Chapter 2 Notes Flashcards
general environment
consists of broad trends in the context within which a firm operates that can have an impact on a firm's strategic choices Technological Change Demographic Trends Cultural Trends Economic Climate Legal and Political Conditions Specific International Events
Technological Change
creates both opportunity and threats as a firm expands
Demographics
the distribution of individuals in a society in terms of age, sex, marital status, etc
Culture
the values, beliefs, and norms that guide a society
recession
when activity in an economy is relatively low
depression
a severe recession that lasts for several years
business cycle
alternating pattern of prosperity followed by recession, followed by prosperity
legal and political conditions
laws and the legal systems impact on business
specific international events
events such as civil wars, political coups, terrorism, etc
Five Force Model of Environmental Threats
Threat of entry threat of rivalry threat of buyers threat of substitutes threat of suppliers
environmental threat
any thing that seeks to reduce the performance of an organization
threat of new entrants
firms that have recently started or that threaten to begin in an industry
perfectly competitive
when there are large numbers of competing firms
monopolistically competitive industries
when there are large numbers of competing firms and low cost entry into and exit from the industry
oligopolies
characterized by a small number of competing firms, by homogeneous products, and by high entry and exit costs
monopolistic industries
consist of only one firm
barriers to entry
attributes of an industry’s structure that increase the cost of entry
- economies of scale
- product differentiation
- cost advantages independent of scale
- government regulation of entry
economies of scale
exist in an industry when a firm’s costs fall as a function of its volume of production
diseconomies of scale
exist when a firm’s cost rise as a function of its volume of production
product differentiation
means that incumbent firms possess brand identification and customer loyalty that potential entrants do not
sources of cost advantage
proprietary technology
managerial know how
favorable access to raw materials
learning curve cost advantages
proprietary technology
secret or patented tech
managerial know how
knowledge needed to compete in an industry
favorable access to raw materials
firms already have favorable access to materials
learning curve cost advantages
firms who have more experience have an advantage
rivalry
the intensity of competition among a firm’s direct competitors
substitutes
meet approximately the same customer needs
threat of suppliers
they can raise the cost of materials
forward vertical integration
when suppliers cease to be suppliers and become suppliers and rivals
threat of buyers
people can threaten not to buy your product if they are large enough
backward vertical integration
when the buyer wants to get into the suppliers market and take some business
five forces model and average industry performance
threat of entry threat of rivalry threat of substitutes threat of powerful suppliers threat of powerful buyers
competitor
if your customers value your product less when others firms have your product
complementor
a firm is this if your customers value your firm more when another firm is in business
fragmented industries
industries in which a large number of small or medium sized firms operate and no small set of firms has dominant market share or creates dominant technologies
ex: service industries, retailing, fabrics, and commercial printing
emerging industry
newly created or newly re-created industries formed by technological innovation, changes in demand, the emergence of new customer needs, and so forth
first mover advantages
advantages that come to firms that make important strategic and technological decisions early in the development of an industry
technological leadership strategy
firms that make early investments in particular technologies in an industry are implementing this
strategically valuable assets
resources required to successfully compete in an industry
customer switching costs
exist when customers make investments in order to use a firm’s particular products or services
mature industries
characteristics include:
- slowing growth in total industry demand
- the development of experienced repeat customers
- slowdown in increased in production capacity
- slowdown in the intro of new products or services
- an increase in the amount of international competition
- an overall reduction in the profitability of firms in the industry
processes
the activities it engages in to design, produce, and sell its products or services
process innovation
a firm’s effort to refine and improve its current processes
declining industry
an industry that has experienced an absolute decline in unit sales over a sustained period of time
market leader
firm with largest market share
niche strategy
reducing your scope and focus on narrow segments of the declining industry
harvest strategy
engaging in long, systematic, phased withdrawal, extracting as much value as possible during the withdrawal period
divestment
extracting a firm from a declining industry
