MGT 4150 Ch 3
1. form a strategic vision where the company needs to head 2. identify promising strategic options for the company 3. select the best business model and strategy for the company
what does a business do after analyzing a company's internal and external environment (3)
if a company has the resources and capabilities to be completely. successful and profitable in that environment
what does an industry's attractiveness depend on
Legal and regulatory conditions
what does the L in PESTEL stand for
Political Factors
what does the P in PESTEL stand for
Sociocultural forces
what does the S in PESTEL stand for
Technological forces
what does the T in PESTEL stand for
Economic conditions (local to worldwide)
what does the first E in PESTEL stand for
Environmental factors (the natural environment
what does the second E in PESTEL stand for
identify the competitive characteristics that delineate strategic approaches in the industry
what is the first step for constructing a strategic group map
identify the different parties involved and specific factors that bring out competitive pressures for each of the forces
what is the first step in using the five-forces model of competition
draw circles around each strategic group, making the circle proportional to the size of the group's share of industry sales revenues
what is the last step for constructing a strategic group map
plot the firms on the two-variable map using pairs of competitive characteristics
what is the second step for constructing a strategic group map
evaluate how strong the pressures from each of the forces are (strong, moderate or weak)
what is the second step in using the five forces model of competition
assign firms occupying the same map location to the same strategic group
what is the third step for constructing a strategic group map
determine whether the five forces are supportive of high industry profitability
what is the third step in using the five forces model of competition
strong; it is difficult to convince the customers that one product is different than the other when the product looks the same and has the same functions
what is the value of rivalry among competitors (strong, moderate or low)
invest aggressively to capture the opportunities it sees and improve its long-term competitive position in the business
what should a competitor do when it decides an industry is attractive
protect its present position, invest cautiously, and/or look for opportunities in other industries
what should a competitor do when it decides an industry is unattractive
assumptions
what the rivals believes about itself and the industry
- what product attributes and service characteristics are crucial for buyers - what resources and competitive capabilities must a firm have to be successful - what guaranteed things will put a firm at a competitive disadvantage
what to ask when identifying key success factors
it presents a firm with a good opportunity for above-average profitability
when is an industry environment fundamentally attractive
a firm's profit prospects in the industry are unappealingly low
when is an industry environment fundamentally unattractive
False: price-sensitive when buyers are low profits or low income
T/F: Buyers are price-sensitive when buyers earn high profits or high income
False; price-sensitive when the product is undifferentiated and the quality is not important
T/F: Buyers are price-sensitive when the product is differentiated and quality is important
True
T/F: Buyers are price-sensitive when the product represents a significant fraction of their purchases
True
T/F: Entry barriers are high when customers with strong brand preferences and/or loyalty to current sellers
False; high barriers when there's lots of intellectual property protection
T/F: Entry barriers are high when there are few patents and other forms of intellectual property protection
False; it's harder to enter when there are restrictive government policies
T/F: Entry barriers are high when there are lenient government policies
False; high barriers to entry when there is high capital requirements
T/F: Entry barriers are high when there are low capital requirements
True
T/F: Entry barriers are high when there are restrictive trade policies
True
T/F: Entry barriers are high when there are strong network effects
True
T/F: Entry barriers are high when there is limited new access to distribution channels and shelf space
False; bargaining increases when industry members don't account for a big fraction of supplier sles
T/F: Supplier bargaining power increases when industry members account for a big fraction of suppliers' sales
True
T/F: Supplier bargaining power increases when industry members don't have the potential to integrate backwards to self-manufacture their own inputs
True; suppliers have more power when it's harder to swtich
T/F: Supplier bargaining power increases when industry members incur high costs when switching to alternative suppliers
False; bargaining increases when products only account for a small fraction of the total costs of the industry's products
T/F: Supplier bargaining power increases when suppliers' products account for more than a small fraction of the total costs of the industry's products
True; they get to determine the price
T/F: Supplier bargaining power increases when suppliers' products/services are in short supply
False; supplier bargaining power increases when products/services are differentiated because they are more unique
T/F: Supplier bargaining power increases when suppliers' products/services are similar to competitors
False; supplier bargaining power increases when the supplier industry is more concentrated an dominated by a few large companies
T/F: Supplier bargaining power increases when the supplier industry is not more concentrated than the industry it sells to and is occupied by many companies
True
T/F: Supplier bargaining power increases when there are no good substitutes for what the suppliers provide
True
T/F: competitive pressures from substitutes are weaker under the opposite conditions
False; variables should be quantitative, continuous, discrete, or defined in terms of distinct classes
T/F: variables for group maps may be qualitative
1. pursuing avenues that protect the firm from as many competitive pressures as possible 2. initiating actions that will shift competitive force in the firm's favor by changing underlying factors driving the forces
effectively matching a firm's business strategy to prevailing competitive conditions has two aspects
force driving industry change
emerging new internet capabilities and applications
force driving industry change
entry or exit of major firms
PESTEL Analysis
focuses on principal components of strategic significance in the macro-environment
value net
focuses on the interactions of industry participants with a particular company
one
how many powerful competitive forces is enough to make the industry unattractive in terms of its potential profit
strategy
how the rival company is competing currently
the combined sales of the firms
in a strategy group map, what does the size of the circle of the firms represent
force driving industry change
increasing globalization
