UNIT NAME: STRATEGIC MANAGEMENT
1. Why is it important for a firm to accurately determine what industry it is in?
This will enable the executive to identify the major competitors of the company and the economic forces which will impact the strategies that they may wish to pursue. On top of that, industries do differ in terms of profitability and performance, so identifying the industry they are operating in will help senior managers and company directors to be able to know the kind of returns to expect.
2. How should a firm decide what industry it is in?
The firm can do this with the customer-oriented view implying that it understands customer needs, which can refine the industry well. The landscape also equals the sector and geographic area of the industry.
3. What are the five major industry forces?
• Supplier bargaining power
• Buyer bargaining power
• Competitive rivalry
• Threat of substitution
• The threat of new entry
How do they shape average profitability in an industry?
An industry’s average profitability is shaped by the number and power of an industry’s competitive rivals, new market entrants, customers, suppliers, and substitute products.
4. What factors determine the intensity of rivalry?
• Numerous or the size of the competitors
• Slow industry growth
• High fixed or storage costs
• Lack of differentiation or switching costs
• High strategic stakes
• High exit barriers.
• Product demand
• The level of unused production capacity
5. Explain why increased buyer concentration would increase buyer power.
In most instances, buyer concentration does reflect the fundamental law of supply and demand. If fewer buyers exist in the market, and many suppliers are present, suppliers will have to compete vigorously. When buyers are many, sellers will have to increase their competition level to compete for the buyer’s business.
6. Explain what it means for suppliers to have a credible threat of forward integration.
This implies that the suppliers can gain bargaining power by selling their products directly like the buyers are doing.
7. What factors determine the intensity of the threat of new entrants?
• The attractiveness of the industry
• Availability of production capacity
• Levels of barriers
• Capital Requirements
8. What are substitutes?
Substitutes are goods which are very different, but they serve the same function as other goods.
9. What are the eight general environmental factors that affect industry profitability?
i. Complementary Products/Services
ii. Global Forces
iii. Ecological/Natural Environmental Forces
iv. Population Demographics
v. Political, Legal, and Regulatory Forces
vi. General Economic Conditions
vii. Social/Cultural Forces
viii. Technological Changes
10. How does each of the eight general environmental factors influence industry profitability?
i.) Complementary Products/Services
The trends in complementary industries can drastically change the landscapes of the sectors which compete.
ii.) Technological Change
It can drastically change the landscape whereby early adopters will most likely make more profits and gain more market share. This can affect rivalry and reduce the barriers to entry.
iii.) Global Forces
This will lead to trade barriers, which will fall and help in global expansion.
iv.) Ecological/Natural Environmental Forces
The current trends affect the public acumen on how businesses should be run, like the push for green initiatives.
v.) Population Demographics
This implies to people, gender, age, ethnicity, age gaps, and the income levels which can act as opportunities or threats.
vi.) Political, Legal and Regulatory Forces
This will arise from the rise of governmental use, which can also be a threat or an opportunity.
vii.) General Economic Conditions
This affects the firm’s expansion, leading to increased industry growth, low rivalry, and low price sensitivity. When interest rates act as rivalry, that will increase or decrease demand for loans and vice versa. On the other hand, inflation makes it quite difficult for the firms to plan on their expansion and investments.
viii.) Social/Cultural Forces
This refers to society’s values like norms and attitudes, which can affect all the other seven factors.
11. How do the eight general environmental factors affect the five industry forces?
Every category can affect an industry’s dynamics, shown by the area within the center circle, altering any or all of the five forces. Since the five forces are not static, they can change drastically if the other environmental changes.
12. What are the elements of a complete external analysis?
• Developing a deeper understanding of each of the five factors.
• Analyzing the eight environmental factors on how they can affect the industry today and its effect in the future.
• They must correctly determine which industry or environment they are competing in.
• Using five forces to aid in determining industries attractiveness.