Strategic Management - Chapter 3
Five competitive forces shape an industry's profit potential:
1. Threat of entry 2. Power of suppliers 3. Power of buyers 4. Threat of substitutes 5. Rivalry among existing competitors
Complementor
A company that provides a good or services that leads customers to value your firm's offering more when the two are combined.
PESTEL Model
A framework that categorizes and analyses a important set of external forces (political, economic, technological, ecological, and legal) that might impinge upon a firm. These forces are embedded in the global environment and can create both opportunities and threats for the firm.
Structure-conduct-performance (SCP) model
A framework that explains differences in industry performance. It identifies four different industry types: (1) perfect competition, (2) monopolistic competition, (3) oligopoly, and (4) monopoly. Fragmented industries trend be less profitable than consolidated ones.
Strategic group model
A framework that explains firm difference in performance in the same industry by clustering different firms into group based on a few key strategic dimensions
industry
A group of companies offering similar products or services. It makes up the supply side of the market, while customers make up the demand side.
industry convergence
A process whereby formerly unrelated industries begin to satisfy the same customer need.
complement
A product, service, or competency that adds value to the original product offering when the two are used in tandem.
Co-opetition (co-operation among competitors)
can create a positive-sum game, resulting in a larger pie for everyone involved.
Sociocultural factors
capture a society's cultures, norms, and values.
Legal environment factors
capture the official outcomes of the political processes that manifest themselves in laws, mandates, regulations, and court decisions.
Attractive industries for co-opetition are
characterized by high entry barriers, low exit barrier, low buyer and supplier power, a low threat of substitutes, and availability of complements.
Michael Porter
developed the highly influential five forces model
Complements increase demand
for the primary product, enhancing the profit potential for the industry and the firm.
In industry convergence,
formerly unrelated industries begin to satisfy the same customer need. It is often brought on by technological advances.
Different conditions prevail
in different industries, directly affecting the firms competing in these industries and their profitability.
mobility barriers
industry-specific factors that separate one strategic group from another.
The structure-conduct-performance (SCP) model
is a framework that helps to explain differences in industry performance.
An oligopolistic industry
is characterized by few (large)firms, a differentiated product, high entry barriers, and some degree for pricing power.
A perfectly competitive industry
is characterized by many small firms, a commodity product, low entry barriers, and no pricing power for individual firms.
Movement between strategic groups
is restricted by mobility barriers-industry-specific factors that separate one strategic group from another.
The economic environment is
mainly affected by five factors: growth rates, interest rates, levels of employment, price stability (inflation and deflation), and currency exchange rates.
Rivalry among firms of the same strategic group is
more intense than the rivalry between strategic groups: intra-group rivalry exceeds inter-group rivalry
Entry barriers
obstacles that determine how easily a firm can enter an industry. Entry barriers are often one of the most significant predictors of industry profitability.
exits barriers
obstacles that determine how easily a firm can leave an industry
A firm's macro environment consists
of a wide rage of political, economic, sociocultural, technological, ecological, and legal (PESTEL) factors that can affect industry and firm performance. These external forces have both domestic and global aspects.
Technological factors capture
the application of knowledge to create new processes and products.
The weaker the competitive force,
the greater the opportunity it presents
The stronger a competitive force,
the greater the threat it represents.
The political environment describes
the influence government bodies can have on firms.
Strategic group
the set of companies that pursue a similar strategy withing a specific industry
Industries are dynamic
they change over time
Industry attractiveness can be determined by three pairs of
two forces: (1) supplier and buyer power, (2) entry and exit barriers, and (3) available complements and the threat of substitutes.
A monopoly exists
when there is only one (large) firm supplying the market. The firm may over a unique product, the barriers to entry are high, and the monopolist has considerable pricing power.
A monopolistic industry is characterized by many firms,
a differentiated product, medium entry barriers, and some pricing power.
Ecological factors concern
a firm's regard for environmental issues such as the natural environment, global warming, and sustainable economic growth.
A strategic group is
a set of firms within a specific industry that pursue a similar strategy in their request for competitive advantage.
A firm can shape
an industry's structure in its favor through its strategy.