EXAM1 CH3

what explains firm profitability: industry

(10-20%) attractive to unattractive industry structues

what explains firm profitability: firm

(30-45%) range is sustainable competitive disadvantage to sustainable competitive advantage

what explains firm profitability: other/environmental

(35-60%) strategic management is interested in improving firm profitability, must understand these operational

external/general environment analysis

• macro-environment/ PESTEL (political, economic, social, technological, ecological, legal)

  • global (porter’s diamond)

competitive environment/industry environment/ “task” environment

• structure of the industry/porter’s five forces analysis

• strategic groups

• life cycle

• competitor

internal environment analysis

firm strengths and weaknesses, capabilities, core competencies, and sustainable competitive advantage, V.R.I.O

significance of external environment is that

firms cannot control them directly

PESTEL: political

the arena in which organizations and interest groups compete for attention and resources

PESTEL: economic

the nature and direction of the economy

PESTEL: sociocultural and demographic

encompasses society’s attitudes and cultural values and consists of attributes such as population size, age structure, geographic distribution, ethnic mix, and income distribution

PESTEL: technological

emerging products and processes which may translate knowledge into products, processes, and materials

PESTEL: environmental/ecological

broad environmental issues such as the natural environment, global warming, and sustainable economic growth

PESTEL: legal

laws, regulations, litigious environment, risk management

political forces

• tort reform

• americans with disabilities act

• deregulation of utility and other industries

• increases in federally mandated minimum wages

• taxation at local, state, federal levels

• legislation on corporate governance reforms

economic forces

• interest rates

• unemployment

• consumer price index

• trends in GDP

  • changes in stock market valuations

sociocultural/demographic forces

• more women in the workforce

• increase in temporary workers

• greater concern for fitness

• greater concern for environment

• postponement of family formation

• aging population

• rising affluence

• changes in ethnic composition

• geographic distribution of population

  • greater disparities in income levels

technological forces

• genetic engineering

• emergence of internet technology

• computer-aided design/computer-aided manufacturing systems

• research in synthetic and exotic materials

• pollution/global warming

• miniaturization of computing technologies

  • wireless communication

environmental/ecological segment

• environment impact of operations

• environmental impact of product/service

• natural resource availability

• climate change

  • environmental regulation

legal forces

• local, state, federal laws

• property rights

• intellectual property rights

• regulations

• no-discrimination

  • case law

competitive environment

• sometimes called the task or industry environment

• includes: competitors, customers, suppliers, substitues

  • porter’s five forces model

the competitive environment diagram includes what in the middle?

rivalry

the competitive environment includes what factors

• threat of new entrants

• customer power

• threat of substitutes

  • supplier power

porter’s five forces of competition framework includes what in the middle

industry competitor: rivalry among existing firms

porter’s five forces of competition include

• suppliers: bargaining power of suppliers

• substitutes: threat of substitutes

• buyers: bargaining power of buyers

  • potential entrants: threat of new entrants

the threat of new entrants

• profits of established firms in the industry may be eroded by new competitors

• high entry barriers lead to low threat of new entries

  • economies of scale

  • product differentiation

  • capital differentiation

  • capital requirement

  • switching costs

  • access to distribution channels

    • cost disadvantages independent of scale

the bargaining power of buyers

• buyers threaten an industry

• force down prices

• bargain for higher quality or more services

• play competitors against each other

  • ex: walmart as a buyer

the bargaining power of buyers: a buyer is powerful when

• it’s concentrated or purchases large volumes relative to seller sales

• the products it purchases from the industry are standard or undifferentiated

• the buyer faces few switches costs

• it learns low profits

• the buyers pose a credible threat of backward integration

  • the industry’s product is unimportant to the quality of the buyer’s products or services

the bargaining power of suppliers

suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services

the bargaining power of suppliers: a supplier group will be powerful when

• the supplier group is dominated by a few companies and is more concentrated than the industry it sells to

• the supplier group is not obliged to contend with substitute products for sale to the industry

• the industry is not an important customer of the supplier group

• the supplier’s product is an important input to the buyer’s business

• the supplier group’s products are differentiated, or it has built up switching costs for the buyer

  • the supplier group poses a credible threat of forward integration

the threat of substitute products and services

substitutes limit the potential returns of an industry

• ceiling on the prices that firms in that industry can profitably charge

a substitute is

a product/service which provides the same function as the product/service but in a different form

the intensity of rivalry among competitors in an industry

• jockeying for position

• price competition

• advertising battles

• product introductions

  • increased customer service or warranties

the intensity of rivalry among competitors: interacting factors lead to intense rivalry

• numerous or equally balanced competitors

• slow industry growth

• high fixed costs

• lack of differentiation or switching costs

• capacity augmented in large increments

• high exit barriers

two unassailable assumptions in industry analysis

• no two firms are totally different

  • no two firms are exactly the same

cluster of firms that share similar strategies

• breadth of product and geographic scope

• price/quality

• degree of vertical integration

• type of distribution system

rivalry is strongest in the

same strategic group

environmental and competitive forces impact the strategic groups ___

differently

some strategic groups are more

profitable than others

mobility barriers restrict

movement between strategic groups

the value of strategic groups as an analytical tool includes

• identify barriers to mobility that protect a group from attacks by other groups

• identify groups whose competitive position may be marginal or tenuous

• chart the future direction of firms’ strategies

  • thinking through the implications of each industry trend for the strategic groups as a whole

identify barriers to mobility that

protect a group from attacks by other groups

identify groups whose

competitive position may be marginal or tenuous