Exam 1 Flashcards
Five forces model of competition
- Threat of substitutes (would a customer switch over a 20% difference)
- Bargaining power of customers (differentiation? Brand loyalty?)
- Threat of new entrants (how much capital to enter and compete in the industry?)
- Bargaining power of suppliers (can the company control the supplier costs?)
- Rivalry among competing firms
SWOT analysis
Strengths weaknesses opportunities threats
Strategic management
The art and science of formulating, implementing, and evaluating decisions that enable an organization to achieve its objectives
(What should we do? How will we do it? How did we do it?)
Three levels of strategy
Corporate
Business
Functional
Corporate
Overall direction of a firms various lines of business
Business
Emphasizes the competitive position of a firm’s products in specific industries
Functional
Approached by various parts of the firm to achieve corporate and business strategies
Ex. R&D development of new products
Business model
Addresses “how do we make money in this business?”
It is the strategy capable of delivering good bottom-line results
Resource based view: VRIO Framework
If a firm has resources that are: Valuable Rare costly to Intimidate the firm is Organized to exploit these resources
Then the firm can expect to enjoy a sustained competitive advantage
What does internal analytics tell us
What are the firms strengths
What are the firms weaknesses
What does external analytics to us
Opportunities and threats
Key success factors (KSF)
Consists of the major determinants for success
Rarely are there more than 5-6 factors that are truly key to the future and competitive success of industry members
Competitive advantage
Becoming an industry’s low cost provider thereby aiming for a cost based competitive advantage over rivals
porters five forces model
The underlying premise of this model is that competition is not your only competitor. Instead, the competition in an industry is an aggregate composite of the following competitive pressures operating in five areas of the overall market:
- Competitive pressures associated with jockeying for buyer patronage
- Competitive pressures associated with the threat of new entrants into the market
- Competitive pressures from substitute products (or sources therein)
- Competitive pressures from suppliers’ power over the prices of inputs
- Competitive pressures from buyers’ bargaining power on the selling prices
In sum, the stronger the forces of competition, the harder it becomes for industry members to earn attractive profits.
Insulation Strategies
Firms can take strategic actions to minimize the threat of all five competitive forces; these are corporate-level strategies and are only plausible in certain circumstances
Insulation from high rivalry
High rivalry in an industry can sometimes be offset through:
- horizontal integration
- joint ventures
- strategic alliance
horizontal integration
one company either acquires or merges with a competitor
joint ventures
the focal company and other company form an agreement whereby the two companies share resources for a common goal and form a third party entity
strategic alliance
similar to a joint venture without a third party company
Insulation from Threat of New Entrants
The threat of new entrants can sometimes be neutralized by:
- temporarily reducing prices
- Increasing advertising
- using patents and copyrights
- litigation
Insulation from Threat from Substitute Products
The threat from substitute products can often be reduced through:
- product differentiation
Insulation from Supplier Power
Insulation strategies for handling high supplier power often involve:
- backward integration
backward integration
that is becoming your own supplier.
Insulation from Buyer Power
Many firms try to reduce buyer power through
product differentiation and less often through forward integration
