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Questions and Answers
What is the primary concern of economists regarding strategic management?
What is the primary concern of economists regarding strategic management?
Which aspect of strategic management is highlighted by sociologists?
Which aspect of strategic management is highlighted by sociologists?
What does the management theorist's definition of strategic management emphasize as critical?
What does the management theorist's definition of strategic management emphasize as critical?
What is a characteristic that contributes to high buyer power?
What is a characteristic that contributes to high buyer power?
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In which module of strategic management would you study corporate strategy?
In which module of strategic management would you study corporate strategy?
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Which of the following scenarios increases the threat of entry into an industry?
Which of the following scenarios increases the threat of entry into an industry?
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Why might supplier power be considered high?
Why might supplier power be considered high?
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What is a key component of the group work assessment in this course?
What is a key component of the group work assessment in this course?
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What factor indicates a high threat of substitutes in an industry?
What factor indicates a high threat of substitutes in an industry?
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Which of the following is NOT a factor related to high exit barriers in an industry?
Which of the following is NOT a factor related to high exit barriers in an industry?
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What characterizes an unattractive industry?
What characterizes an unattractive industry?
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Which statement about the analysis of competitive forces is correct?
Which statement about the analysis of competitive forces is correct?
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What is a criticism of the traditional five forces model?
What is a criticism of the traditional five forces model?
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In an attractive industry, which of the following is true?
In an attractive industry, which of the following is true?
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What does stronger competitive forces imply about potential profits?
What does stronger competitive forces imply about potential profits?
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Which definition describes strategy according to Alfred Chandler?
Which definition describes strategy according to Alfred Chandler?
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What is the primary focus of strategies as described by Kenneth Andrews?
What is the primary focus of strategies as described by Kenneth Andrews?
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According to Michael Porter, what is essential for creating a competitive strategy?
According to Michael Porter, what is essential for creating a competitive strategy?
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What does the acronym FIT refer to in the context of strategy?
What does the acronym FIT refer to in the context of strategy?
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Which of the following exemplifies differing strategic approaches between companies?
Which of the following exemplifies differing strategic approaches between companies?
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What happens if a deliberate strategy fails to achieve its intended results?
What happens if a deliberate strategy fails to achieve its intended results?
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Which of the following is NOT classified as levels of strategy?
Which of the following is NOT classified as levels of strategy?
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Which external analysis tool helps to assess factors like interest rates and inflation?
Which external analysis tool helps to assess factors like interest rates and inflation?
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In industry analysis, what is the first step?
In industry analysis, what is the first step?
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Which of the following best describes the role of substitutes in industry analysis?
Which of the following best describes the role of substitutes in industry analysis?
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What factor leads to intense rivalry in an industry?
What factor leads to intense rivalry in an industry?
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From which perspective must the analysis be assessed to understand power dynamics in an industry?
From which perspective must the analysis be assessed to understand power dynamics in an industry?
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Which of the following describes a characteristic of an emergent strategy?
Which of the following describes a characteristic of an emergent strategy?
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Study Notes
Strategic Management Introduction
- Strategic management is a multi-perspective field involving economics, sociology, and organizational behavior.
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Key definitions:
- Economist: Emphasizes scientific planning to achieve and maintain competitive advantage.
- Sociologist: Focuses on value creation within organizations through "plans" and "organizational configuration."
- Management theorist: Studies decisions and actions of top executives for market competitiveness.
Definitions of Strategy
- Kenneth Andrews: Views strategy as a pattern of objectives, purposes, and plans to define a company's business, goals, and identity.
- Alfred Chandler: Defines strategy as the determination of long-term goals, objectives, and actions for achieving those goals while allocating resources appropriately.
- Peter Drucker: Defines strategy as a firm's theory about gaining competitive advantage.
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Michael Porter: Emphasizes differentiation and unique value delivery through deliberate activity choices as the foundation of competitive strategy.
- TEST SUBJECT: Porter introduced the concept of industrial organization into strategic analysis.
The Nature of Strategy
- Strategy is a long-term organizational direction focused on gaining advantage over competitors, addressing environmental changes, and leveraging resources and capabilities.
Examples of Strategy in Action
- FIT (an important concept in strategy) refers to a firm's ability to adapt to changes in the external environment.
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Hotels in London:
- The Ritz and easyHotel demonstrate different strategies targeting distinct customer segments.
- Intended/Planned strategy: A planned course of action.
- Deliberate strategy: An intended strategy that is successfully implemented.
