S&O Terms - W2

what is the micro-environment

the actions & activities of the external organizations and individuals that are in direct contact with the firm

who are examples of the micro-environment

• customers

• suppliers

• distributors

• competitors

what is the market environment

where the firm & its competitors interact with & compete for customers

what is a multibusiness firm

a firm competing in multiple product markets

what is a multinational firm?

a firm who competes in multiple geographical markets outside of home country

what is the macro-environment?

all other entities & factors residing in the external environment outside of the direct control of the firm

what are competitors?

firms that operate in the same industry or product market, offering similar products & targeting the same customers

what is a rival? (competitive rivalry)

firms with who you directly compete with and they have an effect on you

what is market commonality?

when a firm’s market position overlaps with your own

what is a capability?

an ability to deploy a company’s resources in order to achieve a desired end result (narrow & specific)

what is a competency?

a set of (broader) behaviors that are instrumental to delivering desired results

what are routines?

repetitive & recognizable patterns of actions that involve multiple actors

what are operational capabilities?

capabilities that support the enactment of daily activities (opposite of dynamic capabilities because they are things you invest in that can’t really be changed)

what are dynamic capabilities

the capability of changing capabilities to adjust to change

what are tradable resources?

resources that can be acquired

what are non-tradable resources

resources that need to be accumulated (acquired, grown, learned) → ex. reputation

what are 4 factors that contribute to the blurring of industry boundaries?

• environmental factors

• technology disruption

• industry convergence

• supply-side or demand-side factors

what are some examples of environmental factors that contribute to blurred industry boundaries?

• political regulation/deregulation

• globalization

• scientific breakthroughs

what is an example of technology disruption that contribute to blurred industry boundaries?

new tech attempts to change the industry standard by satisfying an existing customer need with a new product or by offering the same product at a lower cost & better performance

what is industry convergence (blurring industry boundaries)

when previously distinct (separate) industries converge into a single industry

what are supply-side or demand-side factors when talking about blurring industry boundaries?

anything that changes how products are made or how they are consumed → ex. growing trend of multifunctional products

what are non-market forces?

non-economic pressures that come from outside the market environment (government, social media, public stakeholders) which can both help or harm the firm

what is the purpose of the PESTEL framework?

it helps firms analyze the macro-environment

what is non-market strategy?

refers to the activities taken to manage the societal context in which the firm operates (reputation, social image, CSR)

what is an industry?

groups of firms producing similar products & competing for the same resources (including suppliers) & customers in the marketplace

what is a product market?

narrower market with goods & services with similar characteristics (features, performance, intended use, price)

what are the 3 dimensions of analysis for industry/product markets

1. industry/product market boundaries

2. strategic groups

3. rivalry

what is the most common mistake when defining boundaries?

defining too broad boundaries → encompasses firms that compete in different product markets or serve different market segments which makes the analysis too complex

what is market structure?

concerns the composition of the marketplace in terms of number of companies competing for the same resources & customers and producing the same product or service → market CONCENTRATION

what are the 3 elements of the market structure

1. degree of market concentration → how many competitors

2. extent to which products are differentiated → differentiated vs. similar

3. barriers to entry - how easy it is to enter the market

what is the market structure analysis framework?

structure-conduct-performance paradigm (SCP)

what is the structure-conduct-performance (SCP) framework in market structure analysis?

states a relationship betweens market structure (concentration), firm’s conduct, & economic performance

how does the concentration of the market affect profits?

more concentrated markets = higher profits

what are the limitations of the structure-conduct-performance (SCP) framework of market structure analysis?

• fails to predict industry competitiveness & firm’s performance accurately

• hard to find real examples of the market structure types

what are (4) other factors that can analyze competition in markets other than concentration?

1. industry development stage (industry/product life cycle)

2. strength of competitive forces (porter’s 5 forces)

3. different profit pools comprising the industry

4. value networks

what are the 4 market structures?

1. monopoly

2. oligopoly

3. monopolistic competition

4. perfect competition

what is a monopoly + market structure characteristics?

• only one form exits in the market

• high market concentration

• high barriers to entry

• no competition

• ex. NS in the netherlands

what is an oligopoly + market structure characteristics?

• few firms compete in the marketplace

• 2 firms = duopoly

• medium-high barriers to entry

• low competition

• ex. worlship shipping carrier market → FedEx, UPS, DHL

what is monopolistic competition + market structure characteristics?

• many firms compete in the market, but each with a differentiated product

• low market concentration

• medium barriers to entry

• medium-high competition

• ex. tech hardware industry → apple, samsung, dell, sony, HP, lenovo, etc.

what is perfect competition + market structure characteristics?

