9. Business Strategy and Market Analysis Flashcards
What are 2 elements that make up the larger economic environment?
Economic systems
Economic market structures
What must an entity do to be successful?
- Understand that environment
* Develop and execute a strategic plan to succeed in that environment
What is the definition of strategic planning?
Sequence of interrelated procedures for determining an entity’s long-term goals and identifying the best approaches for achieving those goals.
What are general steps in strategic planning process?
- Establish mission, values, and goals
- Assess the environment
- Establish objectives
- Formulate strategies
- Implement strategies
- Evaluate and control activities
What is mission statement?
An expression of the purpose and range of activities of the entity
What does value establish?
The underlying benefits that govern operations and how relationships with other parties are conducted.
What is goals?
General purpose toward which entity endeavors are directed (mid-to-long-term)
What must an entity analyze for the external and internal environment?
- Macro-environment (external)
- Industry (external)
- Internal: SWOT and relationship between environment and entity
What is objective? What are they typically related to?
State the desired measurable results to be achieved.
Profitability, growth, market share, innovation.
What are the 3 generic strategies by Porter?
- Cost leadership
- Differentiation
- Focus
What is PEST analysis and what is it concerned about?
- a means of analyzing the external macro-environment (political, economic, social, and technological) in which an entity operates or may operate.
- a framework for this environmental analysis.
What is Five Forces used for?
determining the nature, operating attractiveness, and probable long-run profitability of a competitive industry.
Macro environment: What does PEST stand for?
Political, Economic, Social, Technology factors.
Macro environment: PEST: what are examples of P?
- Political stability
- Ways and extent government intervenes in economy
- Labor laws
- Environmental laws
- Tax policy
- Trade restrictions (tariffs, quotas..)
Macro environment: PEST: what are examples of E?
- Economic growth rate and related demographics
- Interest rates
- Inflation rates
- Currency exchange rates
- Others
Macro environment: PEST: what is Social element concerned with? Examples?
With culture, values, and demographics.
- Population growth rate
- Age distribution
- Educational attainment and career attitude
- Emphasis on health and safety
- Others
Macro environment: PEST: what are examples of T?
- Level of research and development
- State of technology infrastructure
- State of automation capability
- Level of technology “savvy”
- Rate of technology change
- Other
Macro environment: What does PESTEL stand for?
Political, economic, social, technology, environment, legal
Industry Analysis: What is industry?
Group of entities that produce goods or provide services which are close substitutes and which compete for the same customers
Industry Analysis: what can be used to analyze industry?
Five Forces factor analysis by Porter.
Industry Analysis: What are five forces?
- Threat of new entrants into the market: new entrants increase competition and reduce market attractiveness
- Threat of substitute goods/services: presence or possibility of substitutes reduces ability to set prices and reduce market attractiveness
- Bargaining power of buyers: greater the bargaining their power, the less ability providers has to determine characteristics and price; reduce market attractiveness
- Bargaining power of suppliers: greater their bargaining power, the less ability of buyer to influence availability and cost of inputs; reduce market attractiveness
- Intensity of rivalry: greater the rivalry, the less attractive the market
Entity/environment relationship: What can be used to analyze?
SWOT analysis: develops profile of internal strengths and weaknesses and external opportunities and threats
Entity/environment relationship: What are SW?
- Strengths: resources and capabilities that provide relative competitive advantage in the market (patten, desirable locations…)
- Weaknesses: short-comings that place entity at relative competitive disadvantage in the market (poor location, unfavorable reputation…)
Entity/environment relationship: What are OT?
- Opportunities: Chances to benefit from new or unmet demand in the market
- Threats: Chances of adverse consequences as results of external forces
Entity/environment relationship: what are SWOT matrix strategy approaches?
- Strengths and opportunities: Utilize strengths to take advantage of opportunities in market
- Weaknesses and opportunities: Pursue opportunities to overcome weaknesses
- Strengths and threats: Utilize strengths to reduce susceptibility to external threats
- Weakness and threats: Pursue ways to prevent from weaknesses from being overcome by threats
Generic strategy: What is basic strategy purpose?
Leverage strengths to achieve objectives and goals.
Generic strategy: what are 3 elements of Porter’s generic strategies?
- Identified at higher level
- Independent of entity
- Independent of industry
Generic strategy: What are Porter’s 3 strategies?
- Cost leadership
- Differentiation
- Focus - cost leadership or differentiation applied to narrow market
Generic strategy: what is cost leadership and objective?
Become low cost provider in an industry.
Ob:
*sell goods/service at average market price and earn profits higher than competitors
*Sell goods/services below average market price and gain market share
Generic strategy: what will an entity that pursue cost leadership do?
- Seek to minimize costs
- Invest significantly in production and distribution assets
- Have high level of expertise in product design, manufacturing and distribution
Generic strategy: Cost leadership risks?
- Other entities can achieve cost leadership
- Improved technology enables others to produce equally low cost or lower cost
- Multiple entities will focus on segments of industry and separately achieve lower cost in those segments
Generic strategy: what is differentiation strategy?
Develop product or service that offers quality or uniqueness valued by customers.
Ob:
*Value added by uniqueness or quality permits a premium price that more than covers extra cost of goods or services
Generic strategy: What will entities that pursue differentiation do?
- Have highly skilled and creative product/services development personnel
- Have leading edge research capabilities
- Have strong/dedicated marketing and sales personnel
- Have reputation for innovation, quality and service
Generic strategy: Risk for differentiation?
- Customers change preferences
- Customer economic status changes
- Imitation by competitors/”knock-offs”
- Multiple firms will focus on segments of market and separately achieve greater differentiation in those segments
Generic strategy: What is focus strategy? Objective?
Achieve either cost leadership or differentiation within a narrow segment of industry (niche market).
Ob: Identify a distinct subgroup within market and focus on providing goods services that meet needs of that subgroup
Generic strategy: What will entities that pursue focus strategy do?
- Have outstanding market research and understanding of target group
- Have ability to tailor strengths in product/service development to target group
- Have a high degree of customer satisfaction and loaylty
Generic strategy: Risks of Focus strategy?
- Smaller in size with lower in volume = little bargaining power with suppliers
- Imitation by competitors (“knock-offs”)
- Changes in targeted customers’ preferences or economic status
- Industry cost leader will adapt products/services to compete in focus market
- Other entities will carve out subgroups of target focus group
What is an alternative strategy?
Resources-based model (RBM):
- Assesses resources and capabilities of an entity
- Bases strategy on collection of resources and capabilities to take advantage of opportunities in market
What is PEST analysis primarily concerned with?
Location
