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Which is considered a force in the Five-Forces model? Which of the following firms would likely pose the least competitive threat? The threat of new entrants is high when there are. Product differentiation by incumbents act as an entry barrier because. Which of the following would be an entry barrier? An automobile manufacturer acquires a rental car company. This is an example of. The bargaining power of the downloader is greater than that of the supplier when.
downloader power will be greater when. The bargaining power of suppliers increases as. New communication technology can impact seemingly unrelated industries such as the airline industry. This would be an example of a. The bargaining power of suppliers is enhanced under the following market condition: A supplier group would be most powerful when.
Threat of substitute products comes from. Firms would be most likely to face intense rivalry with competitors when they. The most intense rivalry results from. Exit barriers do not arise from. Because the Internet lowers barriers to entry in most industries, it. End users are not. Incumbent firms may enjoy increased bargaining power because the Internet. In general, the threat of substitutes is heightened because the Internet. How do infomediaries and consumer information websites increase the intensity of competitive rivalry?
The value net is a game-theoretic approach that. In the value net analysis, complementors are.
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Strategic groups consist of. Two assumptions are made: Strategic groupings are of little help to a firm in assessing mobility barriers that protect a group from attacks by other groups. Strategic groups help chart the future directions of firm strategies. Strategic groups are helpful in thinking through the implications of each industry trend for the group as a whole.
Essay Questions Explain how competitor intelligence can be improved by gathering information about competitors in the public domain.
Provide examples. Discuss some of the limitations of forecasting. Discuss the six segments of the general environment. Provide examples of how they might be related.
Explain the important barriers to entry in an industry. Discuss and provide examples of factors that would lead to greater downloader power. What are some of the factors that would cause a supplier group to become powerful? Several factors usually interact which result in intense rivalry among competitors. Address how Internet and digital technologies affect the Porter five forces.
Explain how the value net analysis adds to the five-forces analysis. Be sure to include examples from at least two industries.
What value is the strategic group concept as a tool in analyzing an industry? SWOT analysis is a basic technique for analyzing firm and industry conditions. Explain the relationship between the SWOT approach to evaluating the general environment, the industry of the firm, and the competitive environment.
TRUE Three important processes scanning, monitoring, and gathering competitive intelligence are used to develop forecasts.
Analytic Blooms: Understand Learning Objective: Level of Difficulty: Creating the Environmentally Aware Organization 2. FALSE A soft trend is something that might happen and for which the probability that it might happen can be estimated. Creating the Environmentally Aware Organization 3. Creating the Environmentally Aware Organization 4. TRUE A hard trend is a projection based on measureable facts, events, or objects. Creating the Environmentally Aware Organization TRUE A soft trend is something that might happen and for which the probability that it might happen can be estimated.
Creating the Environmentally Aware Organization 6. TRUE Environmental monitoring tracks the evolution of environmental trends, sequences of events, or streams of activities. Remember Learning Objective: TRUE Competitive intelligence CI helps firms define and understand their industry and identify strengths and weaknesses of rivals.
Done properly, competitive intelligence helps a company avoid surprises by anticipating competitor moves and decreasing response time. Creating the Environmentally Aware Organization 8. For example, banks continually track home loan, auto loan, and certificate of deposit CD interest rates charged by rivals.
Major airlines change hundreds of fares daily in response to competitor tactics. FALSE Environmental forecasting involves the development of plausible projections about the direction, scope, speed, and intensity of environmental change.
Its purpose is to predict change. FALSE Scenario analysis is an in-depth approach to environmental forecasting that involves detailed assessments by experts of societal trends, economics, politics, technology, or other dimensions of the external environment.
FALSE The Strengths and Weaknesses refer to the internal conditions of the firm in which a firm excels strengths and where it may be lacking relative to competitors weaknesses. These could be factors either in the general or competitive environment.
In the general environment, one might experience developments beneficial for most companies such as improving economic conditions, that lower borrowing costs or trends that benefit some companies and harm others. TRUE Generally, firms compete with other firms in the same industry. An industry is composed of a set of firms that produce similar products or services, sell to similar customers, and use similar methods of production.
