MGT 471 Chapter 3
Which of the following are essential questions that strategic leaders need to consider to increase the probability of entering an industry successfully? (Check all that apply.) Multiple select question. When to enter? Who are the players? How to enter? What type of entry should be made? Why is it important to study the external environment?
When to enter? Who are the players? How to enter? What type of entry should be made?
A group of companies that deal with more or less the same set of suppliers and buyers make up ______. Multiple choice question. a state a multi-environment a business group an industry
an industry
A perfectly competitive industry has ______ entry barriers and ______ small firms. a. low; few b. low; many c. high; many d. high; few
b. low; many
The power of ______ is the pressure they can put on the margins of producers in the industry by demanding a lower price or higher product quality. Multiple choice question. supplier existing competitors new entrants buyers
buyers
co-opetition
cooperation by competitors to achieve a strategic objective
A company is a complementor to your company if ______. Multiple choice question. customers value your product more when they can use it with the other company's product the market is fragmented and you can gain solidarity with a former rival that company praises your company for excellence customers private label your product
customers value your product more when they can use it with the other company's product
strategic commitments
firm actions that are costly, long-term oriented, and difficult to reverse
firm effects
firm performance attributed to the actions strategic leaders take
Industry Effects
firm performance attributed to the structure of the industry in which the firm competes
What are the three aspects of mapping strategic groups? Multiple select question. graphing the firms in the strategic group and indicating each firm's market share identifying the most important strategic dimensions calculating the shareholder value of the two firms selected choosing two key dimensions for the horizontal and vertical axes
graphing the firms in the strategic group and indicating each firm's market share identifying the most important strategic dimensions choosing two key dimensions for the horizontal and vertical axes
Which of the following help determine competitive industry structure? (Check all that apply.) Multiple select question. height of entry barriers composition of the board of directors size and number of competitors firms' degree of pricing power the firm's resources
height of entry barriers size and number of competitors firms' degree of pricing power
Strategic leaders applying PESTEL analysis
how the external factors identified affect the firm's industry environment
The relationship between the natural environment and business organizations can best be described as ______. Multiple choice question. a U-shape interdependent insignificant unconnected
interdependent
An example of a recent innovation in process technology is ______. Multiple choice question. the microwave the BP oil spill lean manufacturing the smartphone
lean manufacturing
Managers have ______ direct influence over external forces in the firm's general environment than those in the firm's task environment.
less
Which of the following contribute to consumer buying power? Multiple select question. low switching costs moderately high barriers to entry high levels of product differentiation real time, accurate price comparisons
low switching costs real time, accurate price comparisons
a perfectly competitive industry has _______ entry barriers and ________ small firms
low; many
In the airline industry, the ______________ of offering international routes restricts movement between hub-and-spoke and point-to-point airlines. Multiple choice question. supplier power exit barrier strategic commitment mobility barrier
mobility barrier
Industry-specific factors known as ______ separate one strategic group from another. Multiple choice question. planned emergencies mobility barriers competitive rivalries oligopolies
mobility barriers
exit barriers
obstacles that determine how easily a firm can leave an industry
Although the five forces model is useful in understanding an industry's profit potential, it provides only a ___. Multiple choice question. point-in-time snapshot of static industries dynamic view of a moving target fixed view of a static competitive market point-in-time snapshot of a moving target
point-in-time snapshot of a moving target
The intensity with which companies in an industry jockey for market share and profitability is known as ______. Multiple choice question. threats barriers identification rivalry
rivalry
A ____ group is a set of companies within a specific industry that seek to achieve competitive advantage in similar ways.
strategic
The threat of ______ is one of the five forces and can be exemplified by the threat that videoconferencing presents to business travel. Multiple choice question. entry substitutes suppliers buyers
substitutes
Which of the following statements about industry dynamics is true? Multiple select question. The five forces model takes into account industry dynamics. The five forces model is a static model. Firms in an industry have a tendency to fragment in order to increase profitability. Over time, industry structures are not stable
The five forces model is a static model. Over time, industry structures are not stable.
Legal Factors
PESTEL - official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions - can directly affect profit potential - many industries have been deregulated
political factors
PESTEL - result from the processes and actions of government bodies that can influence the decisions and behaviors of firms - nonmarket strategy
______ factors result from the processes and actions of government bodies that influence the decisions and behavior of firms. Multiple choice question. Profitable Political Technological Economic
Political
Which of the following helped Airbnb develop a successful business in the peer-to-peer rental space? (Select all that apply.)
