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general external (Industry) environment
- SW+OT
- demographic segment
- economic segment
- political-legal segment
- physical segment
- sociological segment
- technological segment
- global segment
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demographic segment
- population size
- age structure
- geographic distribution
- ethnic mix
- income distribution
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economic segment
- the nature and direction of the economy in which the firm competes or may compete
- ex:cutting interest rates due to economy decline
- interest and inflation rates
- budget and trade deficits or surpluses
- personal and businesss savings rates
- gross domestic product
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political-legal segment
the arena in which organizations and interest groups compete for attentionm resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations
- anti-trust laws
- taxation laws
- labor training laws
- education philosophies and policies
- deregulation philosophies
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socio-cultural segment
is concerned with society's attitudes and cultural values
- women in work force
- workforce diversity
- environment concerns
- shifts in work and career preferences
- shifts in preferences regarding product and service characteristics
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technological segment
the institutions ad activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and material
- product innovations
- applications of knowledge
- new communication technologies
- focus of private and government-supported R&D expenditures
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global segment
includes relevent new global markets, existing markets that are changing important international political events, and critical cultural and institutional characteristics of global market
- important political events
- critical global markets
- newly industrialized countries
- different cultural and institutional attributes
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Industry Analysis- Porter's 5 Forces
- tells us ONLY if an INDUSTRY has the potential for profits
- NOT if a particular firm is OR can be profitable!
- 1. Treat of potenatial entrants
- 2. Bargaining power of supplier
- 3. Bargaining power of buyers
- 4. Threats of substitutes
- 5. Rivalry
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Threat of potential entrants
- economies of scale
- product differentiation
- capital requirements
- switching cost
- access distribution channels
- other cost disadvantages
- government regulations
- expected retaliation
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Bargaining power of supplier
- is greater when
- -supplier group is concentrated
- -product is unique
- -purchaser is unimportant
- -supplier has critical good
- -threat of forward integration by the supplier
- -purchaser cannot backward integrate
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Bargaining power of buyers
- is greater when
- -buyer group is concentrated
- -the purchased product are standardized
- -no switching cost
- -buyer can backward integrate
- -purchase is not critical to customer's product
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Threats of substitutes
-are indirect competitors
-substitutes put price cap on the price of the industry's product
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Rivalry
- can be based on
- -price (on standardized products), these companies need to keep their cost down
- -marketing (advertising battles)
- -product innovation
- -features
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Internal environment and analysis
- looking for competitive advantages: search for resources that can be the source of a competitive advantage
- ex: intelligence, supply, reputation, trademark
SW+ot
- -value chain
- -resource based view
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value chain
- *everything the firm does to get from raw material to product
- *different activities in the firm that fit together
- quality control- quality can go up or down anywhere in the line
- 1. inbound logistics- raw materials, inventory control, warehouse facilities
- 2. operations- manufacturing, packaging
- 3. outbound logistics- storing finished goods, distribution
- 4. marketing and sales- advertising, promotion, selection of distribution channels
- 5. service- sell your product, installation, repair, customized adjustment
- customer receives product
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value chain supporting activities
this is where you find your competitive advantage
- those who create/deliver the product
- -procurement
- -technological development
- -HR mgmt
- -infrastructure: accountant, lawyer, CEO
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Resource Based View of firm
unique bundle of firm resources
Resources: - tangible assets- physical and financial assets
- intangible assets- knowledge, reputation, license
- ex: Walmart's IT
Organization's Capabilities: integrated sets of resources Outstanding customer service- HR + technical knowledge, social skills, commitment & loyalty of workers, organizational culture, info system for accounts
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RBV's VRINO framework
does the firm have a core competency?
Valuable: decreases cost or increases revenue- -
Rare- -
Inimitable: impossible or costly to imitate- -
Organizational skill and support- organization must recognize and support its competitive advantage
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parity
-created by a common resources
-lack of common resource like a phone creates disadvantage
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forward integration
-a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products
-a supplier company like Intel making their own computers
- when a farmer sells his/her crops at the local market rather than to a distribution center
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backward integration
-A form of vertical integration that involves the purchase of suppliers in order to reduce dependency
-if a bakery business bought a wheat farm in order to reduce the risk associated with the dependency on flour
you can do this by making your own spaghetti instead of going to olive garden
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vertical integration
When a company expands its business into areas that are at different points of the same production path (cutting out the middleman to get product)
dell sells directly to the consumer
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Business Level Strategy
- Cost LeaderIntegratedDifferentiator
- Focus
- the competition for customers
- build your BLS on what you are good at doing (VRINO)
- Look at your internal environment
- BLS must fit
- who - are your customerswhat - needs do we satisfyhow- what core competencies do we use
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BLS- Cost Leader
-economies of scale facilities
-cost savings based on experience
-Control of production costs & overhead
-Minimize costs of sales, R&D & service: commoditize products w/no differentiation
-Monitor costs of suppliers- bargain on price
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BLS- Integrated
-Automated and Flexible manufacturing systems
- -Exploit the profit pool concept (some segments or activities are more profitable)
- (eg: sell the basic product cheaply;sell add-ons for premium prices)
- -IT: linking suppliers & customers to manuf.
