Strategic Management CHPT 2

Question 1

External Scanning

Answer 1

surveillance of a firm’s external environment to predict environmental changes and detect changes already under way.
Alerts the firm to critical trends before changes have developed a discernible pattern and before competitors recognize them

Question 2

External Monitoring

Answer 2

A firm’s analysis of the external environment that tracks evolution of environmental trends, sequences of events, or streams of activities

Question 3

How to Spot Hot Trends

Answer 3

Listen
Pay attention
Follow trends online
Go old school

Question 4

Example: Spotting Trends

Answer 4

Zara’s designers, marketing managers, and buyers work side by side in an open office plan that fosters frequent discussions and promotes the sharing of real-time data as well as field observations and anecdotes
This allows them to break out of their silos and develop a holistic feel for the market, see how their work fits, and sense new opportunities as they arise.

Question 5

Competitive intelligence

Answer 5

A firm’s activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors’ strengths and weaknesses.

Question 6

Environmental forecasting

Answer 6

The development of plausible projections about direction, scope, speed and intensity of environmental change

Question 7

Scenario analysis

Answer 7

An in-depth approach to environmental forecasting that involves experts’ detailed assessments of societal trends, economics, politics, technology, or other dimensions of the external environment

Question 8

Firm’s strategy must:

Answer 8

Build on its strengths
Remedy the weaknesses or work around them
Take advantage of the opportunities presented by the environment
Protect the firm from threats

Question 9

SWOT analysis

Answer 9

A framework for analyzing a company’s internal and external environment and that stands for strengths, weaknesses, opportunities, and threats.

Question 10

Factors external to an industry, usually beyond a firm’s control

Answer 10

Demographic
Sociocultural
Legal/Political
Technological
Economic
Global

Question 11

Demographic Segment

Answer 11

Aging population
Rising or declining affluence
Changes in ethnic composition
Geographic distribution of population
Greater disparities in income levels

Question 12

Sociocultural Segment

Answer 12

More women in the workforce
Dual-income families
Increase in temporary workers
Greater concern for healthy diets and physical fitness
Greater interest in the environment
Postponement of having children

Question 13

Legal/Political Segment

Answer 13

Tort reform
Americans with Disabilities Act (ADA)
Repeal of Glass-Steagall Act in 1999
Deregulation of utility and other industries
Increases in federally mandated minimum wages
Taxation at local, state, federal levels
Legislation on corporate governance reforms (Sarbanes-Oxley Act)

Question 14

Technological Segment

Answer 14

Genetic engineering
Emergence of Internet technology
Computer-aided design/computer-aided manufacturing systems (CAD/CAM)
Wireless communication
Nanotechnology

Question 15

Economic Segment

Answer 15

Interest rates
Unemployment
Consumer Price index
Trends in GDP
Changes in stock market valuations

Question 16

Global Segment

Answer 16

Increasing global trade
Currency exchange rates
Emergence of the Indian and Chinese economies
Trade agreements (NAFTA, EU, ASEAN)
Creation of WTO (decreasing tariffs/free trade in services)

Question 17

Profits of established firms in the industry may be eroded by new competitors
Sources of entry barriers

Answer 17

Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale

Question 18

Buyers threaten an industry by

Answer 18

Forcing down prices
Bargaining for higher quality or more services
Playing competitors against each other

Question 19

A buyer group is powerful when

Answer 19

It is concentrated or purchases large volumes relative to seller sales
The products it purchases from the industry are standard or undifferentiated
The buyer faces few switching costs
It earns low profits
The buyers pose a credible threat of backward integration
The industry’s product is unimportant to the quality of the buyer’s products or services

Question 20

Suppliers can exert power by

Answer 20

threatening to raise prices or reduce the quality of purchased goods and services

Question 21

A supplier group will be powerful when

Answer 21

The supplier group is dominated by a few companies and is more concentrated than the industry it sells to
The supplier group is not obliged to contend with substitute products for sale to the industry
The industry is not an important customer of the supplier group
The supplier’s product is an important input to the buyer’s business
The supplier group’s products are differentiated or it has built up switching costs for the buyer
The supplier group poses a credible threat of forward integration

Question 22

The Threat of Substitute Products and Services

Answer 22

the threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge without losing too many customers to substitute products.

Question 23

The Intensity of Rivalry among Competitors in an Industry

Answer 23

Price competition
Advertising battles
Product introductions
Increased customer service or warranties

Question 24

Interacting factors lead to intense rivalry

Answer 24

Numerous or equally balanced competitors
Slow industry growth
High fixed or shortage costs
Lack of differentiation or switching costs
Capacity augmented in large increments
High exit barriers

Question 25

Using Industry Analysis: A Few Caveats

Answer 25

Managers must not always avoid low profit industries
Can still yield high returns for players with sound strategies
Implicitly assumes a zero-sum game, determining how a firm can enhance its position relative to the forces
Five Forces analysis is essentially a static analysis
Good industry analysis looks rigorously at the structural underpinnings of profitability.
A first step is to understand the time horizon
The point of industry analysis is not to declare the industry attractive or unattractive but to understand the underpinnings of competition and the root causes of profitability.

Question 26

Two unassailable assumptions in industry analysis

Answer 26

No two firms are totally different

No two firms are exactly the same

Question 27

Strategic groups

Answer 27

Cluster of firms that share similar strategies

Question 28

Value of strategic groups as an analytical tool

Answer 28

Identify barriers to mobility that protect a group from attacks by other groups
Identify groups whose competitive position may be marginal or tenuous
Chart the future direction of firms’ strategies
Thinking through the implications of each industry trend for the strategic group as a whole