Presenting a well-designed website Fortuitous timing that led to growing demand Ensuring a smooth transaction between hosts and guests
Power of Buyer
Pressure customers put on an industry lower profit potential: - obtain price discounts (reduce revenue) - demand higher quality/service (raise costs) factors that increase buyer power: - few buyers & each buyers purchases large quantities - industry's products are standardized or undifferentiated commodities - buyers face low or no switching cost - buyers can credibly threaten to backwardly integrate into the industry
Shortcomings of models
Static - just a snapshot - black swan events can happen suddenly - info can become obsolete - assess industry dynamics they don't explain WHY performance differences occur in an industry - internal analysis is required
In addition to the static nature of the PESTEL, Porter's five forces, and strategic group mapping frameworks, what is their other shortcoming? Multiple choice question. It does not help us understand why there are performance differences among firms in the same strategic group. It does not refer to the international nature of the PESTEL factors. It does not account for the threat of new entrants or proposed governmental legislation.
It does not help us understand why there are performance differences among firms in the same strategic group.
Growth rates, interest rates, and levels of employment would be considered ______ factors in a firm's general environment. A. sociocultural B. economic C. political D. technological
economic
Which of the following are important strategic dimensions in mapping strategic groups? (Check all that apply.) Multiple select question. expenditures on research and development expenditures on advertising and HR product and service offerings cost structure
expenditures on research and development product and service offerings cost structure
In the PESTEL model, political factors are those that relate to ______. Multiple choice question. employment climate and weather banking organizations government bodies
government bodies
Deregulation of industries leads to intensified competition and higher value at lower prices for consumers. This is an example of ______ factors influencing business. Multiple choice question. socio-cultural legal economic technological
legal
monopolistic competition
type of industry competitive structure (rivalry 5 forces) - many firms - some pricing power - differentiated product - medium entry barriers
which of the following are examples of sociocultural factors?
an increased demand by consumers for gluten-free products the growth of the Hispanic population the widespread adoption of smart phones
The external forces called technological factors ______. Multiple choice question. capture the application of knowledge to create new process and products describe society's norms and values quantify characteristics of the economy and business climate represent official government decisions and regulations
capture the application of knowledge to create new process and products
Which of the following are the four main competitive industry structures? (Check all that apply.) Multiple select question. perfect monopoly monopolistic competition perfect competition oligopoly monopoly monopolistic oligopoly
monopolistic competition perfect competition oligopoly monopoly
technological factors
PESTEL captures the application of knowledge to create new processes and products - innovations in process tech or product tech
Which of the following are characteristics of the companies in a strategic group? (Check all that apply.) Multiple select question. The companies do not seek a competitive advantage. The companies differ in important dimensions from companies in other strategic groups. The companies form part of a specific industry. The companies pursue similar strategies.
The companies differ in important dimensions from companies in other strategic groups. The companies form part of a specific industry. The companies pursue similar strategies.
industry
- group of incumbent companies that face more or less the same set of suppliers and buyers (value chains) - similar products/services
threat of entry
(5 forces) - the risk that potential competitors will enter an industry lower industry profit potential: - incumbents lower price incumbents spend more to satisfy customers Entry Barriers Is high when: - minimum efficient scale to compete in an industry is low - network effects are not present - low customer switching costs - low capital requirements - no restrictive government regulations - New entrants expect tht incumbents will not retaliate - incumbents dont have: 1) brand loyalty 2) nice technology 3) good access to raw materials 4) good access to distribution channels 5) favorable geographic locations 6) cumulative learning & experience effects ^^^ advantages independent of size
mobility barriers
**line on strategic group map industry-specific factors that separate one strategic group from another - restrict movement between strategic groups - industry specific factors - based on hard-to-reverse investments
nonmarket strategy
- falls under Political in PESTEL - strategic leaders' activities outside market exchanges where firms sell products or provide services to influence a firm's general environment through, for example, lobbying, public relations, contributions, and litigation in ways that are favorable to the firm
oligopoly
- few (large) firms - some pricing power - differentiated product - high entry barriers
Additional Considerations Evaluating Comp.
