Ch. 3 Flashcards
What is macro-environment of a company, and what is PESTEL analysis?
It is the broad environmental context in which a company is situated in.
It consist of the following forces:
Political, Economic, Social, Technological, Environmental, and Legal.
PESTEL analysis: used to assess the relevance of the strategy to the six principal components of the macro-environment.
1st test of a winning strategy: How well does the strategy fit the company’s situation?
What are the two facets of the company’s situation?
- Industry and competitive environments,
2. Company’s resources and organizational capabilities.
What are the industry’s dominant economic characteristics?
- Market size and growth rate
- Scope of competitive rivalry (area)
- Demand-supply conditions
- Market segmentation
- Pace of technological change
Porter’s 5 forces:
- buyer bargaining power,
- Substitute products,
- Supplier bargaining power
- Threat of new entrants
- Rivalry among competitors.
- Buyers get bargaining leverage when:
- low switching costs
- large in size
- few in number
- weak buyer demand
- buyers are well informed
- The three factors determining the strength of substitute products:
- substitutes are readily available and attractively priced
- Buyers’ perspective on the substitutes in terms of quality, performance…
- high switching costs to substitutes.
- Suppliers have bargaining leverage if:
- supplied item is unique
- impossible or costly to switch
- supplied item is superior to other substitute items
- buyer relies significantly on the supplied item to produce
- buyer is small
- buyer can’t vertically integrate backwards.
- Barriers to entry:
- Presence of sizable economies of scale
- cost and resource disadvantages not related to scale of operations (such as regulations)
- Strong brand loyalty
- High capital requirments
- difficulty of building a network of distributors.
- Tariffs
- Rivalry is more intense in markets where:
- Competitors are equal in size and capabilities
- markets are slow-growing or declining
- less costly to switch brands
- products of rivals have become more standardized
- price cuts and aggressive competition.
What are common driving forces of change in industry conditions?
- change in long-term industry growth rate
- increasing globalization
- Change in who buys the product and how they use it
- product innovation
- technological changes
- Entry or exit of major firms
What is strategic group mapping
is a technique for displaying the different market and competitive positions that rival firms occupy in the industry
Typical variables to put in the strategic group mapping:
- the price/quality range (high, medium, low),
- geographic coverage (local, regional, national, global),
- degree of vertical integration (none, partial, full),
- product-line breadth (wide, narrow),
- choice of distribution channels (retail, wholesale, Internet, multiple channels),
- and degree of service offered (no-frills, limited, full).
What does it mean when groups are close to each other o the map?
stronger cross-group rivalry (far apart means they hardly compete).
Framework for rival competitor analysis:
- current strategy (Its market position, competitive advantage basis, and its investments in infrastructure, technology, or other resources)
- Objectives (financial and strategic)
- Capabilities
- Assumptions (what we think they are thinking)
Key Success Factors (KSF):
are those competitive factors that most affect the ability of all firms in an industry to prosper.
