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Strategic Management > The external context of strategy > Flashcards

The external context of strategy Flashcards

1
Q

Political …

A

…highlights the role of the sate and other political forces.

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2
Q

Economic…

A

…factors such as exchange rates, business cycles and differential economic growth rates around the world.

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3
Q

Social…

A

…cultures and demographics.

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4
Q

Technological…

A

…the internet, nano technology, the rise of new composite materials.

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5
Q

Ecological…

A

…‘green’ environmental issues, such as pollution, waste and climate change.

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6
Q

Legal…

A

…legislative and regulatory constraints or changes.

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7
Q

What is a limitation of using a PESTEL framework?

A

Analysing these factors and their interrelations can produce long and complex lists.

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8
Q

Can overcome PESTEL producing long lists by…

A

…first identifying the key drivers for change to focus on which PESTEL factors are most important.

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9
Q

Scenario analyses…

A

…carried out to allow for different possibilities and help prevent managers from closing their minds to alternatives.

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10
Q

Scenario analyses steps:

A
  1. Define scope - whether global or regional whilst considering the time span.
  2. Identify key drivers for change - - use PESTEL to determine which will have the a major impact.
  3. Identify key uncertainties
  4. Develop initial scenario themes
  5. Check for consistency and plausibility
    (Shoemaker actually offers 10 steps)
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11
Q

The uses of scenario planning:

A
  1. Early warning signal
  2. Assess robustness of core competencies
  3. Evaluate risk
  4. Sets off exploration and contingency planning - so doesn’t matter if the scenarios do not come to pass
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12
Q

The three ways of scenario planning:

A
  1. Intuitive - major themes present themselves
  2. Heuristic - select two most important uncertainties
  3. Statistically - - combine outcomes for all key uncertainties
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13
Q

Limitations of scenario planning:

A
  1. Managers tend to ignore the ‘optimistic’ and ‘pessimistic’ in favour of the ‘middling’ - thus 2 or 4 should be considered to overcome this
  2. Shoemake found students were over confident
  3. Students over predicted - K&T refer to this as the “conjunction fallacy” which contradicts the laws of probability
  4. Tendency to look for confirming evidence
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14
Q

The Five Forces framework helps identify the… . The …. can be used to help set an agenda.

A

…attractiveness of an industry. … various critical issues that have been identified… .

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15
Q

The Five Forces are…

A
  1. Threat of entry
  2. Threat of substitutes
  3. Power of buyers
  4. Power of suppliers
  5. Intensity of rivalry
    (Porter, 2008)
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16
Q

The threat of entry is low where:

A

Porter:
1. Supply-side economies of scale - lower cost per unit
2. Demand-side benefits of scale - buyer’s willingness patronise the company
3. High customer switching costs
4. High capital requirements
5. Unequal access to distribution channels
6. Restrictive government legislation
ES:
7. High experience curve
8. Expected retaliation
9. Differentiated product/service - undifferentiated commodities reduce customer loyalty

17
Q

Substitutes are products or services that … to an industry’s products or services, but…

A

…offer a similar benefit…, ….have a different nature.

18
Q

The threat of substitutes is high if:

A

Porter:
1. There is an attractive price-performance trade-off to the industry’s product
2. Buyer’s cost of switching to the substitute is low
ES:
3. There are extra-incumbency effects - substitutes come from outside the industry

19
Q

The power of buyers is high where:

A

P:

  1. Concentrated buyers
  2. Undifferentiated products/services
  3. Low switching costs
  4. Can credibly threaten to integrate backwards
20
Q

The buyer group is sensitive if

A
  1. Product represents a significant fraction of cost structure
  2. Earn low profits - thus under pressure to trim purchasing costs
  3. Quality is little affected by product
21
Q

To integrate backwards means to…

A

…purchase suppliers (perform activities up the value chain).

22
Q

The powerful buyers have… . They should be distinguished as… .

A

…negotiating leverage. …‘strategic customers’.

23
Q

The power of suppliers is high where:

A

P:

  1. Concentrated suppliers
  2. Differentiated products
  3. High switching costs
  4. Can credibly threaten to integrate forward
  5. No substitutes e.g. well-trained pilots
  6. Doesn’t depend heavily on its most profitable industry
24
Q

To integrate forwards means to…

A

…directly distribute (perform activities down the value chain).

25
Q

Intensity of rivalry is greatest if:

A

P:
1. Competitors are numerous or of equal size- hard to avoid poaching
2. Industry growth is slow - any growth is likely to be at the expense of a rival
3. High exit barriers - incumbents fight to maintain market share
ES:
4. High fixed costs - requires high investment so companies seeks to spread costs and engage in price wars
5. Low differentiation - only way to compete is on price

26
Q

Engaging in a price war results in… . Though this can be overcome if the organisation serves needs of … .

A

…zero-sum competition. ….different customer segments.

27
Q

Porter explains that the framework can reveal potential strategies:

A
  1. Positioning opportunities - spot an industry that is specifically attractive to them (they might possess a unique capability).
  2. Re-divide the profit pool- by neutralising supplier and buyer power, scare entrants through R&D, and limit substitutes
  3. May discover latent customers - thus expand the profit pool
28
Q

Strengths of the FF framework:

A
  1. Identifies the attractiveness of industries
  2. Good starting point to identify the right strategies
  3. Easy to apply to all organisations
29
Q

Critiques of the FF framework:

A
  1. Co-operation - assumes a competitive environment where a company can only succeed at the expense of others, but there are complementary products (sixth force)
  2. Dynamism - uses static analysis of the industry and ignores trends
  3. Complexity - industries and customers may not be homogenous
30
Q

There is … between competitors.

A

…heterogeneity…

31
Q

The power of the five forces typically varies with …

A

…the stages of the industry life cycle.

32
Q

Limitations of the product life cycle:

A
  1. Companies do not predictably flow through the stages - they can in fact ‘de-mature’
  2. ‘maturity mind-set’ - - can leave managers complacent and slow to respond to new competition
33
Q

A strength of the industry product life cycle:

A

Reminds managers that conditions are likely to change over time

34
Q

Blue oceans are…

A

…

Strategic Management (6 decks)

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