This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
1.1. Explain the importance of analyzing and understandingExplain the importance of analyzing and understandingthe firmthe firm’’s external environment.s external environment.
2.2. Define and describe the general environment and theDefine and describe the general environment and theindustry environment.industry environment.
3.3. Discuss the four activities of the external environmentalDiscuss the four activities of the external environmentalanalysis process.analysis process.
4.4. Name and describe the general environmentName and describe the general environment’’s sixs sixsegments.segments.
5.5. Identify the five competitive forces and explain how theyIdentify the five competitive forces and explain how theydetermine an industrydetermine an industry’’s profit potential.s profit potential.
Studying this chapter should provide you with the strategicmanagement knowledge needed to:
6.6. Define strategic groups and describe their influence onDefine strategic groups and describe their influence onthe firm.the firm.
7.7. Describe what firms need to know about theirDescribe what firms need to know about theircompetitors and different methods (including ethicalcompetitors and different methods (including ethicalstandards) used to collect intelligence about them.standards) used to collect intelligence about them.
Studying this chapter should provide you with the strategicmanagement knowledge needed to:
••The set of factors directly influencing a firm andThe set of factors directly influencing a firm andits competitive actions and competitiveits competitive actions and competitiveresponsesresponses
Threat of new entrantsThreat of new entrants
Power of suppliersPower of suppliers
Power of buyersPower of buyers
Threat of product substitutesThreat of product substitutes
Intensity of rivalry among competitorsIntensity of rivalry among competitors
••Gathering and interpretingGathering and interpretinginformation about all of theinformation about all of thecompanies that the firmcompanies that the firmcompetes against.competes against.
••Understanding the firmUnderstanding the firm’’sscompetitor environmentcompetitor environmentcomplements the insightscomplements the insightsprovided by studying theprovided by studying thegeneral and industrygeneral and industryenvironments.environments.
Opportunities and ThreatsOpportunities and Threats
••OpportunityOpportunity
A condition in the generalA condition in the generalenvironment that, if exploited,environment that, if exploited,helps a company achievehelps a company achievestrategic competitiveness.strategic competitiveness.
••ThreatThreat
A condition in the generalA condition in the generalenvironment that may hinder aenvironment that may hinder acompanycompany’’s efforts to achieves efforts to achievestrategic competitiveness.strategic competitiveness.
Industry Environment AnalysisIndustry Environment Analysis
••Industry DefinedIndustry DefinedA group of firms producing products that are closeA group of firms producing products that are close
substitutessubstitutes••Firms that influence one anotherFirms that influence one another••Includes a rich mix of competitive strategies thatIncludes a rich mix of competitive strategies that
companies use in pursuing strategiccompanies use in pursuing strategiccompetitiveness and abovecompetitiveness and above--average returnsaverage returns
Threat of New Entrants: Barriers to EntryThreat of New Entrants: Barriers to Entry
••Economies of scaleEconomies of scale••Product differentiationProduct differentiation••Capital requirementsCapital requirements••Switching costsSwitching costs••Access to distribution channelsAccess to distribution channels••Cost disadvantages independent of scaleCost disadvantages independent of scale••Government policyGovernment policy••Expected retaliationExpected retaliation
••Economies of ScaleEconomies of ScaleMarginal improvements in efficiency that a firmMarginal improvements in efficiency that a firm
experiences as it incrementally increases its sizeexperiences as it incrementally increases its size
••Factors (advantages and disadvantages) relatedFactors (advantages and disadvantages) relatedto largeto large-- and smalland small--scale entryscale entryFlexibility in pricing and market shareFlexibility in pricing and market share
Costs related to scale economiesCosts related to scale economies
Barriers to Entry (contBarriers to Entry (cont’’d)d)••Product differentiationProduct differentiation
Unique productsUnique productsCustomer loyaltyCustomer loyaltyProducts at competitiveProducts at competitive
pricesprices
••Capital RequirementsCapital RequirementsPhysical facilitiesPhysical facilities InventoriesInventoriesMarketing activitiesMarketing activitiesAvailability of capitalAvailability of capital
incur when they buy from aincur when they buy from adifferent supplierdifferent supplier••New equipmentNew equipment••Retraining employeesRetraining employees••Psychic costs of ending aPsychic costs of ending a
relationshiprelationship
••Access to DistributionAccess to DistributionChannelsChannelsStocking or shelf spaceStocking or shelf spacePrice breaksPrice breaksCooperative advertisingCooperative advertising
••Government policyGovernment policyLicensing and permitLicensing and permit
requirementsrequirementsDeregulation of industriesDeregulation of industries
••Expected retaliationExpected retaliationResponses by existingResponses by existing
competitors may dependcompetitors may dependon a firmon a firm’’s present stake ins present stake inthe industry (availablethe industry (availablebusiness options)business options)
Bargaining Power of SuppliersBargaining Power of Suppliers
••Supplier power increases when:Supplier power increases when:Suppliers are large and few in number.Suppliers are large and few in number.