• many firms & homogeneous products

• low concentration

• low barriers to entry

• low product differention

• HIGH competition

• ex. commodity markets → milk

what does the industry & product-market life cycle highlight?

the advantages of an early entry into the market

what does the industry & product-market life cycle criticize/call attention to?

maturity mindset - when managers are complacent with declining industries/products

what are the main limitations to the industry/product life cycle?

• simplistic & oversimplied

• some industries miss stages, or have different durations of stages

  • life-cycle view assumes that companies are takers nad have no impact on market stages → not always true

what are the 4 stages to the industry/product-market life cycle?

1. introduction

2. growth

3. maturity

4. decline

what are the characteristics of the introduction phase of the industry/product-market life cycle?

• experimentation phase

• low competition

• highly differentiated products

• high prices

• low profits → high investment requirements

what are the characteristics of the growth phase of the industry/product-market life cycle?

• increased competition but many opportunities

• low barriers to entry

• profits increasing

• critical success factors: product quality/reliability & marketing investment to increase firms’ repuation & attract customers

what are the characteristics of the maturity phase of the industry/product-market life cycle?

• fragmented market

• increased barriers to entry

• standardized products (low differentiation)

• competition based on price

what are the characteristics of the decline phase of the industry/product-market life cycle?

• extreme rivalry → “dog-eat-dog” competition

• fierce price competition & cost control

what are Porter’s 5 forces?

1. threat of new entrants

2. existing rivalry among competitors

3. buyer power

4. supplier power

5. threat of substitutes

what is rivalry among existing competitors in porter’s 5 forces?

• higher rivalry = lower attractiveness of industry

• low market concentration → high rivalry

• more mature stages → higher rivalry

• low differentiation → high rivalry

• high exit barriers → high rivalry

what is threat of new entrants in porter’s 5 forces?

• high barriers of entry = less entrants & less pressure on the market

• high economies of scale = harder to enter

• high differentiation = harder to enter

• high capital requirements = harder to enter

• high switching costs = harder to enter

• easy access to distribution channel = easier to enter

• government policy (restrictions) = less entrants

• government policy (subsidies) = more entrants

what is threat of substitutes in porter’s 5 forces?

• less substitutes = attractive industry

• more substitutes = higher threat

• high price-performance trade-off = higher threat

• easy & cheap switching cost = high threat

• higher obselensce (risk of becoming out-of-date) = higher threat

what is bargaining power of buyers in porter’s 5 forces?

• low bargaining power = attractive industry

• amount & concentration of buyers → many dispersed buyers = low power

• high product differentiation = low power

• backward integration threat (customers start producing or supplying themselves) = high buyer power

what is bargaining power of suppliers in porter’s 5 forces?

• high bargaining power = less attractive industry

• more suppliers = less power

• higher concentration (2 suppliers controling 80% of market) = high power

• forward integration threat (suppliers selling to customers directly) = high power

what are profit pools in market analysis?

to discover where economic value is actually generated across an industry's value chain, customer segments, or product lines rather than assuming profits follow revenue or market share

what are value networks when analyzing market?

the group of companies, suppliers, partners, & customers that work togther to create & deliver value to customers →maps out the key players in a company's environment to balance competition and cooperation.

how are the key players divided in value networks & how do they affect competition?

1. focal firm, customers, suppliers

2. periphery - other available companies or partners that the main companies can choose to work with instead

competition increases as number of viable alternatives in the periphery increases, weaking a firm’s bargaining power

what are strategic groups in market analysis?

clusters of firms pursuing similar strategies along key dimensions (price, quality, geographic scope)

where is competition highest in strategic groups?

WITHIN your own strategic group

what are the benefits of strategic group analysis in market analysis?

• identifies direct competitors

• reveals mobility barriers (prevents firms from switching strategic groups)

• highlights untapped niches

• dynamic effects - help identify future market trends by spotting trajectories of both new entrants & industry incumbents

what are the 2 factors that contribute the most towards high rivalry in markets?

• market commonality

• resource similarity

what is market commonality?

competing in the same markets

what is resource similarity?

having the same capabilities

what is a limitation of rivalry?

often asymmetrical: a smaller firm may see a large firm as a major rival, but the large firm may not view the smaller one as a significant threat.

what are 2 tools of rivalry analysis?

• Awareness-Motivation-Capability Framework (AMC)

• Porter’s Four Corners Framework

what is the awareness-motivation-framework (AMC)?

delineates the behavioral drivers influencing firm’s decision to attack or respond to an opponent

what is porter’s four courners framework?

