CH3: External Analysis Flashcards
general environment
external factors that managers have little direct influences over, such as macroeconomic factors
task environment
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
PESTEL model with layers
Outer layer: external env.
second outer layer: industry
second inner layer: strategic group
core: firm
5 macroeconomic factors belonging to economic factors
- growth rate
- levels of employment
- interest rates
- price stability (inflation and deflation)
- currency exchange rates
Sociocultural factors
capture a society’s cultures, norms, and values, demographic trends (foreigners of population etc.)
Which two factors is firm performance primarily determined by?
Industry and firm effects
Industry effects
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
Firm effect
attributes firm performance to the actions strategic leaders take. 55% of firm performance
(other effects like the business cycle make up the remaining 25%)
industry
is a group of incumbent companies facing more or less the same set of suppliers and buyers
industry analysis
method to
1) identify an industry’s profit potential
2) derive implications for a firm’s strategic position within an industry
strategic position
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
Porter’s 5 forces
threat of entry power of suppliers power of buyers threat of substitution rivalry among existing firms
What happens the weaker the five forces are?
The greater the industry’s profit potential
network effect
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
competitive industry structure
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
fragmented industry
consists of many small firms and tends to generate low profitability
consolidated industry
dominated by a few firms and has the potential to be highly profitable
perfect competition
industry fragmented and has many small firms, and little or no ability for each individual firm to raise its prices
monopolistic competition
- many small firms
- differentiated product
- some obstacles to entry
- ability to raise prices for relatively unique products while retaining customers
oligopoly
firms are interdependent
strategic commitments
firm actions that are costly, Long-term oriented, and difficult to reverse
What happens when the supplier’s industry is more concentrated than the industry is sells to?
The power of suppliers is high
high concentration means there are only a few firms
sixth force
complements
complement
product or competency that adds value to the original product offering when the two are used in tandem.
complementor
a company that provides a good that leads customers to value your firm’s offering more when the two are combined
co-opetition
cooperation by competitors to achieve a strategic objective
Which five questions do strategic leaders need to consider for a successful entry?
- Who are the players?
- When to enter?
- How to enter?
- What type of entry? (product, value chain, geography)
- Where to enter? (product positioning high end vs. low end; pricing strategy..)
How to enter?
- leveraging existing assets
- reconfigure value chains
- establish a niche
industry convergence
formerly unrelated industries begin to satisfy the same customer needs. Brought on by technological advances
strategic group
the set of companies that pursue a similar strategy within a specific industry
strategic group model
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
What do firms in the same strategic group tend to do?
They tend to follow a similar strategy. Companies in the same strategic group are direct competitors
Is rivalry stronger within or among strategic groups?
within (intra-group rivalry exceeds inter-group rivalry)
How many strategic groups are there in an industry?
Is determined by the number of different business strategies
How many strategic groups are there in most industries?
two (cost and differentiation)
mobility barriers
industry-specific factors that separate one strategic group from another
