0.1. Strategic Management Concepts

Question 1

What are the five structural variables in Michael Porter’s Five Forces / structural analysis of industries?

Answer 1

1. Intensity of competition
2. Threat of new entrants
3. Threat of substitutes
4. Bargaining power of suppliers
5. Bargaining power of buyers

Forces driving industry competition

Question 2

How do economies of scale constitute barriers for companies entering an industry?

Answer 2

Incumbents (bestehende Anbieter) ..

• likely operate at optimum levels
  (volume of production),
• have a cost advantage.
  (cost of production)

Question 3

How does experience constitute a barrier for companies entering an industry?

Answer 3

Incumbents (bestehende Anbieter) ..

• have more experience
  (volume of production),
• thus have a cost advantage.
  (cost of production)

Question 4

What are the limitations of economies of scale as entry barriers
in the case of new technology introduction?

(3)

Answer 4

1. Trade-off with product differentiation.
2. Technological change can penalize large-scale firms.
3. Large firms (may) avoid investing in new technologies

Question 5

What are the limitations of experience as entry barriers
in the case of new technology introduction?

(3)

Answer 5

1. Trade-off with product differentiation.
2. Nullified with new technologies.
3. May draw attention away from market developments.

Question 6

What factors contribute to high bargaining power of suppliers in professional services?

(2x3)

Answer 6

Supplier Power Dynamics

• Suppliers are more concentrated than the industry they sell to.
• Suppliers can integrate forward into the industry.
• Industry is not a major customer.

Dependency on Supplier Products

• Lack of substitute products.
• Suppliers’ products are important inputs.
• Products are differentiated or have high switching costs.

Question 7

What factors contribute to high bargaining power of buyers in professional services? (3)

Answer 7

Buyer Power:

• Large volume purchases relative to total sales.
• Products represent a significant share of buyer’s costs.
• Low switching costs.
• Full information available to buyers.

Product Characteristics:

• Products are undifferentiated.
• Products are unimportant to buyer’s business.

Industry Conditions:

• Low profits in buyer’s industry.
• Buyers can integrate backward.

Question 8

How do Michael Porter’s Five Forces
and the resource-based view
explain profitability differently? (2)

Answer 8

Five forces

• Focuses on industry structure, ..
• entry barriers, substitutes, supplier and buyer power, and rivalry.

Resource-based

• Focuses on competition for resources,
• resource-position barriers, resource attractiveness, and mergers and acquisitions.

Question 9

How are resource position barriers and entry barriers related? (2)

Give an example.

Answer 9

• Entry barrier without resource position barrier leaves the firm vulnerable to diversifying entrants.
• Resource position barrier without an entry barrier leaves the firm unable to exploit the barrier.

Example: Experience in the industry.

Question 10

What are the implications of dynamic capabilities theory for strategic choices such as entry strategies, timing, and diversification? (3)

Answer 10

1. Organizations and employees need the capability to learn quickly and build strategic assets.
2. New strategic assets like capability, technology, and customer feedback must be integrated.
3. Existing strategic assets must be transformed or reconfigured.

Question 11

According to the knowledge-based view, why do firms differ, and what implications does this have for firm boundaries? (3)

Answer 11

• Firms differ due to their ability to find knowledge distant from their own.
• Closed innovation: Firms have closed boundaries and only develop their own ideas.
• Open innovation: Firms have porous boundaries and commercialize both own and others’ ideas.