Gathering industry information and understanding competitive dynamics among the different companies in your industry is key to successful strategic management. FALSE The general environment is composed of factors that can have dramatic effects on firm strategy.
The General Environment TRUE The impact of a demographic trend, like all segments of the general environment, varies across industries.
Strategic Management: Creating Competitive Advantages
Rising levels of affluence in many developed countries bode well for brokerage services as well as for upscale pets and supplies. However, this trend may adversely affect fast- food restaurants because people can afford to dine at higher-priced restaurants.
TRUE Increased educational attainment by women in the workplace has led to more women in upper management positions. Given such educational attainment, it is hardly surprising that companies owned by women have been one of the driving forces of the U.
TRUE Developments in technology lead to new products and services and improve how they are produced and delivered to the end user. Innovations can create entirely new industries and alter the boundaries of existing industries.
When stock market indexes increase, consumer discretionary income rises and there is often an increased demand for luxury items such as jewelry and automobiles. TRUE The Internet has been a leading and highly visible component of a broader technological phenomenon—the emergence of digital technology. These technologies are altering the way business is conducted and are having an effect on nearly every business domain. It has become the term of choice for a process that is infiltrating many aspects of business life and has claimed some well-known successes, particularly on the product development front.
The Competitive Environment Porter has been the most commonly used analytical tool for examining the competitive environment. It describes the competitive environment in terms of five basic competitive forces. Porter describes the competitive environment in terms of five basic competitive forces that affect the ability of a firm to compete in a given market. Together, they determine the profit potential for a particular industry.
TRUE A barrier to entry is created by the existence of one-time costs that the downloader faces when switching from one supplier's product or service to another. TRUE Economies of scale refers to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the absolute volume per period increases. This deters entry by forcing the entrant to come in at a large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost disadvantage.
Both are undesirable options. FALSE A downloader group is powerful when it is concentrated or downloads large volumes relative to seller sales. If a large percentage of a supplier sales are downloadd by a single downloader, the importance of the downloader business to the supplier increases. TRUE A downloader group is powerful when the products it downloads from the industry are standard or undifferentiated. Confident they can always find alternative suppliers, downloaders play one company against the other.
FALSE A supplier group will be powerful when the supplier group is dominated by a few companies, the supplier product is an important input to the downloader business, or the supplier has built up switching costs for the downloader. TRUE A supplier group will be powerful when the supplier group poses a credible threat of forward integration. This provides a check against the industry ability to improve the terms by which it downloads.
TRUE Substitutes limit the potential returns of an industry by placing a ceiling on the prices that firms in that industry can charge profitably. TRUE Where the product or service is perceived as a commodity or near commodity, the downloader's choice is typically based on price and service, resulting in pressures for intense price and service competition.
Lack of switching costs has the same effect. TRUE In most industries, the threat of new entrants has increased because digital and Internet-based technologies lower barriers to entry. For example, businesses that reach customers primarily through the Internet may enjoy savings on other traditional expenses such as office rent, sales- force salaries, printing, and postage. This may encourage more entrants who, because of the lower start-up expenses, see an opportunity to capture market share by offering a product or performing a service more efficiently than existing competitors.
Thus, a new cyber entrant can use the savings provided by the Internet to charge lower prices and compete on price despite the incumbent's scale advantages. FALSE The Internet and wireless technologies may increase downloader power by providing consumers with more information to make downloading decisions and by lowering switching costs.
Switching may involve only a few clicks of the mouse to find and view a competing product or service online. FALSE Suppliers may be able to create Web-based downloading arrangements that make downloading easier and discourage their customers from switching.
These new activities are entering the value chain by a process known as reintermediation. In general, the threat of substitutes is heightened, because the Internet introduces new ways to accomplish the same tasks. TRUE Five-forces analysis implicitly assumes a zero-sum game, determining how a firm can enhance its position relative to the forces.
Yet such an approach can often be short-sighted. It can overlook the many potential benefits of developing constructive win-win relationships with suppliers and customers. External forces as well as strategies of individual firms are continually changing the structure of all industries. FALSE Complements typically are products or services that have a potential impact on the value of products or services of the firm.