- high economies of scale - significant experience-based cost advantages or learning curves - other cost advantages
incumbents have large cost advantages over potential entrants due to (3)
SOAR framework for competitor analysis
indicators of a rival firm's likely strategy moves and countermoves
value net
introduces a new category of industry participant, complementors
high because changes in technology create an opportunity for new entrants
is the threat of new entrants a high, moderate or low value
- are the driving forces acting to cause demand to increase or decrease - is the collective impact of the driving forces increasing or decreasing competition - will the combined impacts of the driving forces lead to high or lower industry profitability
what to ask when assessing the impact of the driving factors on industry change (3)
- five forces framework - the value net - driving forces - strategic groups - competitor analysis - key success factors
what are the concepts and analytical tools for assessing the company's competitive environment (6)
1. competition from rival sellers 2. competition from potential new entrants 3. competition from producers of substitute products 4. supplier bargaining power 5. customer bargaining power
what are the five competitive forces
- increasing rate of growth in sales of substitutes - substitute producers adding new output capacity - increasing profitability of substitute producers
what are the indicators of substitutes' competitive strength (3)
1. identify the driving forces 2. asses if the driving forces are acting to make the industry more or less attractive 3. determine what strategy changes are needed to prepare for the impact of the driving forces
what are the three steps of driving forces analysis
strategy objectives assumptions resources and capabilities
what does SOAR stand for
force driving industry change
changes in costs and efficiencies
force driving industry change
changing societal concerns, attitudes and lifestyles
True
T/F a competitive pressure created by competing sellers if high exit barriers keep weak firms from exiting the industry
False; competitive pressures increase if the rivals have diverse objectives, strategies and/or countries of origin
T/F a competitive pressure created by competing sellers if the rivals have similar objectives, strategies, and/or countries of origin
False; there is excess inventory, idle production capacity, or products with high fixed costs or high storage costs
T/F a competitive pressure created by competing sellers is having little inventory, idle production capacity, or low fixed and storage costs
False; competitive pressure increases if the strategic and geographic diversity of competitors is increasing
T/F a competitive pressure created by competing sellers is if the strategic and geographic diversity of competitors is decreasing
True
T/F a competitive pressure created by competing sellers is the buyer demand growing slowly or declining
False; competitive pressures increase when it becomes less costly for buyers to switch brands
T/F a competitive pressure created by competing sellers is the increased cost for buyers to switch brands
True
T/F a competitive pressure created by competing sellers is the industry products becoming less strongly differentiated (more similar)
True
T/F a competitive pressure created by competing sellers is the number of competitors with equal size and competitive capability is increasing
false; variables should not be highly correlated
T/F variables selected as map axes should be highly correlated
True
T/F variables should reflect important (sizable) differences among rival approaches
True
T/F: Buyer bargaining power increases when buyer costs of switching to competing products are low
True
T/F: Buyer bargaining power increases when buyer demand is weak in relation to industry supply
False; buyer bargaining increases when they are more informed
T/F: Buyer bargaining power increases when buyers are not informed about the quality, prices and costs of sellers
False; buyers are large and few in relation to industry sellers
T/F: Buyer bargaining power increases when buyers are small and plentiful in number relative to the number of industry sellers
True
T/F: Buyer bargaining power increases when buyers have the ability to postpone purchases
True
T/F: Buyer bargaining power increases when buyers pose a credible threat of integrating backward into the business of sellers
False: buyer bargaining power increases when the industry's products are standardized or undifferentiated
T/F: Buyer bargaining power increases when the industry's products are differentiated
finding a buyer, perhaps a rival, to acquire its business
a competitively weak company in an unattractive industry might see its best option as
force driving industry change
changes in an industry's long-term growth rate
- strong bargaining power - price-sensitive
competitive pressures from buyers increase when they have (2)
strategic group
consists of those industry members with similar competitive approaches and positions in the market
the different competitive position relationships in the industry
drawing maps using different pairs of variables will show
force driving industry change
diffusion of technical know-how across firms and countries
- direct competitors - industry rivals - sellers of substitute products - potential entrants
net value defines a category of competitors to include the focal firms (4)
backward integration
occurs when a firm owns or controls the inputs it uses
complementors
producers of products that enhance the value of the focal firm's products when they are used together
force driving industry change
product and marketing innovation
- is the state of the industry competition stronger than normal? - can industry firms expect to earn decent profits given these forces - are some competitive forces sufficiently powerful to undermine industry profitability
questions to ask to determine if the collective strength of the five forces is good for profitability
force driving industry change
reductions in uncertainty and business risk
force driving industry change
regulatory influences and government policy changes
force driving industry change
shifts in who buys industry products and how the products are used
- product-line breadth - distribution channels - technological approaches - geographic areas - product attributes to buyers - services and technical assistance
strategic groups are comparable in what ways
key success factors
strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are necessary for competitive success by any and all firms in an industry
- is the substitute readily available and attractively priced? - are quality, performance and other relevant attributes of the substitute comparable or better? - does the substitute product offer lower switching costs to buyers
substitute products considerations (3):
force driving industry change
technological change and manufacturing process innovation
resources and capabilities
the rival's key strengths and weaknesses
objectives
the rival's strategic and performance goals
1. current competitors are unlikely to retaliate against new entrants 2. entry barriers are low
the threat of entry is a stronger force when (2)
