AFM RK2 - Chapter 2 Strategy Analysis Strategy drives the...

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AFM RK2 1 Chapter 2: Strategy Analysis Strategy drives the actions of an organization. Studying a firm’s strategy provides: – An understanding of what drives risks, profitability, and competitive advantages – A basis for future performance to be forecasted – An idea of how to measure the success of a firm’s actions The Importance of Industry-Level Analysis A firm’s strategy is heavily influenced by the industry it belongs to. Understanding the environment and competitive forces within an industry helps with evaluating the quality of a particular firm’s strategy. For a useful framework to evaluate the competitive forces at work in an industry, see Figure 2-1 .
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AFM RK2 2 Competitive Force 1: Rivalry Among Existing Firms Higher degrees of competition among firms: – Push prices towards the marginal cost of production. – Make non-price dimensions of products or services more important. Factors that influence the intensity of competition among firms: – Industry growth rate. – Concentration and balance of competitors. – Degree of differentiation in products & services and switching costs. – ….. Competitive Force 2: Threat of New Entrants The ease with which a new firm can enter an industry can force firms to set prices low, and thus affect the profitability of firms within the industry.
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