superior IT- you can beat it
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BLS- Differentiator
- Superior IT- the purpose of IT here is to figure out customers fads
- Promote and protect firm image, reputation- pay more for the brand
- Attract & retain talented / creative people
- Product R&D
- Flexible & responsive manuf. changes
- Personal relationships with key customers
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BLS- Focus
a niche market
- cons
- *competitors out focuses the focus strategy
- *competitors may imitate- if its a really good idea, someone will copy it
- *customer base eventually becomes similar to overall market
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Competitor Analysis
- market commonality- firms share the came target market for more than one product
- these companies do not compete in financially dangerous areas
- ex: PepsiCo and Coke
Resource Similarity
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Drivers of Competitive Behavior
- awareness: what they are doing
- motivation
: reason to respond, you think you can get a chunk of the industry- abilit
y: sufficient resources to respond, need money
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Competitive Actions
- Strategic: big actions, difficult to implement, harder to reverse
- major acquisitions, merger, divestment
- Tactical: small actions, easier to reverse, smaller firms might get together to compete w/big companies strategic actions
- radio, price cuts
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First movers
pioneers in product, market, technology, services or pricing
- *above average profits until competitors respond
- *gain customers loyalty
- *advantage depends upon difficulty of imitation
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Second Mover
*frequently imitate first movers
*needs capabilities to imitate
*avoids risks associated w/first movers- they don't spend much on advertising
*fast movers can also capture some early customers and develop brand loyalty
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Likelihood of attack
initiating competitive action
- • First mover incentives
- • Organizational size- big firms more likely
- • Product quality
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Likelihood of response
- -Type of action- bigger than tactical- Actor's reputation- more likely if reputation is good- Dependence on the market- one market companies more likely
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Competitor resource- do you have the ability, might have to respond with different advertising campaign
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Advantages of cost leader BLS
-Discourage price wars of rivalry
-Protects firms from powerful buyers
-Withstand supplier price changes: you can absorb price change better than everyone else
-Lessens competition from substitutes
-In commodity items where price is the only issue, the low cost leader always wins
-Creates a barrier to entry
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Disadvantages of Cost Leadership BLS
-innovations may allow competitors to imitate
-May be easily imitated; in mature markets, competitors may have similar economies of scale/scope
-Cutting costs may result in unhappy customers.
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Advantages of differentiation BLS
1. Changes rivalry- rivalry based on innovation, marketing
2.Customers willing to pay price premium
3. Can pass supplier costs onto customers OR can absorb (have higher margins)
4. Creates a barrier to entry (increases brand loyalty)
5. Substitutes are less appealing: product and service price isn't as important
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Disadvantages of Differentiation BLS
“uniqueness” may not be valued
price premium is too high for some people
Counterfeits
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Intensity of Rivalry
high when
- -many or equally balanced competitors = instability
- -slow industry growth
- -high fixed or storage cost
- -lack of differentiation (no switching costs)
- -high strategic stakes
- -mfg capacity increases in large increments
- -high exit barriers
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Product Complements
Other products and services that affect the value/need for the industry’s output
eg., computers & printers
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Strategic Groups
a subset of firms w/ similar strategies
identify mobility barriers
identify direct and indirect competitors
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Growth- Huge R&D investment, try to be what everyone wants to be
maturity- rivalry gets intense
right before maturity- a shakeout when weaker companies leave
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strategic management process
analysis- SWOT
decision- what industry should we compete in?
action- How do we set up the firm to implement our plan?
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the basis of organizational success?
Industrial Organizational Model
Resource Based View
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Strategy FORMULATION
creating the plan
analyzing the environment
selecting the strategy
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Strategy IMPLEMENTATION
making it happen
organizing the firm
assigning responsibilities
evaluating, controlling
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CEO's job- setting a direction
Vision: (long-term goal) inspiring: the destination
- Mission: the purpose, the basis of competition, and
- the competitive advantage
- strategic objectives: (immediate goals) operationalize
- the mission statement
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Stakeholders
Product market- customers, suppliers, host communities, unions
Capital market- shareholders, lender
Organizational- employees, managers
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Resource based view (RBV) assumptions
-core competencies create profits
-firms each have unique resources & capabilities
-strategies should be based on the firm's resources & capabilities
- Identify Resources
- Determine capabilities
- Determine competitive advantages
- Locate attractive industry
- strategy formulation and implementation
- superior returns
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I/O Model
the industry the firm competes in has stronger influence than manager's decisions
external environment determines profit potential
firms within the same industry have similar resources and pursue similar strategies
- -Study the External Environment
- -Locate the attractive industry
- -Strategy formulation
- -develop assets and skills
- -strategy implementation
- -superior returns
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