BU 111: External Analysis Models and Strategy

Comprehensive vocabulary flashcards covering external analysis models including Porter's Five Forces, Porter's Generic Strategies, PEST analysis, and strategic environmental scanning.

Porter's Five Forces

A framework that evaluates industry-level forces that lower prices, reduce sales volume, or increase costs, thereby reducing profitability within an industry.

Rivalry Among Existing Firms

The most powerful of Porter's five forces, describing intense competition among direct competitors selling similar offerings, resulting in price wars, lower volume, and increased costs.

Substitutes

Products or services from outside a focal industry that perform a similar job or function, establishing a price ceiling and driving up marketing costs.

Threat of New Entrants

The threat posed by new or future competitors entering an industry, which intensifies competition, caps pricing, and requires capital investment to build barriers or retain customer share.

Bargaining Power of Suppliers

The leverage wielded by providers of key industry inputs, which can depress firm profitability by inflating input costs, restricting supply, or reducing input quality.

Bargaining Power of Buyers

The leverage held by customers who purchase an industry's goods, exerting downward pressure on selling prices and driving up required servicing costs.

Forward Integration

A supplier strategy where input providers threaten to enter the downstream buyer market directly, significantly increasing supplier bargaining power.

Backward Integration

A buyer strategy where customers threaten to produce required goods or services in-house rather than purchasing from suppliers, significantly raising buyer bargaining power.

Switching Costs

The fixed or transaction costs incurred by a customer when changing from one vendor or product to another; low switching costs elevate rivalry, substitute power, and buyer power.

Porter's Generic Strategies

A strategic framework based on two fundamental choices: market scope (broad target vs. narrow/niche target) and competitive advantage (low cost vs. uniqueness/differentiation).

Cost Leadership Strategy

A generic business strategy characterized by targeting a broad market scope through a low-cost competitive advantage.

Differentiation Strategy

A generic business strategy characterized by targeting a broad market scope by offering unique features that customers value and are willing to pay for.

Cost Focus Strategy

A generic business strategy characterized by competing on low costs within a narrow, defined target niche.

Differentiation Focus Strategy

A generic business strategy characterized by targeting a narrow, under-served niche market with highly unique or specialized product features.

PEST Analysis

A strategic macro-environmental model used to analyze the general external environment across Political, Economic, Social, and Technological dimensions.

Political Factors (PEST)

Macro-environmental elements including legislation, regulatory rules, international trade laws, and trade agreements that affect business expansion, barriers, and competition.

Economic Factors (PEST)

Macro-environmental variables such as GDP, inflation, employment levels, currency exchange rates, and interest rates that affect costs, customer demand, funding, and pricing.

Social Factors (PEST)

Macro-environmental elements including cultural values, attitudes, customs, habits, and demographics that impact consumer preferences, workforce hiring, and corporate social responsibility (CSR).

Technological Factors (PEST)

Macro-environmental elements including information technology, the internet, materials, and equipment that drive innovation, R&D, entry barriers, and strategy.

Information Asymmetry

An imbalance of information between two parties in a transaction; sellers create information asymmetries to counter and reduce buyer bargaining power.

External Analysis: Present Focus

The component of external scanning focused on understanding current conditions and existing industry situations.

External Analysis: Trends Focus

The component of external scanning focused on watching evolutionary changes over time to anticipate future shifts.

External Analysis: Quick Change Focus

The component of external scanning focused on anticipating fast, predictable or surprising environmental shifts in order to plan contingency strategies.