CH3: External Analysis

Question 1

general environment

Answer 1

external factors that managers have little direct influences over, such as macroeconomic factors

Question 2

task environment

Answer 2

external factors that managers do have some influence over, such as the composition of their strategic groups (set of close rivals) or the structure of the industry

Question 3

PESTEL model with layers

Answer 3

Outer layer: external env.
second outer layer: industry
second inner layer: strategic group
core: firm

Question 4

5 macroeconomic factors belonging to economic factors

Answer 4

• growth rate
• levels of employment
• interest rates
• price stability (inflation and deflation)
• currency exchange rates

Question 5

Sociocultural factors

Answer 5

capture a society’s cultures, norms, and values, demographic trends (foreigners of population etc.)

Question 6

Which two factors is firm performance primarily determined by?

Answer 6

Industry and firm effects

Question 7

Industry effects

Answer 7

describe the underlying economic structure of the industry (entry and exit barriers, size of firms, products offered etc.)
around 20% of firms profits depend on the industry

Question 8

Firm effect

Answer 8

attributes firm performance to the actions strategic leaders take. 55% of firm performance

(other effects like the business cycle make up the remaining 25%)

Question 9

industry

Answer 9

is a group of incumbent companies facing more or less the same set of suppliers and buyers

Question 10

industry analysis

Answer 10

method to

1) identify an industry’s profit potential
2) derive implications for a firm’s strategic position within an industry

Question 11

strategic position

Answer 11

relates to its ability to create value for customers while containing costs to do so
–> competitive advantage flows to the firm that is able to create as large a gap as possible

Question 12

Porter’s 5 forces

Answer 12

threat of entry
power of suppliers
power of buyers
threat of substitution
rivalry among existing firms

Question 13

What happens the weaker the five forces are?

Answer 13

The greater the industry’s profit potential

Question 14

network effect

Answer 14

describes the positive effect that one user of a product has on the value of that product for other users
–> value of the product increases with the number of users

Question 15

competitive industry structure

Answer 15

elements and features common to all industries, including the number and size of competitors, the firm’s degree of pricing power, the type of product or service offered, and the height of entry barriers

Question 16

fragmented industry

Answer 16

consists of many small firms and tends to generate low profitability

Question 17

consolidated industry

Answer 17

dominated by a few firms and has the potential to be highly profitable

Question 18

perfect competition

Answer 18

industry fragmented and has many small firms, and little or no ability for each individual firm to raise its prices

Question 19

monopolistic competition

Answer 19

• many small firms
• differentiated product
• some obstacles to entry
• ability to raise prices for relatively unique products while retaining customers

Question 20

oligopoly

Answer 20

firms are interdependent

Question 21

strategic commitments

Answer 21

firm actions that are costly, Long-term oriented, and difficult to reverse

Question 22

What happens when the supplier’s industry is more concentrated than the industry is sells to?

Answer 22

The power of suppliers is high

high concentration means there are only a few firms

Question 23

sixth force

Answer 23

complements

Question 24

complement

Answer 24

product or competency that adds value to the original product offering when the two are used in tandem.

Question 25

complementor

Answer 25

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

Question 26

co-opetition

Answer 26

cooperation by competitors to achieve a strategic objective

Question 27

Which five questions do strategic leaders need to consider for a successful entry?

Answer 27

1. Who are the players?
2. When to enter?
3. How to enter?
4. What type of entry? (product, value chain, geography)
5. Where to enter? (product positioning high end vs. low end; pricing strategy..)

Question 28

How to enter?

Answer 28

• leveraging existing assets
• reconfigure value chains
• establish a niche

Question 29

industry convergence

Answer 29

formerly unrelated industries begin to satisfy the same customer needs. Brought on by technological advances

Question 30

strategic group

Answer 30

the set of companies that pursue a similar strategy within a specific industry

Question 31

strategic group model

Answer 31

explains the differences in firm performance within the same industry. Some strategic groups tend to be more profitable than others. Firm performance is determined not only by the industry, but also by its strategic group membership

Question 32

What do firms in the same strategic group tend to do?

Answer 32

They tend to follow a similar strategy. Companies in the same strategic group are direct competitors

Question 33

Is rivalry stronger within or among strategic groups?

Answer 33

within (intra-group rivalry exceeds inter-group rivalry)

Question 34

How many strategic groups are there in an industry?

Answer 34

Is determined by the number of different business strategies

Question 35

How many strategic groups are there in most industries?

Answer 35

two (cost and differentiation)

Question 36

mobility barriers

Answer 36

industry-specific factors that separate one strategic group from another