Chapter 3 Flashcards
Political Factors
Processes and actions of government bodies that
influence the firm
Examples of Political Factors
- Lobbying
- Public Relations
- Contributions
- Litigation
Examples of Economic Factors
- Growth rates
- Levels of employment
- Interest rates
- Price stability
- Exchange rates
Sociocultural Factors
Society’s cultures, norms, and values. Demographic trends.
Technological Factors
Application of knowledge and innovations in process/product technology
Ecological Factors
Broad environmental issues and the relationship
between organizations and the environment
Legal Factors
Official outcomes of political processes
Examples of Legal Factors
- Court decisions
- Laws.
- Mandates
Industry Effects
Describes the economic structure of the industry and affects firms performance by about 20%
Firm Effects
Attribute firm performance to the manager’s actions and are more important than industry effects with up to 55% effect
Industry Analysis
A method to
- Identify an industry’s profit potential
- Derive implications for a firm’s strategic position
Strategic Positioning
A firm’s ability to
- Create value for customers (V)
- While containing costs (C)
The Goal of Strategic Positioning
To generate a large gap between the cost of items and the value of the firm’s product or service creates
The Five Forces Model
- Threat of New Entrants
- Bargaining Power of Buyers
- Threat of Substitute Products or Services
- Bargaining Power of Suppliers
- Competitive Rivalry
And helps strategic leaders understand
- The profit potential of different industries.
- How they can position their firms to gain and sustain competitive advantage
Two Key Insights About The Five Forces Model
- Competition is viewed more broadly in the five forces model
- Profit potential is a function of the five competitive forces
Threat of Entry
The risk that potential competitors will enter an
industry
- Lowers industry profit potential
- Increases spending among incumbent firms
Entry Barriers examples
- Economies of scale
- Capital requirements
- Government policy
- Network effects
Power of Suppliers
Pressures that industry suppliers can exert on an
industry’s profit potential
Power of Suppliers Lowers Profit Potential If
- Suppliers demand higher prices for their inputs
- Suppliers capture part of the economic value created
Power of Buyers (Customers) Lowers Profit Potential If
- Buyers get discounts
- Buyers demand higher quality raising costs
- Buyers earn low profits or are short of cash
Threat of Substitutes
Meet the same basic customer needs in a different way
Examples of Threat of Substitutes
- Software vs. professional services
- Energy drinks vs. coffee
- Videoconferencing vs. business travel
- Wireless phone services vs. internet-based
services (Skype)
Rivalry Among Competitors
The intensity with which companies in the same
industry jockey for market share and profitability
Competitive Industry Structure is Defined By
- Number and size of competitors
- Firm’s degree of pricing power
- Type of product or service
- Height of entry barriers