Powerful hardware is of no value to a user, unless there is software that runs on it. TRUE Strategic groups are clusters of firms that share similar strategies. Rivalry tends to be greater among firms that are alike. TRUE Strategic groups are helpful in thinking through the implications of each industry trend for the strategic group as a whole. Such analysis can help in making predictions about industry evolution. A sharp increase in interest rates, for example, tends to have less impact on providers of higher-priced goods e.
Arrows emanating from each strategic group can represent the direction in which the group or a firm within the group seems to be moving. If all strategic groups are moving in a similar direction, this could indicate a high degree of future volatility and intensity of competition. Many firms in different strategic groups compete in the same product markets. Three important processes scanning, monitoring, and gathering competitive intelligence are used to develop forecasts.
Competitive intelligence Environmental monitoring tracks the evolution of environmental trends, sequences of events, or streams of activities.
Monitoring enables firms to evaluate how dramatically environmental trends are changing the competitive landscape. So is the increasing speed and decreasing cost of computers. This alerts the organization to critical trends and events before changes develop a discernible pattern and before competitors recognize them.
Consumers comparing product offers online Corporate competitive intelligence is the activity of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitor strengths and weaknesses in order to avoid surprises by anticipating competitor moves and decreasing response time.
This includes the intelligence gathering associated with collecting data on competitors and interpreting such data. Analytic The problem is that underestimating uncertainty can lead to strategies that neither defend against threats nor take advantage of opportunities. It draws on a range of disciplines and interests, among them economics, psychology, sociology, and demographics. It usually begins with a discussion of participant thoughts on ways in which societal trends, economics, politics, and technology may affect an issue.
Developing strategies based on possible future scenarios seems to be paying off for PPG Industries. The company currently boasts a return on equity of Despite its apparent simplicity, the SWOT approach has been very popular.
First, it forces managers to consider both internal and external factors simultaneously. Second, its emphasis on identifying opportunities and threats makes firms act proactively rather than reactively. Third, it raises awareness about the role of strategy in creating a match between the environmental conditions and the firm's internal strengths and weaknesses.
Finally, its conceptual simplicity is achieved without sacrificing analytical rigor. Examples include a higher percentage of women in the workforce. Examples include an increased educational attainment by women in the workplace. Understand Learning Objective: The aging population is a demographic trend that could positively affect the health care industry and negatively affect the baby product industry.
While this may not be illegal, clearly it is difficult to justify morally. The ensuing discussion will help to clarify the distinction between illegal and unethical behaviour.
Environmental scanning, monitoring, and competitive intelligence are important inputs for analyzing the external environment. However, they are of little use unless they provide raw material that is accurate enough to help managers make accurate forecasts. We address the twin problems of either assuming that the world is certain and open to precise predictions, or the assumption that it is uncertain and totally unpredictable.
Scenario analysis provides a set of tools that enable managers to imagine threats and opportunities the future may bring. As a general rule, scenarios should be used by businesses whose external environments are prone to fundamental or sudden change and whose anticipation of such change is of vital strategic importance. It is important to note that scenario planning draws on a wide range of disciplines and interests, among them economics, psychology, sociology, and demographics.
We provide the example of Lego, and how its position in the toy industry may become eroded if they define their industry—and its future—in a very narrow context.
SWOT stands for strengths, weaknesses, opportunities, and threats. SWOT has been both used and misused extensively in business analysis of all stripes. Its strengths and limitations should be discussed in class to ensure the students become comfortable with such a powerful and common tool. What do you consider to be some of the major advantages and disadvantages of SWOT analysis?
This issue is addressed in more detail in Chapter 3, but you should point out that frequently managers expect SWOT to essentially do all the thinking for them instead of treating it as only one more tool in the analysis. A key disadvantage is that strengths may not necessarily convert to sources of competitive advantage that are sustainable in the marketplace. Typically, a firm has little ability to predict trends and events in the general environment, and even less ability to control them.
