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MGMT 471 > Ch. 3 > Flashcards

Ch. 3 Flashcards

1
Q

PESTEL Model stands for:

A 
Political
Economic 
Sociocultural
Technological
Ecological
Legal
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2
Q

What does the Pestel Model represent?

A

Environmental factors that pose Opportunities and Threats

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3
Q

Political Environment Factors

A

Processes/actions of government that can influence the decisions and behavior of firms

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4
Q

Legal Environment Factors

A

Laws, mandates, regulations, and court decisions – all of which can have a direct bearing on a firm’s profit potential

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5
Q

Economic Environment Factors

A

Economy-wide phenomena, consisting of the following five macroeconomic factors affecting firm strategy:
Growth rates
Interest rates
Levels of employment
Price stability (inflation and deflation)
Currency exchange rates

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6
Q

Sociocultural Environment Factors

A

Capture cultures, norms, and values for society; are dynamic and differ across groups
- Implications for firm strategy must be considered

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7
Q

Sociocultural and Demographic trends, why is it important to know?

A

Capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.
- How to service

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8
Q

Technological Environment Factors

A

Capture the application of knowledge to create new processes and products

  • Innovations in process technology
  • Innovations in product technology
  • Nanotechnology revolution
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9
Q

Ecological Environment Factors

A

Broad environmental issues
- the natural environment, global warming, and sustainable economic growth
Business and natural worlds are interdependent and inextricably linked
Managing these relationships in a sustainable manner directly influences the continued existence of human societies and the organizations we create

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10
Q

Def: Industry

A

Group of incumbent companies
Relatively the same set of suppliers and buyers
Tend to offer similar products and services

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11
Q

Industry Analysis is used to:

A

Identify an industry’s profit potential

Derive implications for a firm’s strategic position within an industry

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12
Q

Def: Strategic Postioning

A

A firm’s strategic profile

Based on value creation and cost

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13
Q

What is the goal of strategic positioning?

A

Generate a large gap between
- The value the firm’s product or service creates (V)
- The cost required to produce it (C)
Competitive Advantage = a large value gap (V - C)

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14
Q

What is the point of the five forces model?

A

Managers can predict industry profit potential and position their firms for sustainable competitive advantage
- to determine the success of an industry NOT to determine whether or not to enter it

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15
Q

What is the five forces model?

A

A framework for identifying the five forces that determine industry profit potential and help shape firm competitive strategy
The model intersects:
Theory: industrial organization economics with
Practice: hundreds of case studies

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16
Q

Whats are the five forces and what do they determine?

A
  1. Threat of new entrants
  2. Bargaining power of buyers
  3. Threat of substitute products or services
  4. Bargaining power of suppliers
  5. Rivalry amongst competitors (center)
    - determine the profit potential of an industry and shape a firm’s competitive strategy
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17
Q

The stronger the five forces the ______ likely I will want to be in that industry

A

The stronger the five forces the LESS likely I will want to be in that industry

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18
Q

Def: Threat of Entry

A

The risk that potential competitors will enter an industry and change dynamics of that industry
- incumbents (firms already in the industry) spend more to satisfy existing customers

19
Q

Entry barriers for firms trying to get into an industry

A
  1. Obstacles blocking others from entering

2. A significant predictor of industry profit potential

20
Q

Def: Power of Suppliers

A

Pressures that industry suppliers can exert on an industry’s profit potential

If all the products are the same, the buyer then gets all the power because they choose what they want from who

21
Q

How can the power of suppliers lower an industry’s profit potential?

A
  1. Suppliers demand higher prices for their inputs
  2. Suppliers reduce quality
    Strong suppliers = cost goes up, value (net profit) goes down
22
Q

Bargaining Power of Buyers Is High When:

A
  1. There are a few buyers & each buyer purchases large quantities.
  2. The industry’s products are standardized or undifferentiated commodities.
  3. Buyers face low or no switching costs.
  4. Buyers can backwardly integrate into the industry.
23
Q

Example of a powerful buyer

A

Walmart is a powerful buyer; pays suppliers after, sets prices, dates, can even make the firm make no money because they are so people

24
Q

Def: Threat of Substitutes

A

Products or services outside an industry meeting the needs of current customers

  • High threats of substitutes = less profit potential
    ex. H&RBlock vs. Turbo tax; completely different set up still meeting the same need
25
Q

Def: Rivalry Among Competitors

A

The intensity with which companies in the same industry jockey for market share and profitability
- The other 4 forces all exert pressure on this rivalry

26
Q

The structure of an industry is captured by:

A
  1. The number and size of its competitors
  2. The firms’ degree of pricing power
  3. The type of product or service
  4. The height of entry barriers
27
Q

Industry competitive structure: perfect competition

[fragmented]

A
  • many small firms
  • firms are price takers
  • commodity products
  • low barriers to entry
28
Q

Industry competitive structure: monopolistic competition

A
  • many firms
  • some pricing power
  • differentiated product
  • medium entry barriers
29
Q

Industry competitive structure: Oligopoly

A
  • few large firms
  • some pricing power
  • differentiated product
  • high entry barriers
30
Q

Industry competitive structure: monopoly

[consolidated]

A
  • one firm
  • considerable pricing power
  • unique product
  • very hight entry barriers
31
Q

During periods of high industry growth:

A
  1. Consumer demand rises
  2. Price competition among firms decreases
    - They focus on capturing new customers
    - They are not focused on taking profitability away from each other
32
Q

During periods of negative industry growth:

A
  1. Rivalry is fierce

2. Rivals can only gain at the expense of one another

33
Q

Def: Strategic Commitments

A 
Actions that intensify the rivalry among competitors
Firm actions that are:
1. Costly
2. Long-term oriented
3. Difficult to reverse
Ex. Airlines
34
Q

Def: Exit Barriers

A

Affects that intensify the rivalry among competitors
- Obstacles that determine how easily a firm can leave that industry
Ex. Contractual obligations, emotional attachment

35
Q

A Sixth Force: Complements (def)

A

A product, service, or competency that adds value when used with the original product

36
Q

Def: Complementor

A

A firm that provides a good or service that leads customers to value your firm’s offering more when the two are combined

37
Q

Def: Co-opetition

A

Cooperation by competitors to achieve a strategic objective

- could be to challenge an industry leader

38
Q

Why does profitability lead to consolidation?

A

Because consolidated industries are more profitable
Mergers and acquisitions make this possible
Results in higher industry profitability (fewer competitors, less power to the buyers)
Airline industry tries to merge a lot

39
Q

Def: Industry Convergence

A

A process whereby formerly unrelated industries begin to satisfy the same customer need
Ex. Newspapers, radio, tv

40
Q

Def: Strategic groups

A

A set of companies or firms that pursue a similar strategy within a specific industry

  • firms within your strategic group are your direct competitors
  • Strategic groups will differ when it comes to facets of their org at the business level (manufacturing, hr, etc)
41
Q

Components of the strategic group model (framework)

A
  • Clusters different firms into groups

- Is based on key strategic dimensions

42
Q

Intra-group rivalry ___________ inter-group rivalry.

A

Intra-group rivalry exceeds inter-group rivalry

More intense within group than among groups

43
Q

4 Take-aways from strategic group mapping

A
  1. Competitive rivalry – strongest between two firms in the same strategic group
  2. External environment – affect strategic groups differently
  3. Five competitive forces – affects strategic groups differently
  4. Profitability – some strategic groups are more profitable than others

MGMT 471 (7 decks)

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