Strat test 1 (CHP2 - CHP3)

Why is analyzing the external environment important?

It helps firms identify opportunities and threats, adapt to changes, compete effectively, and earn above-average returns.

What is the external environment?

Factors outside a firm that influence its competitive actions, decisions, and performance.

What are the three parts of a firm’s external environment?

General env., Industry env., and Competitor environment

What is the general environment?

Broad factors such as technology, society, government policies, and economic conditions that affect businesses.

How do firms understand their external environment?

By gathering information about competitors, customers, and other stakeholders.

general environment

-is composed of dimensions in the broader society that influence an industry and the firms within it

-We group these dimensions into seven environmental segments: demographic, economic, political/legal, sociocultural, technological, global, and sustainable physical.

industry environment

is the set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competing firms.

competitor analysis

how companies gather and interpret information about their competitors

An analysis of the ____ environment focuses on environmental trends and their implications

an analysis of the ____ environment focuses on the factors and conditions influencing an industry’s profitability potential

an analysis of ____ is focused on predicting competitors’ actions, responses, and intentions.

general, industry, competitors

Scanning

Identifying early signals of environmental changes and trends

Monitoring

Detecting meaning through ongoing observations of environmental changes and trends

Forecasting

Developing projections of anticipated outcomes based on monitored changes and trends

Assessing

Determining the timing and importance of environmental changes and trends for firms’ strategies and their management

Parts of the external environmental analysis

Scanning, monitoring, forecasting, assessing

opportunity

is a condition in the general environment that, if exploited effectively, helps a company achieve strategic competitiveness.

threat

is a condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness.

Demographic segment

Population size Age structure Geographic distribution

Ethnic mix Income distribution

Economic segment

Inflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses

Personal savings rate Business savings rates Gross domestic product

Political/Legal segment

Antitrust laws Taxation laws Deregulation philosophies

Labor training laws Educational philosophies and policies

Sociocultural segment

Women in the workforce Workforce diversity Attitudes about the quality of work life

Shifts in work and career preferences Shifts in preferences regarding product and service characteristics

Technological segment

Product innovations Applications of knowledge

Focus of private and government-supported R&D expenditures New communication technologies

Global segment

Important political events Critical global markets

Newly industrialized countries Different cultural and institutional attributes

Sustainable physical environment segment

Energy consumption Practices used to develop energy sources Renewable energy efforts Minimizing a firm’s environmental footprint

Availability of water as a resource Producing environmentally friendly products Reacting to natural or man-made disasters

5 forces of competition model

-threats of new entrants

-rivalry among competing firms

-threat of substitute products

-bargaining power of buyers

-bargaining power of suppliers

strategic group

A set of firms emphasizing similar strategic dimensions and using a similar strategy is called a _____

In a competitor analysis, the firm seeks to understand the following:

• future objectives - What drives the competitor

• current strategy - What the competitor is doing and can do

• assumptions - What the competitor believes about the industry

• strengths and weaknesses - What the competitor’s capabilities are

competitor intelligence

which is the set of data and information the firm gathers to better understand and anticipate competitors’ objectives, strategies, assumptions, and capabilities

Explain why a firm needs to study and understand its internal organization.

to understand what it has, what it can do, and how well it can compete.

competitive advantage’s sustainability is a function of three factors:

1. How quickly the advantage becomes outdated because the environment or technology changes.

2. Whether other companies can find a replacement for that advantage.

3. How easy it is for competitors to copy the advantage.

Value

-is measured by a product’s performance characteristics and by its attributes for which customers are willing to pay.

-Firms create ___ by innovatively bundling and leveraging their resources to form capabilities and core competencies.

-Firms with a competitive advantage create more ____ for customers than do competitors.

-The stronger these firms’ core competencies, the greater the amount of ____ they’re able to create for their customers.

Tangible resources

are assets that can be observed and quantified.

EX: Production equipment, manufacturing facilities, distribution centers, and formal reporting structures are examples of tangible resources.

Intangible resources

are assets that are rooted deeply in the firm’s history, accumulate over time, and are relatively difficult for competitors to analyze and imitate.

EX: Knowledge, trust between managers and employees, managerial capabilities, scientific capabilities, the capacity for innovation, brand name, the firm’s reputation for its goods or services, how it interacts with stakeholders, and organizational culture

capabilities

A firm combines individual tangible and intangible resources to create _____.

In turn, _____ are used to complete the organizational tasks required to produce, distribute, and service the goods or services the firm provides to customers.

Strategic human capital

allows a firm to develop capabilities through matching the knowledge, skills, and abilities of their employees to particular strategic objectives

value chain analysis

-Firms use this tool to select the value-creating competencies that should be maintained, upgraded, or developed and those that should be outsourced.

-allows the firm to understand the parts of its operations that create the most value for customers, and can potentially be sources of competitive advantage or even sustainable competitive advantage if those operations represent core competencies that cannot be easily imitated.

Describe four criteria used to determine if resources and capabilities are core competencies.

Capabilities that are valuable, rare, costly to imitate, and nonsubstitutable are core competencies

Value chain activities

are activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers.

Support functions

include the activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing.

To become a core competence and a source of competitive advantage, a capability must allow the firm to either:

1. Perform an activity in a manner that provides value superior to that provided by competitors, or

2. Perform a value-creating activity that competitors cannot perform.

Creating Customer Value through Value Chain Activities

-Follow up service

-Operations

-Marketing (including sales)

-Distribution

-Supply-Chain Management

Creating Customer Value Through Support Functions

-Research and Development

-Information Technology Management

-Finance

-Human Resources Management

Value creation system

each part of a system depends on other parts of the system to create value. If one part of the system is not functioning properly, it can hold back creation of value in the entire system.

Social capital

When firms have strong positive relationships with stakeholders, they are said to have ____ ____

outsourcing

-is the purchase of a value-creating activity or a support function activity from an external supplier.

-_____ can provide access to needed capabilities without having to develop them internally

-Firms engaging in effective _____ increase their flexibility, mitigate risks, and reduce their capital investments.

offshoring

Deciding to outsource to a foreign supplier is commonly called ____

core rigiditities

occur due to overdependence on a particular core competence even when situations change and the core competence is no longer generating a competitive advantage

Describe the importance of identifying internal strengths

A firm needs to understand what it does well (strengths) and where it needs improvement (weaknesses) to make effective strategic decisions.

• Strengths → Resources and capabilities that give a firm an advantage.

• Weaknesses → Areas where a firm lacks resources or capabilities compared with competitors.