Capstone Ch.3- Evaluating a Company's External Environment Flashcards

Terms Definitions
When answering the question "Where are we now?", there are 2 situational considerations:
- company's external industry and competitive environment
- Company's own market position and competitiveness (competencies, capabilities, resource strengths and weaknesses, cost position, culture, and strength of leadership
The components of the Macroenvironment are
- General Economic Conditions
- Legislation and regulations
- Population demographics
- Societal values and lifestyles
- technology
Components of the immediate industry and competitive environment are
- suppliers
- substitute products
- buyers
- new entrants
- rival firms
What are the tools for assessing External Environment
-Porter's 5 forces
- PESTLE forces
Porter's 5 forces is a tool for assessing external environment in an
industry
PESTLE forces is a tool for assessing external environment beyond the industry in the
macro-environment
PESTLE forces include
- Political
- Economic
- Socio-cultural
- Technological
- Legal
- Environmental
"What are the industry's business and economic traits?" is part of
Assessing a company's industry and competitive environment
"What are the nature and strength of competitive forces?" is part of
Assessing a company's industry and competitive environment
"What forces are driving industry change?" is part of
Assessing a company's industry and competitive environment
"What market positions do industry rivals occupy?" is part of
Assessing a company's industry and competitive environment
"What strategic moves are rivals likely to make next?" is part of
Assessing a company's industry and competitive environment
"What are the Key factors of competitive success?" is part of
Assessing a company's industry and competitive environment
"Does the industry outlook offer good prospects for profitability?" is part of
Assessing a company's industry and competitive environment
Market Size and Growth are
Industry Dominant Economic Features
Number of Rivals are
Industry Dominant Economic Features
Scope of competitive rivalry are
Industry Dominant Economic Features
Pace of technological change are
Industry Dominant Economic Features
Degree of vertical integration are
Industry Dominant Economic Features
Need for economies of scale are
Industry Dominant Economic Features
Learning and experience effects are
Industry Dominant Economic Feature
The nature of competitive forces differs across
industries
Competitive forces go beyond
rivalry and include four coexisting forces
BUYERS ARE LARGE an can demand concessions is a factor of
Bargaining Power of Buyers is stronger
Buyer SWITCHING COSTS for substitutes are low is a factor of
Bargaining Power of Buyers is stronger
The NUMBER OF BUYERS is small is a factor of
Bargaining Power of Buyers is stronger
Buyer DEMAND IS WEAK or declining is a factor of
Bargaining Power of Buyers is stronger
BUYERS ARE WELL-INFORMED about seller's products, prices, and costs is a factor of
Bargaining Power of Buyers is stronger
Buyers threaten to INTEGRATE BACKWARDS is a factor of
Bargaining Power of Buyers is stronger
When there are MANY GOOD SUBSTITUES that are readily available
competition from substitutes are stronger
When SUBSTITUTES ARE ATTRACTIVELY PRICED
competition from substitutes are stronger
When substitutes have COMPARABLE OR BETTER QUALITY AND PERFORMANCE
competition from substitutes are stronger
When End-users have LOW SWITCHING COSTS
competition from substitutes are stronger
When industry members incur HIGH SWITCHING COSTS
Power of Suppliers is Stronger
When needed INPUTS ARE SHORT IN SUPPLY
Power of Suppliers is Stronger
When supplier provides a DIFFERENTIATED INPUT that enhances the quality or performance of seller's products
Power of Suppliers is Stronger
When there are ONLY A FEW SUPPLIERS of a specific input (airplane suppliers)
Power of Suppliers is Stronger
When some suppliers threaten to INTEGRATE FORWARD
Power of Suppliers is Stronger
When industry GROWTH IS RAPID AND PROFIT POTENTIAL IS HIGH
Threat of Entry is Stronger
When incumbents are UNWILLING OR UNABLE TO CONTEST A NEWCOMER'S ENTRY efforts
Threat of Entry is Stronger
When the POOL OF ENTRY CANDIDATES IS LARGE (Landscaping)
Threat of Entry is Stronger
When ENTRY BARRIERS ARE LOW
Threat of Entry is Stronger
Importance of economies of scale are
Barriers to Entry
Experience/learning curve disadvantages are
Barriers to Entry
Strong brand preferences and high degress of customer loyalty are
Barriers to Entry
High captial requirements are
Barriers to Entry