- Realised strategy: The strategy that actually occurs, which may deviate from the intended strategy.
- Emergent strategy: Unplanned strategies that emerge in response to unforeseen circumstances (e.g., online teaching during COVID-19).
- Unrealised strategy: A deliberate strategy that fails to be implemented.
Levels of Strategy
- Corporate level: Strategy for the entire organization (e.g., Disney).
- Business level: Strategy for different divisions within the organization (e.g., Disney Parks, streaming platform, etc.).
- Functional level: Strategy for departments within divisions (e.g., HR, marketing, etc.).
External Analysis
- Environmental analysis: Understanding the surroundings and climate in which an organization operates.
- Coca-Cola example: Demonstrates analyzing an organization's competitors (e.g., Pepsi), industry (e.g., beverage), and macro-environment.
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PEST(EL) Framework: Analyzes the Political, Economic, Social, Technological, Environmental, and Legal factors impacting an organization.
- Example: Businesses might want to leverage low-interest rates for borrowing.
- Industry Analysis: Specifically for analyzing a business (not a corporation as corporations can operate in multiple industries).
Steps in Industry Analysis
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1) Define Industry Boundaries:
- Be specific and consistent in defining the industry's scope.
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2) Map Key Players:
- Identify competitors, buyers, suppliers, substitutes, and potential entrants.
- Determine the final customer, even if not a direct customer, as ultimately value is created for that group.
- 3) Perspective: Clearly define whether the analysis is from the perspective of an incumbent (established player) or an entrant (newcomer).
- 4) Power Assessment: Analyze the power of each player to influence prices, costs, and volumes, both currently and in the future.
Factors Influencing Industry Analysis
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1) Rivalry Intensity: Factors contribute to intense rivalry:
- Low Concentration: No dominant players in the industry.
- Undifferentiated product: Products lack unique qualities.
- High Exit Barriers: Difficulties in leaving the industry.
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Low Margins: Competitors are willing to sell even at low profit margins.
- Perishable products: Products with a limited shelf life.
- Large fixed costs: High initial investment costs.
- Low marginal costs: Low cost of producing each additional unit.
- Low Industry Growth: Limited market expansion opportunities.
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2) Buyer Power: High buyer power when:
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High price sensitivity: Buyers are highly sensitive to price changes.
- High share of buyers' total cost: Products represent a significant portion of buyers' expenses.
- Little impact on buyer's output quality: Products have minimal impact on the quality of buyers' products.
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High bargaining sensitivity: Buyers hold significant bargaining power:
- Few buyers: Limited number of buyers.
- Low switching costs: It is easy for buyers to switch to alternative products.
- Undifferentiated products: Products lack distinguishing features.
- Potential for backward integration: Buyers have the possibility of producing the products themselves.
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High price sensitivity: Buyers are highly sensitive to price changes.
- 3) Supplier Power: Analogous to buyer power analysis.
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4) Threat of Entry: High threat of entry when:
- Low capital requirements: Low costs associated with entering the industry.
- No economies of scale: No cost advantages associated with large-scale production.
- Access to inputs: Ease of obtaining necessary resources.
- Access to distribution channels: Easy to reach customers through distribution networks.
- No switching costs: Customers face no barriers to switching from existing products.
- No legal/regulatory barriers: No legal or regulatory hurdles to enter the market.
- No threat of retaliation: No risk of aggressive response from existing companies.
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5) Threat of Substitutes: High when:
- Small performance difference: Substitutes offer similar value compared to industry products.
- Low switching costs: Customers face minimal barriers to switch.
Interpreting Industry Analyses
- Unattractive industry: Characterized by low entry barriers, strong bargaining power of suppliers and buyers, strong competitive threats from substitutes, and intense rivalry.
- Attractive industry: Features high entry barriers, weak bargaining power of suppliers and buyers, few competitive threats from substitutes, and moderate rivalry.
- Industry analysis:* Allows firms to determine an industry's attractiveness for earning average or above-average returns. Stronger competitive forces indicate lower profit potential.
Criticism of 5 Forces Framework
- Six Force: Complements (Brandenburger & Nalebuf, 1996): Factors that increase the value of a product or service (e.g., iPhone and App Store).
- Static: Not a dynamic framework that can be analyzed over time.
- No prediction: Can only analyze past events, not predict future outcomes.
- Not explaining competitive advantage: Doesn't fully account for internal factors contributing to competitive advantage.
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