplier faces when switching from one supplier/buyer to another

substitutes limit the potential returns of an industry by

placing a ceiling on the prices that firms an industry can profitability change

Crowd-sourcing

practice wherein the internet is used to tap a broad rage of individuals and groups to generate ideas and solve problems

crowdsourcing

practice wherein the internet is used to tap a broad range of individuals and groups to generate ideas and solve problems

data analytics

process of examining large amounts of data to uncover hidden patterns, market trends, & customer preferences

substitute products and services

products and services outside the industry that serve the same customer needs as the industry's products and serivces

Substitute products and services

products and services outside the industry that serve the same customer needs as the industry's products and services

substitute products and services

products and services outside the industry that serve the same customer needs as the industry's products and services

Complements

products or services that have an impact on the value of a firm's products or services

complements

products or services that have an impact on the value of a firm's products or services

while analysis is important it's also equally important to

recognize the role played by intuition & judgment

Just as the Internet is eliminating some business functions, it is creating an opening for new functions. These new activities are entering the value chain by

reintermediation

disintermediation

removing the organizations or business process layers responsible for intermediary steps in the value chain of many industries.

sometimes firm/set of firms in an industry may increase buyer power by using

service of a 3rd party

websites companies routinely use for competitive intelligence gathering

slideshare, quora, ispionage, youtbe

soft trend

something that might happen and for which the probability that it might happen can be estimated

all firms within an industry compete with industries producing

substitute products & service

The effect of the Internet on the bargaining power of suppliers is a double-edged sword

suppliers may find it difficult to hold on to customers because buyers can do comparative shopping and price negotiations so much faster on the Internet. or several factors may also contribute to stronger supplier power: -the growth of new web-based business may create more downstream outlets for suppliers to sell to, -suppliers may be able to create web-based purchasing arrangements that make purchasing easier and discourage their customers from switching. -the use of proprietary software that links buyers to a supplier's website may create a rapid, low-cost ordering capability that discourages the buyer from seeking other sources of supply. -suppliers will have greater power to the extent that they can reach end users directly without intermediaries.

economy affects all industries from

suppliers of raw material to manufacturers of finished goods & services as well as organizations in service, wholesale, retail, government, & non profit

environmental scanning

surveillance of a firm's external environment to predict environmental changes and detect changes already under way

Perceptual acuity

the ability to sense what is coming before the fog clears

economies of scale: the cost of a product per unit declines as

the absolute volume per period increases. this deters entry by forcing the entrant to come in at large & risk strong reaction from existing firms or come in at a small scale & accept cost advantages... both undesirable

Is good business practice

the aging population and ethnic shifts

Product Differentiation

the degree that a product has strong brand loyalty or customer loyalty. New entrants must spend heavily to overcome existing customer loyalties.

product differentiation

the degree to which a product has strong brand loyalty or customer loyalty

product differentiation, entry barrier

the degree to which a product has strong brand/customer loyalty

Environmental forecasting

the development of plausible projections about the direction, scope, speed, and intensity of environment change.

Environmental forecasting

the development of plausible projections about the direction, scope, speed, and intensity of environmental change

reintermediation

the introduction of new types of intermediaries. Many of these new functions are affecting traditional supply chains.

the net effect of the Internet on supplier power will depend on

the nature of competition in a given industry

Threat of new entrants

the possibility that the profits of established firms in the industry may be eroded by new competitors

threat of new entrants

the possibility that the profits of established firms in the industry may be eroded by new competitors

Threat of new entrants

the possibility that the profits of established firms in the industry may be eroded by new competitors. extent of threat depends on existing barriers to entry & combined reactions from existing customers.

Data Analytics

the process of examining large data sets to uncover hidden patterns, market trends, and customer preferences

As with buyer power, the extent to which the Internet is a benefit or a detriment also hinges on

the supplier's position along the supply chain.

Threat of substitute products and services

the threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge without losing too many customers to substitute products

Threat of substitute products or services

the threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge without losing too many customers to substitute products

threat of substitute products and services

the threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge without losing too many customers to substitute products

Bargaining power of buyers

the threat that buyers may force down prices, bargain for higher quality or more services, and play competitors against each other

bargaining power of buyers

the threat that buyers may force down prices, bargain for higher quality or more services, and play competitors against each other

Intensity of rivalry among competitors in an industry

the threat that customers will switch their business to competitors within the industry

intensity of rivalry among competitors in an industry

the threat that customers will switch their business to competitors within the industry

Bargaining power of suppliers

the threat that suppliers may raise prices or reduce the quality of purchased goods and services

bargaining power of suppliers

the threat that suppliers may raise prices or reduce the quality of purchased goods and services

the more attractive the price/performance ratio of substitute products

the tighter the lid on an industry's profit

social cultural segment of the general environment

the values, beliefs, and lifestyle of a society

Sociocultural Segment

the values, beliefs, and lifestyles of a society

sociocultural segment of the general environment

the values, beliefs, and lifestyles of a society

sociocultural segment of the general environment

the values, beliefs, and lifestyles of a society.

intensity of rivalry among competitors in an industry

threat that customers will switch their business to competitors within the industry. tactics like price competition, advertising battles, product introductions, & increased customer service or warranties

Porter's 5 Forces model of industry competition

tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs. determine the profit potential for a particular industry. remain or exit.

political/legal

tort reform, ADA disabilities act, deregulation of utility & other industries, increase in minimum wage, tax at local & federal levels, affordable care act, corporate governance reforms in book keeping & stocks