Week 2 - External Environment

Week 2 - External Environment - Integrated Core, Fall 2010...

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Click to edit Master subtitle style Week 2: External Environment Integrated Core, Fall 2010 J-370, Strategy Component
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Chapter 2: Important Things to Know Porter’s Five Forces Model! Can’t emphasize it enough! Learn all components, understand what each means This is the foundation of external analysis Know both the threats, and the ways to combat them Industry structure types, problems of each Environmental opportunities related to each type of structure
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Chapter 2: Important Terms to Know General environment (all components) S-C-P Framework Five Forces Framework (all components) Types of competition Barriers to entry (all types) Industry structure (all types) Specific industry advantages terms: First-mover Technological leadership Strategically valuable assets Process innovation
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External Analysis
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Why External Analysis? External Analysis allows firms to: Discover threats and opportunities See if above normal profits are possible in an industry Better understand the nature of competition in an industry Make more informed strategic choices
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Focal Firm Demographi c Trends Technological Change Cultural Trends Economic Climate Legal/Political Conditions Specific International Events General External Environment Cell Phones Hispanic Population Growth Changing Image of SUV’s Interest Rates/ Inflation Changing Policy toward Oil Exploration on Public Lands European Union Ban on Hormone-Treated U.S. Beef
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Industry Analysis The S tructure – C onduct – P erformance Model Core thesis: Industry structure determines the range of strategies a firm can pursue, which in turn determine firm profitability Why S-C-P Matters If you know the structure of the industry, you can determine the likelihood of earning poor, average, or above-average profits Porter’s Five Forces Model was developed from this economic tradition
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The Structure-Conduct-Performance Model
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Question Which industry structure provides firms with the greatest level of strategic flexibility? A) Many firms, homogenous products
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Week 2 - External Environment - Integrated Core, Fall 2010...

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