Mgt 4335-Chapter 4

Question 1

What is Environmental Scanning?

Answer 1

It is the monitoring, evaluation, and dissemination of information from the external and internal environments to key people in an organization.

Question 2

What must strategic managers be aware of?

Answer 2

Physical environment/natural environment: Physical resources, wildlife, and climate that are an inherent part of existence on earth.
General environment/societal environment(indirect): social forces; comprised of factors external to an industry; beyond a firm's control; affect firm's strategy.
Task environment(direct): groups that have an impact on a business or are impacted by business; industry analysis-in depth analysis of task environment; industry-group of firms that produce a similar product.

Question 3

T*.What are 6 segments of general environment?

Answer 3

1. Demographic: observable characteristic of a population(age, density race, ethnicity, education level, income,…)
2. Sociocultural: norms, values, beliefs, and general lifestyle of a society.
3. Political/legal: how society creates and exercises power increase laws and taxation.
4. Technological: innovation and the state of knowledge biotech/ pharmacy/ media tech/ social media/ communications.
5. Economic: nation’s income and monetary conditions interest rates, invest markets, income level, supply/demand.
6. Global segment: influences from foreign countries.

Question 4

T*. What are models to control the external environment (Porter’s 5 Forces)?

Answer 4

Competitive Rivalry in an Industry is effected by Bargaining power of suppliers, Bargaining Power of Buyers, Threat of New Entrants, Threat of Substitutes.
Firm wants to reduce the strength of each force.

Question 5

T*.What is the one control tactic of Rivalry among competitors?

Answer 5

Increase switching: the cost a customer has to bear to switch from one product to another.
The higher switching costs, the more rivalry.
Growth industry - less rivalry - decrease switching.

Question 6

What is Threat of New Entrants meant?

Answer 6

The possibility that profits may be eroded by new competitors to the industry.
One Control tactic: barriers to entry.

Question 7

What are 6 major sources of entry barriers?

Answer 7

1. Economic of scale: decrease money/unit - increase entrant.
2. Product differentiation - brand loyalty (unique).
3. Capital requirements: higher capital upfront - less threat.
4. Switching costs for customers.
5. Access to distitution channels
6. Other cost disadvantages.

Question 8

What is threat of substitutes?

Answer 8

Substitute: another company that provides a different product or service that meets the same basic need for the consumer.
Threat of substitute high - when switching cost are low value is perceived to be equal.

Question 9

What is bargaining power of buyers and suppliers meant?

Answer 9

The basic concept of both of these is power dependence.

More dependent you are on them, the more power they have over you.

Question 10

T*.What are models to control the external environment (The Uncertainty Matrix)?

Answer 10

Complexity - how much “stuff” is out there in the market?
Change - how much is changing?
1. Simple-Stable: Low uncertainty
easiest place to op; strategic mgt is not crucial; accurate long term for costs possible; topdown decision making; For example, Fast Food-McDonalds.
2. Complex-Stable: Low moderate uncertainty; topdown decisions; more beverages balance of complexity; tend to have many depth to manage environments; For example, Auto industry.
3. Complex-Dynamic: Highly uncertainty; bottom up decisions; more original/less structures; doing the jobs; less layer of management ( Strategics to manage, focus on speed to market, pursue multiple interest simulteneously-strategy alliance, focus on ways to get bought out); For example, Biotech and aerospace.
4. Simple-Dynamic: High-moderate uncertainty; trend driven/consumer preferences; more risk; For example, clothing and music.

Question 11

T. What is Strategic Groups meant?

Answer 11

Clusters of firms that share similar strategies.
Industry-different strategies(rivalry strongest among firms with similar strategy). For example, Coca Cola-Pepsi; Restaurant:
Clusters (fast food, casual family dining, fine dining). Differences each restaurant (price, quality, experience, time, atmosphere).