MGMT 435

Five forces model

1. Threat of entry 2. Power of suppliers 3. Power of buyers 4. Threat of substitutes 5. Rivalry among existing competitors

PESTEL framework

: A framework that categorizes and analyzes an important set of external forces (political, economic, sociocultural, 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.

Competitive advantage

A firm that achieves superior performance relative to other competitors in the same industry or the industry average

Perfect competition

A perfectly competitive industry is characterized as fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices. The firms competing in this type of industry are approximately similar in size and resources. Consumers make purchasing decisions solely on price, because the commodity product offerings are more or less identical. The resulting performance of the industry shows low profitability. Under these conditions, firms in perfect competition have difficulty achieving even a temporary competitive advantage and can achieve only competitive parity. Although perfect competition is a rare industry structure in its pure form, markets for commodities such as natural gas, copper, and iron tend to approach this structure

Complement

A product, service, or competency that adds value to the original product offering when the two are used in tandem

Top-down strategic planning

A rational, top-down process through which management can program future success; typically concentrates strategic intelligence and decision-making responsibilities in the office of the CEO.

Strategic business unit (SBU)

A standalone division of a larger conglomerate, with its own profit-and-loss responsibility.

Monopoly

An industry is a monopoly when there is only one (large) firm supplying the market. "Mono" means one, and thus a monopolist is the only seller in a market. The firm may offer a unique product, and the challenges to moving into the industry tend to be high. The monopolist has considerable pricing power. As a consequence, firm (and thus industry) profitability tends to be high.

Firm effects

Firm performance attributed to the actions managers take.

Industry effects

Firm performance attributed to the structure of industry in which the firm competes.

Entry barrier

Obstacles that determine how easily a firm can enter an industry. Entry barriers are often one of the most significant predictors of industry profit potential. ■ Economies of scale ■ Network effects ■ Customer switching costs ■ Capital requirements ■ Advantages independent of size ■ Government policy ■ Credible threat of retaliation

Exit barrier

Obstacles that determine how easily a firm can leave an industry

Strategy (definition) sustainable competitive advantage

Outperforming competitors or the industry average over a prolonged period of time.

Planned emergence

Strategy process in which organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management.

Intended strategy

The outcome of a rational and structured top-down strategic plan.

Strategic group

The set of companies that pursue a similar strategy within a specific industry. Strategic groups differ from one another along important dimensions such as expenditures on research and development, technology, product differentiation, product and service offerings, pricing, market segments, distribution channels, and customer service. To explain differences in firm performance within the same industry , scholars offer the strategic group model , which clusters different firms into groups based on a few key strategic dimensions. 33 They find that even within the same industry, firm performances differ depending on strategic group membership. Some strategic groups tend to be more profitable than others. This difference implies that firm performance is determined not only by the industry to which the firm belongs, but also by its strategic group membership.

Competitive disadvantage

Underperformance relative to other competitors in the same industry or the industry average.

Emergent strategy

describes any unplanned strategic initiative undertaken by mid-level employees of their own volition. If successful, emergent strategies have the potential to influence and shape a firm's strategy

Scenario planning

managers envision what-if scenarios and prepare contingency plans that can be called upon when necessary.

Strategic positioning

they stake out a unique position within an industry that allows the firm to provide value to customers, while controlling costs. The greater the difference between value creation and cost, the greater the firm's economic contribution and the more likely it will gain competitive advantage. Strategic positioning requires trade-offs, however. As a low-cost retailer, Walmart has a clear strategic profile and serves a specific market segment.

Threat of entry

√ The minimum efficient scale to compete in an industry is low. √ Network effects are not present. √ Customer switching costs are low. √ Capital requirements are low. √ Incumbents do not possess: ° Brand loyalty. ° Proprietary technology. ° Preferential access to raw materials. ° Preferential access to distribution channels. ° Favorable geographic locations. ° Cumulative learning and experience effects. √ Restrictive government regulations do not exist. √ New entrants expect that incumbents will not or cannot retaliate.

Realized strategy

Combination of intended and emergent strategy.