Ch 6: strategic direction (final exam) Flashcards
What is the first step in formulating a company’s technological innovation strategy?
To assess the current position and define the strategic direction for the future.
What are two common tools for assessing the external environment of a firm?
- Porter’s five forces
- Stakeholder analysis
What does the Porter’s five forces model essentially show?
That the attractiveness of an industry, and a firm’s opportunities and threats, are determined by five forces. For firms, this can be useful in finding the strategic direction
What are the five forces (Porter)?
- Degree of existing rivalry (competitors)
- Threat of potential entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitutes
What is a sixth force (Porter) that has been acknowledged in later years?
The role of complements (products that enhance the usefulness/desirability of a good), influenced by price, quality and availability.
- How important are complements?
- Are complements differentially available for various rivals?
- Who captures the value offered by the complements?
What shapes the degree of existing rivalry?
- The number and relative size of competitors. More competing firms of comparable size = more competitive industry (exception: oligopolistic industries).
- Differentiation degree (high=less direct rivalry=appealing different segments)
- Demand conditions (increasing demand=more revenues=less competitive pressure)
- Exit barriers in declining industries
What are oligopolistic industries?
Highly consolidated industries with a few large competitors.
What are exit barriers?
Costs or other commitments that make it difficult for firms to abandon an
industry (large fixed-asset investments, emotional commitment, etc).
What influences the threat of potential entrants?
- Degree of attractiveness (profitable, growing or otherwise alluring industry)
- Height of entry barriers.
(partnership can sometimes lower start-up costs)
What are entry barriers?
Conditions that make it difficult or expensive for new firms to enter an industry (government regulation, large start-up costs, brand loyalty, proprietary technologies).
What influences the bargaining power of suppliers?
- Reliance on one/few suppliers. (few or highly differentiated = little choice in buying decisions = little leverage in negotiations)
- How dependent the supplier is on us as a buyer
- Switching costs (we have SC = higher supplier bargaining power)
- Vertical backward/forward integration
What are switching costs?
Factors that make it difficult or expensive to change suppliers or buyers, such as investments in specialized assets to work with a particular supplier or buyer.
What is vertical integration?
Getting into the business of one’s suppliers (backward) or one’s buyers (forward).
What influences the bargaining power of buyers?
- Degree to which they are reliant on each other.
- Highly differentiated product = less bargaining power of buyers.
- Buyers facing switching costs = less bargaining power of buyers.
- Backward integration threat = higher bargaining power of buyers. Firm forward integrate = less bargaining power of buyers.
What are substitutes and what influences the threat of them?
Products or services that are not considered competitors, but fulfil a strategically equivalent role for the customer.
- More potential substitutes, and the closer they are in function to the firm’s product/service, the greater the threat of substitution.
- relative price.
What are the two purposes that stakeholder models are often used for?
- Strategic stakeholder analysis; emphasis on the stakeholder management issues that are likely to impact financial performance.
- Normative stakeholder analysis; emphasis on the stakeholder management issues the firm ought to attend to due to their ethical or moral implications.
What are the steps of stakeholder analysis?
- Identify all the parties that will be affected by the firm’s behavior; the stakeholders.
- Identify what each stakeholder’s interests are, what resources they contribute with, what claims they are likely to make, and which are the most important stakeholders.
What is Porter’s model of a value chain?
A tool for internal analysis. Activities are divided into primary activities and support activities. Each activity is considered as how it contributes to the overall value produced by the firm. Once strengths and weaknesses are identified, the firm can see which activities to leverage in the future strategic intent (to get sustainable competitive advantage).
What are primary activities in Porter’s model of a value chain?
- Inbound logistics; activities required to receive, store, and disseminate inputs.
- Operations; activities involved in transforming inputs to outputs.
- Outbound logistics; activities required to collect, store, and distribute outputs.
- Marketing and sales; informing buyers of products to induce their purchase.
- Service; after-sales activities required to keep the product working effectively.
What are support activities in Porter’s model of a value chain?
- Procurement; acquisition of inputs, but not their physical transfer.
- Human resource management; recruiting, hiring, training, compensating personnel.
- Technology development; developing and managing equipment, hardware, software, procedures, and knowledge needed for inputs→outputs).
- Infrastructure; functions such as accounting, legal counsel, finance, planning, public affairs, government relations, quality assurance and general management for smooth functioning.
To be a potential source of SUSTAINABLE competitive advantage, resources must be:
- rare
- valuable
- durable
- inimitable (tacit, socially complex, causally ambiguous, first-mover advantage)
What are tacit resources?
Resources of an intangible nature (such as knowledge) that cannot be readily codified.
What are socially complex resources?
Resources or activities that emerge through the interaction of multiple individuals.
What is causal ambiguity?
The relationship between a resource and the outcome it produces is poorly understood (the causal mechanism is ambiguous).