Suitable substitute products are not available.Suitable substitute products are not available.
Individual buyers are not large customers of suppliersIndividual buyers are not large customers of suppliersand there are many of them.and there are many of them.
SuppliersSuppliers’’goods are critical to the buyersgoods are critical to the buyers’’marketplace success.marketplace success.
SuppliersSuppliers’’products create high switching costs.products create high switching costs.
Suppliers pose a threat to integrate forward intoSuppliers pose a threat to integrate forward intobuyersbuyers’’industry.industry.
Threat of Substitute ProductsThreat of Substitute Products
••The threat of substitute products increasesThe threat of substitute products increaseswhen:when:
Buyers face few switching costs.Buyers face few switching costs.
The substitute productThe substitute product’’s price is lower.s price is lower.
Substitute productSubstitute product’’s quality and performance ares quality and performance areequal to or greater than the existing product.equal to or greater than the existing product.
••Differentiated industry products that are valuedDifferentiated industry products that are valuedby customers reduce this threat.by customers reduce this threat.
Intensity of Rivalry Among CompetitorsIntensity of Rivalry Among Competitors
••Industry rivalry increases when:Industry rivalry increases when:There are numerous or equally balanced competitors.There are numerous or equally balanced competitors.
Industry growth slows or declines.Industry growth slows or declines.
There are high fixed costs or high storage costs.There are high fixed costs or high storage costs.
There is a lack of differentiation opportunities or lowThere is a lack of differentiation opportunities or lowswitching costs.switching costs.
When the strategic stakes are high.When the strategic stakes are high.
When high exit barriers prevent competitors fromWhen high exit barriers prevent competitors fromleaving the industry.leaving the industry.
••Strategic Group DefinedStrategic Group DefinedA set of firms emphasizing similar strategicA set of firms emphasizing similar strategic
dimensions and using similar strategiesdimensions and using similar strategies••Internal competition between strategic group firmsInternal competition between strategic group firms
is greater than between firms outside that strategicis greater than between firms outside that strategicgroup.group.
••There is more heterogeneity in the performance ofThere is more heterogeneity in the performance offirms within strategic groups.firms within strategic groups.––Similar market positionsSimilar market positions––Similar productsSimilar products––Similar strategic actionsSimilar strategic actions
••Competitor IntelligenceCompetitor IntelligenceThe ethical gathering of needed information and dataThe ethical gathering of needed information and data
that provides insight into:that provides insight into:
••A competitorA competitor’’s direction (s direction (future objectivesfuture objectives))
••A competitorA competitor’’s capabilities and intentions (s capabilities and intentions (currentcurrentstrategystrategy))
••A competitorA competitor’’s beliefs about the industry (s beliefs about the industry (itsitsassumptionsassumptions))
••ComplementorsComplementorsThe network of companies that sell complementaryThe network of companies that sell complementary
products or services or are compatible with the focalproducts or services or are compatible with the focalfirmfirm’’s own product or service.s own product or service.
••If aIf a complementorcomplementor’’ss product or service adds valueproduct or service adds valueto the sale of the focal firmto the sale of the focal firm’’s product or service, its product or service, itis likely to create value for the focal firm.is likely to create value for the focal firm.
••However, if aHowever, if a complementorcomplementor’’ss product or service isproduct or service isin a market into which the focal firm intends toin a market into which the focal firm intends toexpand, theexpand, the complementorcomplementor can represent acan represent aformidable competitor.formidable competitor.
••Practices considered both legal and ethical:Practices considered both legal and ethical:Obtaining publicly available informationObtaining publicly available information
Attending trade fairs and shows to obtain competitorsAttending trade fairs and shows to obtain competitors’’brochures, view their exhibits, and listen tobrochures, view their exhibits, and listen todiscussions about their productsdiscussions about their products
••Practices considered both unethical and illegal:Practices considered both unethical and illegal:BlackmailBlackmail
TrespassingTrespassing
EavesdroppingEavesdropping
Stealing drawings, samples, or documentsStealing drawings, samples, or documents