We divide the general environment into six segments: Which factors are more difficult to predict than others? Demographics are the most easily understood and quantifiable elements of the general environment. Demographics include elements such as the aging population, rising or declining affluence, changes in ethnic composition, geographic distribution of the population, and income level disparities. What implications does the substantial migration into Canada from different parts of the world and increasingly from Southeast Asia have for individual businesses?
Among the trends we discuss are the aging of the population and how it may differentially affect a wide variety of industries. You can also introduce the discussion about an aging workforce and its implications through some wellknown statistics: Sociocultural forces influence the values, beliefs, and lifestyles of a society.
Examples include a higher percentage of women in the workforce, dual-income families, increases in the number of temporary workers, greater concern for healthy diets and physical fitness, greater interest in the environment, and families postponing having children. Name two industries that have benefited from the growing awareness about health and fitness. Also name two that have been adversely affected by this trend. What must firms do to attract and retain women employees?
Why are such efforts becoming increasingly important? The section also addresses the increased educational attainment of women in the workplace. We discuss increases in both the number of degrees granted to women as well as the increased formation of businesses by women. The tendency for Japanese workers to not take their annual vacation time. In fact, it has become such an urgent issue that the government is considering legislation to force people to take their time off.
Does Japan have workaholic employees? That might appear to be the case. And, they may be forced to take time off. Similar to U. On average, they use 7 of an allotted 15 days per year! However, critics say it may hurt struggling companies—and fail to loosen up outlays for leisure. Hall, K. Take a break, or else. May Should there be legislation such as the one proposed? What other ways could the government stimulate consumer spending?
Political processes and legislation influence the regulations with which industries must comply. Do you think the provincially mandated minimum wage should be increased? What are the implications? In response to the financial crisis, should there be further deregulation or re-regulation in the financial sector?
What might be some of the implications? In this section we address some of the implications of the Canadian attitudes toward entrepreneurship and the role of women in the corporate boardrooms and the management ranks. You may want to pose questions about the ongoing issues emanating from the US subsequent to September 11, terrorist attacks. What are the different responses in Canada?
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What are some of the implications for Canadian businesses from how the US has responded to terrorism threats or the rise in Islamophobia? For example, one of the consequences has been tighter restrictions on study visas and correspondingly as substantial decline in applications and admissions of foreign students into American universities.
Innovations can create entirely new industries and alter existing industries. Ask students to speculate on the impact of the following technologies on the Canadian industry: The last items may provoke some heated discussion regarding their ethical implications.
We discuss the key implications that the Internet has had on industry—in particular, its impact on productivity gains. As a heads up, the opening case for Chapter 8 provides an example of the automotive. China Cosco Holdings is considering bringing back nuclear-powered cargo ships, introduced in the early s. Analysts warn that the costs of deploying some alternative energy technologies are prohibitive.
Park, K. Big ships go green. Bloomberg Businessweek.
In addition to ethical issues, we discuss environmental damage, such as the emission of greenhouse gases. The economy has an impact on all industries, from suppliers of raw materials to manufacturers of finished goods and services, as well as all organizations in the service, wholesale, retail, government, and nonprofit sectors of economies.
Compare the impact of rising or declining interest rates on the overall demand for the following industries: Your own updates from term to term are necessary till the next edition of the text, and even then, our updates will be instantly obsolete. Globalization provides both opportunities to access larger potential markets and a broad base of factors of production such as raw materials, labour, skilled managers, and technical professionals.
However, such. As a side note, one of the last major countries soon to be admitted to WTO is Russia. Provide examples of firms that have succeeded stumbled in their efforts to expand into international markets. What factors can explain their success failure?
We discuss the globalization of the automobile industry—in particular, the attraction of developing markets.
We provide the example of the Norwegian shipping industry to illustrate its global nature. Discuss the implications of the softwood lumber dispute between Canada and the US.
In our discussion of the general environment, we have addressed many relationships among the various elements. In this short section, we highlight the interactions of the various elements and how they have differential impact on individual firms and sectors.
