ch 3 Flashcards
What is the External Environment?
Definition: Factors outside the organization that impact its performance.
Includes: General (macro) and industry-specific (micro) environments.
Why is External Analysis Important?
identifies opportunities and threats.
Predicts profitability levels.
Improves strategic choices and helps assess competition
What is the PESTLE Framework (Macro Analysis)?
Political: Government policies, trade restrictions.
Economic: Interest rates, inflation, unemployment.
Social: Demographics, cultural trends.
Technological: Innovations, rate of tech adoption.
Legal/Ethical: Regulations, compliance standards.
Environmental: Sustainability, climate change
What is the Porter’s Five Forces?
Threat of Entry: Easier entry reduces profits.
Power of Suppliers: High supplier power reduces profitability.
Power of Buyers: Strong buyers can demand lower prices.
Threat of Substitutes: Substitutes create price ceilings.
Industry Rivalry: High rivalry erodes profits
What are some of the Barriers to Entry?
Economies of Scale: Large-scale production reduces costs.
Product Differentiation: Strong brand loyalty discourages new entrants.
Government Policies: Licensing requirements, tariffs.
Cost Advantages: Experience curve benefits for incumbents
What are complementors and what is its Impacts?
Definition: Products that add value when combined (e.g., Ferrari and Goodyear tires).
Impact: Complementors can increase the value perceived by customers
How do firms respond to environmental threats?
Neutralization: Change relationships within the industry to reduce threats.
Exploiting Opportunities: Adjust strategies to exploit structural changes in the industry
What are the industry structures and opportunities?
Fragmented Industry: No dominant firm, low entry barriers—opportunity for consolidation.
Emerging Industry: New technologies—first-mover advantage.
Mature Industry: Standardized products—focus on process innovation.
Declining Industry: Exit or niche strategies may be profitable
What is a black swan event and its impact?
Definition: Highly improbable events with major impacts (e.g., pandemics).
Example: COVID-19—disrupted industries globally.
Importance: External analysis helps identify weak signals of these events
What is environmental scanning and its goal?
Definition: The process of collecting information about the external environment.
Goal: Detecting emerging trends early.
Tools: Use of frameworks like PESTLE and Porter’s Five Forces to structure scanning efforts
What is the influence of macro trends on strategy?
Example: Technological innovations, such as artificial intelligence, can reshape industries and require firms to pivot strategies.
Impact: Firms must stay agile to respond to shifts in macro trends that affect market demand and competition
What is the process of mapping strategic groups?
Process: Firms in an industry can be mapped based on key dimensions like price, quality, or geographical focus.
Insight: Mapping reveals gaps in the market and areas of intense rivalry.
Example: Southwest Airlines is mapped differently from full-service carriers like Delta due to its low-cost focus
what is Industry Life Cycle and Strategic Implications?
Phases: Introduction, Growth, Maturity, Decline.
Impact: Strategies must evolve with the life cycle stage.
Growth phase: Focus on market expansion.
Mature phase: Optimize processes and reduce costs.
Decline phase: Exit or harvest remaining value
What is the Key Success Factors (KSFs) in an Industry?
Definition: Elements that determine an organization’s ability to outperform competitors.
Examples: Strong brand reputation, economies of scale, access to distribution networks.
Impact: Identifying KSFs helps firms prioritize resources on what matters most for success
What is The Role of Government Policies in Shaping Industry Profitability?
Impact: Regulations can act as barriers to entry, limiting competition or creating monopolies.
Example: Patents granted by governments give pharmaceutical companies temporary monopolies.
Relevance: Firms must monitor policy changes to adjust strategies proactively
