Chapter 3: Industry Structure, Comp. Forces

Pestel Framework

framework that categorizes and analyzes an important set of external factors that might impinge upon a firm.

The 6 parts of PESTEL

Political, Economic, Sociocultural, Technological, Ecological, Legal

Political

pressure from government bodies and social movements 

Economic

macroeconomics affecting the firm's economy-wide

Sociocultural

a society’s cultural norms and values

Technological

the application of knowledge to create new processes and products (Tesla, Ai, etc.) 

Ecological

broad environmental issues in the natural environment

Legal

outcomes of political processes as manifested in laws or regulations

Nonmarket strategy

activities outside market exchanges where firms sell products to influence their general environment in a way that is favorable to the firm 

Firm performance is determined by what 2 factors

Industry Effects and Frim Effects

Industry Effects

firm performance is attributed to the underlying economic structure of the industry

Firm Effects

 firm performance attributed directly to the actions of strategic leaders 

What percentage of Industry Effects actually contiributes to performance

20%

What percentage of Frim Effects actually contiributes to performance

55%

Industry

a group of incumbent firms facing the same set of suppliers and buyers

Industry Analysis

a method to identify an industry’s profit potential and derive implications for a firm’s strategic position

Strategic Position

a firm’s strategic profile based on the difference between value, creation, and cost

What are Micheal Porter’s Five Forces

Threat of Entry, Power of Suppliers, Power of Buyers, Threat of Substitues, Rivalry among existing competitors

Threat of Entry

the risk of potential competitors entering the industry 

Entry barriers

obstacles that determine how easily a new firm can enter the industry 

Network effects

the positive effect that one user has on the value of a product or service for others 

Power of Suppliers

the bargaining power of suppliers on profit potential

Power of buyers

pressure that an industry’s customers put on the producer by demanding lower prices or higher quality

Threat of Substitutes

the risk of substitutes meeting the same basic needs of an industry product in a different way

Rivalry among existing competitors

the intensity with which companies within the same industry fight for market share and profitability

Exit Barriers

obstacles that determine how easily a firm can leave an industry

What are the Four Industry Competitive Structures

Perfect Competition, Monopolistic Competition, Oligopoly, Monopoly

Perfect Competition usually has many ____ firms, sell a _____ product and have ____ entry barriers

small, commodity, low

Monopolistic Competition usually has many firms, sell a _____ product and have ____ entry barriers

differentiated, medium

Oligopoly usually has few ____ firms, sell a _____ product and have ____ entry barriers

large, differentiated, high

Monopoly usually has ____ firm, sell a _____ product and have ____ entry barriers

one, unique, very high

Strategic commitments

 firm actions that are costly, long term, and difficult to reverse 

Complement

a product, service, or competency that adds value to the original product offering when the two are used in tandem (ex. Google and Samsung) 

Complementor

a company that provides a good service that leads customers to value your firm’s offering more when the two are combined

Co-opetition

cooperating by competitors to achieve a strategic objective 

Industry convergence

a process whereby formerly unrelsated industries begin to satisfy the same customer need

Industry convergence is often brought on by ________

Technological advances

When attempting to enter a new industry consider what?

Who are the players, what type of entry, and when, how and where to enter.

Strategic Group

 a set of companies that pursue a similar strategy within a specific industry 

Strategic Group Model

a framework that explains the differences in firm performance within the same industry

Mobility Barriers

factors that separate one strategic group from another