We introduce this model and discuss examples of each force. We then address the strategic groups concept and its implications for studying rivalry and competition. The analysis is restricted to the trade sales i. The competitive forces are very different for other segments such as the specialized high-tech automobile finishes.
We assume downloaders to be consumers, although there are, of course, other distinct groups such as hardware stores, and large discounters such as Wal-Mart. However, there are exceptions, such as Olympic Stain, that have successfully differentiated their products on the basis of quality. The Paint and Allied Products PAP Industry An analysis of the Paints and Allied Products industry SIC , using the five forces model, demonstrates why this industry has traditionally been caught in a price-cost squeeze and is unable to pass on rising raw material costs to its customers.
To illustrate the price-cost squeeze that this industry is facing, consider that between the years to , the PPI producer price index—the price for which it sells its output of the PAP industry increased an average of only 2 percent. The PPI for petroleum refining and related products—a key supplier to this industry—increased at a rate of 6 percent over this same period of time.
Hence the price of this key raw material was roughly twice the rate of inflation about 3 percent ; whereas, the PAP industry was lower than the rate of inflation. Thus, the PAP industry has been unable—due to unfavourable industry competitive forces—to pass on cost increases to their suppliers; thus eroding profitability. Threats of Entry: Very High minimal capital investment needed, little proprietary technology, regional firms can compete in local markets due to high transportation costs, little brand identification of existing competitors downloader Power: Very High low brand loyalty, relatively little product differentiation, relatively low switching costs Supplier Power: High especially for petroleum derivative raw materials—a key input in industry Substitute Products: High plastics, wood paneling, wallpaper coverings, etc.
High competition is based mostly on price competition, because of little brand loyalty and product differentiation; easy entry and exit from the industry gives rise to frequent price wars; little price leadership exhibited by larger firms Sources: After summarizing the major barriers to entry, ask students to provide examples of industries characterized by each of these entry barriers.
This may help them to understand what initially may appear to be rather complex ideas. You may want to spend some time discussing how economies of scale and economies of experience learning curve erect significant entry barriers.
In the auto industry, for example, manufacturers such as Ford, G. Despite these advantages, U. In North America, foreign auto producers have entered the market and have increasingly gained market share over the past few decades.
Ask the students why this happened? Does this prove that the concepts we discussed are wrong? Or does it point out that additional factors have to be considered? Briefly summarize some of the conditions under which a supplier group may become powerful.
It may be interesting how things have changed if they have with regard to the power of downloaders of talent i. We also provide the example of FreeMarkets Online, which helps industrial downloaders create online auctions for their downloads. Briefly discuss some of the conditions under which a supplier group may become powerful. The bargaining power of suppliers can be presented as the mirror opposite of the bargaining power of suppliers. For example, the relative sizes and concentrations largely determine the bargaining power of the two parties involved in the transaction.
The section discusses the relative power of the providers of talent—ranging from unskilled labour low to highly skilled professionals high. Especially hard hit will be several unions such as those in declining industries such as steel manufacturing.
Emphasize that the viability of a substitute product depends largely on its relative price-performance trade-off, i. Examples are electronic security systems versus security guards, and the use of steel versus plastic for components in the manufacture of automobiles. We discuss substitutes and in Strategy Spotlight Clearly, this technology poses a threat to the airline industry. They say they cater to underserved constituencies, such as adults who want to attend part-time and members of the military and minority groups.
However, critics point out that degrees earned at for-profit schools, including Phoenix, often carry less clout in the marketplace, despite price tags comparable to those at many public universities. The Education Department measures the percentage of first-time undergraduates who obtain a degree within six years. The national average is However, Phoenix criticizes the federal approach as misleading since the school serves mostly older students who began college elsewhere. Students also tend to incur far greater levels of debt after graduating from for-profit universities.
LeVine, S. Scooping up college stimulus. After discussing the factors that lead to intense rivalry in an industry, provide an example of an industry in which competition has recently been intense. For example, most students are familiar with the recurring price wars in the airline industry.
