■ 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)
● 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
● 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
● 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
- competitive action