The External Environment involves The general environment The industry

The external environment involves the general

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The External Environment involves: The general environment The industry environment The competitor environment 2. Locate an industry with high potential for above average returns An attractive industry: An industry whose structural characteristics suggest above average returns 3. Identify the strategy called for by the attractive industry to earn above average returns 4. Develop or acquire assets and skills needed to implement the strategy 5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy Strategy implementation: Selection of strategic actions linked w/ effective implementation of the chosen strategy 6. Achieve superior returns (above average returns)
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Assumptions of the I/O model The external environment imposes pressures and constraints that determine strategic choices Similarity in strategically relevant resources causes competitors to pursue similar strategies Resources differences among competitors are short-lived due to resource mobility across firms Strategic decision makers are rational and engage in profit-maximizing behaviors Porter’s 5 Forces Model of Competition Supplier Power Buyer Power Competitive Rivalry Barriers to Entry Threat of Substitutes
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5 Forces Model Assumptions Industry profitability (rate of return on invested capital relative to cost of capital) is a function of interactions among the 5 forces Industry attractiveness equates to its profitability potential for earning above average returns by: Producing standardized goods or services at costs below competitor costs (cost leadership strategy) Producing differentiated goods/services for which customers are willing to pay a premium (differentiation strategy) Resource-Based Model of Above Average Returns Building a competitive advantage Resources Physical, human, and organizational capital (tangible and intangible) Capability An integrated set of resources Core Competence A source of competitive advantage Resource based is Internal - this is where you go for meaningfully unique ideas. Accounts for most of success. Resource Based Model Assumptions Firms acquire different resources Firms develop unique capabilities based on how they combine and use resources Resources and certain capabilities are not highly mobile across firms Differences in resources and capabilities are the bases of competitive advantage and a firm’s performance rather than its industry's structural characteristics How Resources become Core Competencies VRIN Costly to I mitate V aluable R are Non Substitutable
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Strategic Decision Making Use both the I/O and Resource-based models to develop your competitive strategy A successful vision:
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  • Spring '10
  • PETRACHRISTMANN
  • competitive action

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