- industry growth rate - intensity - strategic commitments - exit barriers - 6th force (complements & co-opetition) - rate of innovation - dynamic, not static - industry convergence
monopoly
- one firm - considerable pricing power - unique product - very high entry barriers consolidated; highest profit potential
Place the three frameworks used in industry analysis in the order they should be used, with the first at the top.
1. Pestel analysis 2. Porter's 5 forces 3. strategic group mapping
External factors impact a firm
1) General Environment - managers have little control - Macroeconomic factors (interest/currency exchange rates) 2) Task Environment -managers can influence - composition of strategic groups - industry structure
order to perform analysis
1) PESTEL 2) P5F 3) strategic group map
Strategic leaders applying P5F analysis
1) define relevant industry 2) identify key players in each of the forces & attempt to group them 3) determine underlying drivers of each force 4) assess overall industry structure
Insights from Strategic Group Mapping
1. Competitive rivalry: -Strongest between firms in the same strategic group 2. External environment: -Affects strategic groups differently 3. Five competitive forces: -Affect strategic groups differently 4. Profitability: -Some strategic groups are more profitable than others
PESTEL model
A framework that categorizes and analyzes an important set of external factors that might impinge upon a firm. These factors can create both opportunities and threats for the firm. - straightforward way to scan monitor, and evaluate - political & legal are closely related - political - economic - sociocultural - technological - ecological - legal
Porter's five forces model
A framework that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy. - constantly growing 1) threat of entry 2) power of suppliers 3) power of buyers 4) threat of substitutes 5) rivalry among existing competitors (always in the middle)
competitive industry structure
Elements and features common to all industries, including: -the number and size of competitors - the firms' degree of pricing power - the type of product or service offered (commodity or differentiated) - the height of entry barriers. **falls under rivalry among competitors**
Which of the following are approaches for answering the question "How to enter?" when a firm is considering entering an industry? Multiple select question. Establishing a niche Timing of the entry Leverage existing assets Reconfiguring value chains
Establishing a niche Leverage existing assets Reconfiguring value chains
True or false: Sociocultural factors tend to be fixed.
False
Which of the following are characteristics of a perfectly competitive industry? (Check all that apply.) Multiple select question. Firms in the industry sell a commodity product. The industry is fragmented. Consumers make purchasing decisions based on product features. Individual firms have little or no ability to raise prices.
Firms in the industry sell a commodity product. The industry is fragmented. Individual firms have little or no ability to raise prices.
When a new firm enters an industry, which of the following often occur? (Check all that apply.) Multiple select question. Incumbent firms increase their market share. Industry profit potential declines. Incumbent firms spend more to satisfy customers. Incumbent firms lower prices. Incumbent firms raise prices.
Industry profit potential declines. Incumbent firms spend more to satisfy customers. Incumbent firms lower prices.
Which of the following statements about Airbnb is correct? Multiple choice question. It was spun off as a service developed by Google, Inc. It handles more accommodations than the three biggest hotel chains combined. It was founded before the Internet was created. It operates only in North America and Europe.
It handles more accommodations than the three biggest hotel chains combined.
Threat of Substitutes
Meet same basic customer need - but in a diff. way - available from outside given industry (coffee vs. energy drinks) is high when: 1) sub offers an attractive price-performance trade-off 2) buyers cost of switching to sub is low
Micro Forces (Industry forces)
P5F
Macro Forces (external environment)
PESTEL
Ecological factors
PESTEL - broad environmental issues such as the natural environment, global warming, and sustainable economic growth - can provide business opportunities
sociocultural factors
PESTEL - capture's a society's cultures, norms, and values - constantly in flux & differ across groups - demographic trends population characteristics (age, gender etc.)
Which of the following are ways that powerful suppliers are a threat to firms? (Check all that apply.) Multiple select question. They can force the cost of production to increase. They can reduce the industry's profit potential. They can drive away the consumer market directly. They can capture part of the economic value created by firms.
