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GBA 490 chapter 3

by: Sody Gentry

GBA 490 chapter 3 GBA 490

Sody Gentry

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About this Document

chapter 3 will be included in exam 1
Strategic Management
Joyce L. Meyer
Class Notes
GBA, GBA490, Busin
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This 4 page Class Notes was uploaded by Sody Gentry on Sunday September 11, 2016. The Class Notes belongs to GBA 490 at University of Alabama - Tuscaloosa taught by Joyce L. Meyer in Fall 2016. Since its upload, it has received 9 views. For similar materials see Strategic Management in Business at University of Alabama - Tuscaloosa.


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Date Created: 09/11/16
Ch 3 Evaluating a company’s external environment PESTEL Analysis  Political factors: these factors include political policies, including the extent to which a government intervenes in the economy o -tax policy, tariffs, political climate, strengths of the federal banking system  Economic conditions (local to worldwide): these conditions inculde the general economic climate and specific factors such as interest rates, exchange rates, inflation, unemployment, etc.  Sociocultural forces: include the societal values, attitues, cultural influences, and lifestyles that impact demand for particular goods and services, as well as demographic factors such as population, growth rate, and age distribution. o Vary by locale and change over time o Ex: the trend toward healthier lifestyles Technological factors: these factors include the pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering and nanotechnology. Environmental factors (the natural environment): these include ecological and environmental forces such as weather, climate, and associated factors like water shortages.  Legal/regulatory conditions: these factors include the regulations and laws with which companies must comply. o Ex: consumer laws, labor laws, antitrust laws, and occupational health and safety regulations. Assessing a company’s industry and competitive environment 1. How strong are the industry’s competitive forces? ●  The Five Competitive Forces:  Competition from rival sellers  Competition from potential new entrants  Competition from producers of substitute products  Supplier bargaining power  Customer bargaining power 2. What are the driving forces in the industry, and what impact will they have on competitive intensity and industry profitability? ● Something that changes everything in a dramatic way, for better or worse  Ex: government policy, war, location 3. What market positions do industry rivals occupy—who is strongly positioned and who is not? 4. What strategic moves are rivals likely to make next? 5. What are the industry’s key success factors? 6. Is the industry outlook conducive to good profitability? Competitive pressures associated with the threat of new entrants Entry Threat Considerations: ● Expected defensive reactions of incumbent firms  Incumbent firms typically lower prices and increase defensive actions in an attempt to deter new entry when the treat of entry is high ● Strength of barriers to entry ● Brand preferences ● High start up cost Competitive pressures from the sellers of substitute products  Substitute Products Considerations: o Substitute product: substitute goods or substitutes are products that a consumer perceives as similar or comparable, so that having more of one product makes them desire less of the other product  Indicators of Substitutes’ Competitive Strength: o Good substitutes are readily available and attractively priced o Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes o The cost that buyers incur in switching to the substitutes are low Supplier Bargaining Power Depends On:  Strength of demand for suppliers products and the products are short in supply  Suppliers provide differentiated inputs that enhance the performance of the industry’s product  It is difficult or costly for industry members to switch their purchases from one supplier to another  The supplier industry is dominated by a few large companies and it is more concentrated than the industry it sells to  Industry members are incapable of integrating backward to self- manufacture items they have been buying from suppliers  Whether suppliers provide a differentiated input that enhances the performance of the industry’s product. Buyer (consumer) Bargaining Power Considerations: o Strength of buyers’ demand for sellers’ products o Degree to which industry goods are differentiated o “If I were to just walk away”  McDonalds would sell to next customer- they don’t need to bargain Is the state of competition in the industry stronger than “normal”?  Even one of the factors being too powerful could make the industry less attractive and we wouldn’t want to participate in that specific industry  Driving forces analysis has three steps: 1. Identifying what the driving forces are in that particular industry. 2. Assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive. 3. Determining what strategy changes are needed to prepare for the impact of the driving forces. Most common drivers of industry change  Changes in the long-term industry growth rate  Increasing globalization  Emerging new internet capabilities and applications  Shifts in buyer demographics  Technological change and manufacturing process innovation  Product and marketing innovation  Entry or exit of major firms  Diffusion of technical know-how across companies and countries  Changes in cost and efficiency  Reductions in uncertainty and business risk  Regulatory influences and government policy changes  Changing societal concerns, altitudes, and lifestyles Assessing the impact of the factors driving industry change 1. Are the driving forces as a whole causing demand for the industry’s product to increase or decrease? 2. Is the collective impact of the driving forces making competition more or less intense? 3. Will the combined impacts of the driving forces lead to higher or lower industry profitability? Strategic Group: a cluster of industry rivals that have similar competitive approaches and market positions  Consists of those industry members with similar competitive approaches and positions in the market: o Having comparable product-line breadth o Emphasizing the same distribution channels Strategic group mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry  Constructing a strategic group map: o Identify the competitive characteristics that delineate strategic approaches used in the industry. o Plot the firms on a two-variable map using pairs of the competitive characteristics. Competitive Intelligence o Studying competitors past behavior and preferences provides a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them tin the market place.  Signals of the Likelihood of Strategic Moves: o Strategy- how the company is competing currently o Objectives- strategic and performance objectives o Resources- key strengths and weakness o Capabilities  Current Strategy o How is the competitor positioned in the market? o What is the basis for its competitive advantage? o What kinds of investments is it making (as an indicator of its expected growth trajectory)? Key Success Factors (KSFs) o The strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that is necessary for competitive success by any and all firms in an industry.


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