Restricted access to distribution channels are
Barriers to Entry
Restrictive regulatory policies are
Barriers to Entry
Tariffs and international trade restrictions are
Barriers to Entry
Competing sellers regularly launch fresh actions to boost market standing causes
Rivalry to be Stronger
Declining demand or slow market growth causes
Rivalry to be Stronger
he products or services offered by rivals are standardized or weakly differentiated causes
Rivalry to be Stronger
One or more industry rivals becomes dissatisfied with their market standing causes
Rivalry to be Stronger
Number of rivals increases causes
Rivalry to be Stronger
Buyer costs to switch brands are low causes
Rivalry to be Stronger
Industry conditions tempt rivals use price cuts or other competitive weapons to boost volume causes
Rivalry to be Stronger
Outsiders have recently acquired weak firms in the industry and are trying to turn them into major market contenders causes
Rivalry to be Stronger
An industry's competitive environment tends to be attractive from a profit-making standpoint when
-rivalry is oderate
- entry barriers are high and no firm is likely to enter
- Good substitutes do not exist
- Suppliers and customers are in a weak bargaining position
An industry's competitive environment tends to be unattractive from a profit-making standpoint when
-rivalry is stong
- entry barriers are low and competitors are likely to enter
- good substitutes exist
- suppliers and customers are in strong bargaining postitions
Driving forces are
powerful EXTERNAL influences acting to reshape the industry landscape and alter competitive conditions
Changes in the reshaping of the industry competititve conditions likely take place
withing next 1-3 years
No more than ___- ____ factors qualify as real drivers of change
3-4
In assessing the impact of driving forces on industry attractiveness, ask the following
- Are the driving forces causing demand for product to increase or decrease?
- Are the driving forces acting to make competition more or less intense?
- Will the driving forces lead to higher or lower industry profitability?
Determine what _____ _____ are needed to prepare for impact of driving forces
strategy changes
Changes in long-term industry growth rate is a
Common driving force
Increasing globalization of the industry is a
Common driving force
Changes in who buys the product and how they use it is a
Common driving force
Product innovation is a
Common driving force
Technological change is a
Common driving force
Entry or exit of major firms is a
Common driving force
What can be learned from Strategic Group maps
- Driving forces and competitive pressures often favor some strategic groups and hurt others
- Competitive Pressures may cause the profit potential of different strategic groups to vary
Profiling key rivals involves gathering competitive intelligence about
-thinking and leadership styles of top executives
- Identifying trends in the timing of new product launches and marketing promotions
- Considering which rivals have the motivation and capability to make major strategy changes
Key Success Factors (KSFs) are
competitive factors most affecting ever industry member's ability to prosper
Special Product Attributes is a
KSF
Necessary resources, competencies, and capabilities are
KSFs
Specific intangible assests are
KSF
Competitive capabilities are
KSF
On what basis do buyers choose between brands?
Question to ask in identifying industry KSFs
What resources are needed to compete successfully?
Question to ask in identifying industry KSFs
What shortcomings are almost certain to put a company at a competitive advantage?
Question to ask in identifying industry KSFs
Expertise in a particular technology is a
Type of Industry KSF
Scale economies or experience curve benefits is a
Type of Industry KSF
High capacity utilization is a
Type of Industry KSF
Strong network of wholesale distributors is a
Type of Industry KSF
Brand building skills are
Type of Industry KSF
Convenient retail locations are
Type of Industry KSF
In assessing whether an industry and competitive environment is attractive or unattractive for earning good profits, analyze
-The industrys growth potential
- The intensisty of competition
- Whether the impacts of the driving forces are positive or negative
- The company's competitive postition in the industry relative to rivals
- How well the company performs the industry's KSFs
Tools for assessing attractiveness in an industry
- Hall's Competitiveness Model
- Weights by scores and sum
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