1. drivers

2. motivations

3. strategy

4. capabilities

helps to understand rival’s mindset & assumptions, helping determime how they will react in a given situation

what are ecosystems?

multilateral set of entities whose interactions contribute to join value creation

what is a value system?

the economic perspective through which we view the process of creating & capturing value

what are the 4 types of value systems?

1. market-based value systems

2. integrated value systems

3. supplier-mediated valye systems

4. ecosystem-based value system

what are market-based value systems & where is value created?

implies direct arm’s length market transactions between buyers & sellers of goods or services, value is created through generic complementarity

what is generic complementarity?

where products can be used together without any coordination between their producers → e.g teacups & tea bags

what are integrated value systems & where is value created?

economic transactions happen under the same corporate umbrella → value is created through internal coordination between divisions or business unit

what are supplier-mediated value systems & where is value created?

represents the traditional linear supply change, a downstream firm (closer to the customer) often dictates terms to its upstream suppliers

what is ecosystem-based value systems & where is value created?

web of interconnected firms creating value multilaterally → interdependence & modular architecture

what is modularity?

designing a system from separate, independent components (modules) that can be easily combined & recombined → allows different firms to contribute components to a larger system without needing to coordinate every detail

what is complementarity?

exists when one product or asset enhances the value of another

what are the two core characteristics of ecosystems?

modularity & complementarity

what is generic complementarity?

products can be used together but are produced independently without coordination (e.g generic trash cans & garbage bags) → does NOT form an ecosystem

what is non-generic complementarity?

requires firms to coordinate their offerings or adherere to a shared standard (e.g nespresso coffee machines only work with Nespresso pods) → defining feature of an ecosystem

what time of complementarity is a key feature of ecosystems?

non-generic complementarity

what are the 2 types of non-generic complementarity?

1. unique complementarity

2. supermodular complementarity

what is unique complementarity?

a product is useless or functions poorly without a specific, compatible complement → ex. key needs matching lock

what is supermodular complementarity?

the value of the ecosystem increases as the volume or variety of complements grows → more games for the console, more value the console holds for the customers

what is a hub firm in ecosystems?

the leader of the ecosystem which sets the rules, standards, and visions for the ecosystems

what is competition within an ecosystem?

firms compete to provide the best complements → ex. spotify vs. apple music on the iOS platform

what is competition between ecosystems?

entire ecosystems compete against each other for users & complementors (ex. iOS system vs. Android ecosystem)

what are bottlenecks?

scarce or underperforming complements that constrain the growth & competitiveness of the entire ecosystem

what is a platform?

comprises an architecture & set of rules that together enable or facilitate direct interactions between at least 2 different user groups → ex. app store platform has app developers and iphone users

what are the 3 types of platforms?

1. transaction platforms

2. innovation platforms

3. hybrid platforms

what are the 4 roles in platform-centered ecosystems?

• platform owner

• interface provider

• producer (complementor)

• customer (user)

what are transactional platforms?

facilitate direct exchanges or transactions (e.g Uber → drivers & riders are connected)

what are innovation platforms?

technological foundations upon which others develop their complementary productions or innovations (want to enable the highest quality products) → ex. xbox complementors are game developers

what are hybrid platforms?

combination of both → ex. iOS platform

what are the differences of a pipline business vs. platforms?

• linear chain of activities (adding value at every step) vs. transactions between multiple parties (add value by making transaction possible)

• attracting customers vs. attracting customers AND producers

• apple is both a traditional business (producing iphone) & a platform (iOS)

what are direct network effects (platforms)?

occur when an increase in the number of users on one side of the platform, enhances the value for all users on that side → ex. the more users on LinkedIn, the more valuable it is for everyone

what are indirect network effects (platforms)?

occur when an increase in the number of users on one side of the platform, enhaces the value for the users on the OTHER side of the platform → ex. the more apps available in the app store, the more value for iphone users

when do network effects not cause winner-takes-all markets?

less likely when:

• multi-homeing is easy → users & complementors can participate in multiple platforms at the same time

• differentiation is high

• crowding occurs → negative network effects set in, where adding more users to one side makes the platform less valuable for others (e.g younger users leaving facebook as their parents & grandparents join)

what are ways platforms can kickstart growth?

• subsidizing

• seeding

• micro-launching

• piggybacking

how does subsidizing work in platforms?

the platform owner covers (part of) the cost of the product or usage for a particular user group → ex. make a facebook profile is free (user cost is subsidized) but it will attract advertisers onto facebook