They can force the cost of production to increase. They can reduce the industry's profit potential. They can capture part of the economic value created by firms.
entry barrier
Threat of Entry (P5F) Obstacle that determines how easily a firm can enter an industry and often significantly predict industry profit potential Important entry barriers tht can benefit incumbent firms: - economies of scale - network effects - customer switching costs - capital requirements - advantages independent of size - government policy - credible threat of retaliation
complementor
a company that provides a good or service that leads customers to value your firm's offering more when the two are combined
Many drivers find a GPS navigation system useful. Because installing a GPS system in an automobile adds value to the vehicle, the system functions as ______. Multiple choice question. mobility barrier loss leader a complement co-opetition
a complement
strategic position
a firm's strategic profile based on the difference between value creation and cost (V-C)
strategic group model
a framework that explains differences in firm performance within the same industry - clusters different firms into groups based on key strategic dimensions creating a map: 1) identify important strategic dimensions 2) choose two key dimensions (matrix) - for X and Y axis - ensure they aren't highly correlated 3) graph the firms in the strategic group - firm's market share indicated by size of the bubble
According to Michael Porter, the profit potential of an industry is ______. Multiple choice question. entirely determined by industry-specific factors largely random a function of five forces related to competition similar for all service industries
a function of five forces related to competition
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
The pressure of rivalry increases when which of the following forces increase in intensity? (Check all that apply.) Multiple select question. the power of buyers and suppliers the threat of substitutes the barriers to entry the threat of entry
the power of buyers and suppliers the threat of substitutes the threat of entry
network effects
the value of a product or service for an individual user increases with the number of total users
The _______ is the idea that products or services available from outside the given industry will come close to meeting the needs of current customers. Multiple choice question. power of buyers threat of new entrants rivalry of existing competitors threat of substitutes
threat of substitutes
power of suppliers
pressures that industry suppliers can exert on an industry's profit potential - Lower's industry profit potential if: 1) suppliers demand higher prices for inputs or reduce quality 2) capturing part of the economic value created is high when: - supplier's industry is more concentrated than industry it sells to - suppliers dont depend heavily on industry for revenue - high switching cost for firms to change suppliers - suppliers offer differentiated products - No available supplier substitutes - suppliers can threaten forward integration
Which of the following are factors in a firm's legal environment? (Check all that apply.) Multiple select question. demographic trends regulations mandates innovative technology laws
regulations mandates laws
strategic group
the set of companies that pursue a similar strategy within the same industry
In the five forces model, threat of entry refers to the risk that ______. A. startup costs for a given company will be excessive B. potential competitors will enter a given industry C. an established market will gain more customers D. that government regulators will target a given industry
B. potential competitors will enter a given industry
The pressures that industry suppliers can exert on an industry's profit potential, is also called: a. bargaining power of suppliers b. rivalry amongst existing competitors c. threat of new entry d. bargaining power of buyers
a. bargaining power of suppliers
industry analysis
A method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry (V-C)
Economic factors
PESTEL - economic factors in a firm's external environment are largely macroeconomic, affecting economy-wide phenomena - strategic leaders beed to consider: 1) growth rates 2) levels of employment 3) interest rates 4) price stability 6) currency exchange rates
An industry analysis provides which of the following? (Check all that apply.) A. insight into a firm's strategic position within an industry B. the stability of the firm's internal structure C. a rigorous way of identifying the industry's profit potential D. the level of profitability that can be expected for the average firm in the industry
A. insight into a firm's strategic position within an industry C. a rigorous way of identifying the industry's profit potential D. the level of profitability that can be expected for the average firm in the industry
Rivalry among existing competitors
intensity with which companies in the same industry jockey for market share & profitability other forces pressure the rivalry determined by: - competitive industry structure - industry growth - strategic commitments - exit barriers is high when: - many competitors in industry - competitors are roughly same size - industry growth is slow, zero, or negative - high exit barrier - incumbent firms are highly committed to the business - incumbent firms cannot understand each others strategies well - products/services are direct substitutes - high fixed costs & low marginal costs - excess capacity in industry - product/service is perishable **the stronger the forces, the stronger the expected competitive intensity, which in turn limits industry's profit potential
Managers are able to influence which of the following types of external forces? (Check all that apply.) Multiple select question. the structure of their industry strategic group composition currency exchange rates interest rates
the structure of their industry strategic group composition
perfect competition
type of industry competitive structure (rivalry 5 forces) - many small firms - firms are price takers - commodity product - low entry barriers fragmented; low profit potential
Michael Porter developed the five forces model to help firms do which of the following? (SELECT MULTIPLE ANSWERS) -understand the strengths and weaknesses of a firm's resources -gain and sustain a competitive advantage -determine the profit potential of different industries -analyze PESTEL forces
-gain and sustain a competitive advantage -determine the profit potential of different industries
Global warming would be an example of ______ factor in a firm's external environment. Multiple choice question. a political an ecological a sociocultural a technological
an ecological
