External Analysis

Question 1

What do Porter’s 5 forces do and what are they?

Answer 1

They influence the competitive environment.

1. Threat of new entrants
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of substitutes
5. Rivalry amongst existing competitors

Question 2

What is the expected retaliation of a threat of a new entrant?

Answer 2

Increase investment in R&D

Question 3

When do suppliers have a lot of power?

Answer 3

1. When there are few suppliers in the industry
2. When the resource supplied is critical
3. When you’re a small customer
4. When they have a differentiated product
5. When you can’t integrate backwards

Question 4

When do buyers have a lot of power?

Answer 4

1. There are many large buyers
2. They purchase in large quantities
3. Low switching costs
4. They purchase from multiple sellers
5. There is easy vertical integration

Question 5

When is there a strong threat of substitutes?

Answer 5

1. When switching costs are low
2. When substitute has a lower price
3. When they have a better product

Question 6

What is a complement on the supplier and buyer side?

Answer 6

Supplier: when a supplier would give favourable terms if they could supply to both of you
Buyer: when a customer would pay a higher price if they had a complementary product

Question 7

What are strategic groups?

Answer 7

When companies use similar strategies that are difference from others in the industry (eg. McDonald’s and Burger King)

Question 8

What are the 4 stages in the industry life cycle and what are the characteristics of each?

Answer 8

1. Embryonic - niche market, the product is a solution, technological uncertainty
2. Growing - market expands, there are more competitions, better customer awareness
3. Mature - lots of pro cuts, volatility, consolidation begins, customers are aggressive
4. Decline - market contraction, further consolidation, industry regeneration

Question 9

What is the innovator’s dilemma?

Answer 9

It doesn’t make financial sense to invest in emerge disruptive products (since they don’t immediately meet the needs of your customers)

Question 10

Why does the innovators dilemma arise?

Answer 10

1. Overly focused on customers
2. No growth opportunities at first
3. The market cannot be analyzed
4. Very focused on current capabilities
5. Overly quick pace of technology

Question 11

What is the strategic response to disruptive technologies?

Answer 11

Overshoot circumstances:

• reduce investment along sustaining technologies
• discover new performance dimensions
• respond to disruptive technologies by matching or integrating them into existing products

Question 12

What is a PESTEL analysis and what are the elements?

Answer 12

It is a tool used to assess the macro environment.

1. Political
2. Economic
3. Sociocultural
4. Technological
5. Environmental
6. Legal