Strategy Spotlight 2. Ask them to explain the intensity of competition using the factors discussed e. You might point out that this industry had reported huge losses in even before the September 11, terrorist attack; moreover, many of the established airlines in North America have gone through bankruptcy proceedings. Air Canada came out of bankruptcy in Canadian Airlines could not sustain operations and was sold to Air Canada in , and Jetco folded in Currently, Westjet is profitable and Porter the upstart airline flying out of Toronto City Island into a dozen Canadian and US c cities claims to have broken even.
US firms such as United, US Air, and others have operated under bankruptcy protection for the better part of the last five years. In , skyrocketing fuel prices brought the industry to its knees, and again, the financial crisis resulted not only in lower fuel costs, but drastically reduced passenger volumes, further damaging the economic health of airlines around the world. One is government.
After much further work using and teaching the framework, I have reaffirmed my original conclusion that government is not a sixth force because there is no monotonic direct linear relationship between the strength and influence of government and profitability of an industry.
Also, there are many different parts of. And, how do you assess the consequence of what government does? Well, you look at how it affects the five forces. Again, there is no monotonic relationship between the extent of complements and profitability. Sometimes having many complements is consistent with high industry profitability, sometimes with low profitability.
It has to do with how complements affect the five forces…Clearly, complements have much to do with the size of the pie, but their role in the division of the pie is independent on other factors. Argyres, N. An interview with Michael Porter. Academy of Management Executive. We present the argument on complements in the next section of the chapter as this has been introduced through Game Theory and the work of A.
Brandenburger and B. The changes caused by the Internet economy have made strategizing more challenging. Strategic analysis, informed formulation, and successful implementation may be even more difficult in the Internet era because of the uncertainty surrounding the new technology. Students should be very familiar with the different dynamics of the Internet world.
You can ask them questions such as: Do you think businesses that use the Internet will really save money on salaries? What kind of salaries? Are there other types of salaries that could be higher if firms turn to ecommerce? What are some examples of industries where there have been a lot of new entrants because of the Internet?
Have these new entrants been successful? How have incumbent firms reacted? What are some other ways that end users can increase their downloading power by using the Internet? What are some examples of companies that have effectively used the Internet to increase their downloading power?
Do they matter to Internet downloaders? What are some examples of companies that have abandoned their traditional method of reaching customers and are using the Internet to reach customers directly? Examples of companies that are extensively use both? We discuss how companies can collaborate with each other for mutually beneficial outcomes. The Benefits of Close Supplier-downloader Relationships Experts in the supermarket industry believe that seamless partnerships between manufacturers and supermarkets would accelerate the deployment of sophisticated systems such as just-in-time delivery, electronic data interchange, and so-called efficient-consumer-response systems that permit manufacturers to monitor sales in stores and to produce and ship their goods in response to actual customer demand.
Moreover, the results witnessed when manufacturers and supermarket chains do cooperate suggest that both sides could increase sales volume by working together to customize offerings at different stores and for different end users.
Kumar, N. The power of trust in manufacturer-retailer relationships. Harvard Business Review, 74 6: The second issue we raise is that the five forces analysis has often been criticized for being a static — rather than a dynamic analysis.
Brandenberger and Nalebuff introduced the concept of the value net which we include in Exhibit 2.
In Strategy Spotlight 2. Firms interact and collaborate in relationships with suppliers and complementors. The concept of complementors is often considered to be the single most important contribution of value net analysis.Posted by.
Because of the Internet and digital technologies, it is very difficult for suppliers to create downloading techniques that lower switching costs. Although we discussed the general environment and competitive environment in separate sections, they are quite interdependent. Creating the Environmentally Aware Organization 2. Any messages sent by contact form regarding business or legal inquiry will not be taken seriously.
Using the key elements of Neuro-linguistic Programming — including building rapport and using advanced communication techniques — you can work wonders in a coaching environment. It is rather clear from the discussion in the text that the intensity of competition within strategic groups is much more intense than competition across groups.
Examples of companies that are extensively use both? It may be interesting to ask the students what dynamics they envision in the automobile industry, i. As well as a set of powerful skills, NLP is a philosophy and an attitude that is useful when your goal is excellence in whatever you do.