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Questions and Answers
Which of the following are elements identified in the industry structure?
Which of the following are elements identified in the industry structure?
Which factor indicates a threat in the industry, based on the opportunities and threats framework?
Which factor indicates a threat in the industry, based on the opportunities and threats framework?
What does rivalry among existing competitors influence in an industry?
What does rivalry among existing competitors influence in an industry?
Which scenario is generally considered an opportunity for an industry?
Which scenario is generally considered an opportunity for an industry?
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In the context of Porter's Five Forces, which category is associated with users of products or services?
In the context of Porter's Five Forces, which category is associated with users of products or services?
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Which factor contributes to high bargaining power of buyers in an industry?
Which factor contributes to high bargaining power of buyers in an industry?
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What is a key indicator of significant economies of scale in an industry?
What is a key indicator of significant economies of scale in an industry?
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Which of the following represents a threat to an industry from bargaining power of suppliers?
Which of the following represents a threat to an industry from bargaining power of suppliers?
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How does product differentiation affect buyer power?
How does product differentiation affect buyer power?
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In what situation are substitutes considered a significant threat to an industry?
In what situation are substitutes considered a significant threat to an industry?
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What typically occurs when switching costs for buyers are minimal?
What typically occurs when switching costs for buyers are minimal?
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What effect does global warming have on automobile producers?
What effect does global warming have on automobile producers?
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Which of the following describes a low bargaining power condition for suppliers?
Which of the following describes a low bargaining power condition for suppliers?
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What is the main purpose of scanning and monitoring in an organization?
What is the main purpose of scanning and monitoring in an organization?
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What does PEST analysis stand for?
What does PEST analysis stand for?
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Which industry is likely to generate high return on equity (ROE)?
Which industry is likely to generate high return on equity (ROE)?
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How does industry structure influence competition?
How does industry structure influence competition?
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What characterizes a market with perfect competition?
What characterizes a market with perfect competition?
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Which of the following factors is NOT typically associated with monopoly?
Which of the following factors is NOT typically associated with monopoly?
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How might consolidating trends in an industry impact competition?
How might consolidating trends in an industry impact competition?
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What is a potential consequence when an industry experiences an addition of capacity that exceeds demand?
What is a potential consequence when an industry experiences an addition of capacity that exceeds demand?
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Study Notes
Introduction to Strategic Management
- Course title: Introduction to Strategic Management
- Topic: External Environment Analysis
- Presenter: Muge Ozman
Strategic Management Model
- Shows a cyclical process, beginning with environmental scanning and ending with feedback and evaluation.
- The model depicts the stages of formulating, implementing, and evaluating strategy.
- Environmental scanning gathers information, both internal and external.
- Internal factors include firm structure, culture, resources, assets, skills, and competencies.
- External factors include opportunities and threats in the societal and task environment.
- Strategy formulation involves creating long-range plans, objectives, and strategies.
- Strategy implementation puts strategies into action through policies, programs, activities, and budgets.
- Evaluation and control involve monitoring performance against objectives.
- Feedback loops enable adjustments to be made.
Environmental Scanning
- Essential for understanding the external environment.
- General environment consists of sociocultural, economic, technological, and political-legal forces.
- Competitive environment examines competitors, labor unions, creditors, customers, and interest groups.
- Firms must gather and analyze information from both general and competitive environments.
- Weak signals, small changes that aren't yet noticeable, are crucial to identify and monitor.
- The volume of information makes it challenging for managers to identify weak signals and trends.
General Environment
- Includes economic forces, sociocultural forces, technological forces, and political-legal forces.
- Economic forces include interest rates, exchange rates, inflation, GNP, GDP, consumer income, spending, depth of markets, unemployment, and workforce productivity.
- Sociocultural forces encompass culture, traditions, values, attitudes, beliefs, tastes, and patterns of behavior.
- Technological forces represent portable information devices, electronic networking, fuel cells, alternative energy sources, smart mobile robots, genetically altered organisms, and nanotechnology.
- Political-legal forces involve laws, regulations, judicial decisions, and political forces.
- Demographic environment includes gender, age, education, birth rates, income levels, ethnic make-up, and family composition.
Competitive Environment
- Focuses on competitors, labor unions, suppliers, buyers, creditors, and interest groups.
- These entities influence a firm's success and have a direct impact on competitive advantage.
PEST Analysis
- PEST analysis is useful for scanning the general environment.
- It identifies political, economic, social, and technological factors.
- PEST helps recognize weak signals that could indicate major changes.
- PEST analysis connects the general environment with the competitive environment.
- Weak signals in the general environment can lead to changes in the competitive environment.
Industry Profitability
- Some industries generate more profits than others.
- Examples include pharmaceuticals, tobacco, beverages, and petroleum refining.
- Industries with high Return on Equity (ROE) often exhibit high profitability.
Industry Structures
- Industry structure shapes competition, and in turn, influences profitability.
- Monopoly exists when a single firm dominates an industry, which can generate high profits but limit consumer choice.
- Perfect competition involves numerous firms with identical products and no entry or exit barriers.
- Real-world industries fall between these two extremes.
Porter's Five Forces
- A framework for analyzing industry competition.
- Includes the rivalry among existing competitors, the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, and the threat of substitute products or services.
Opportunities and Threats
- In analyzing an industry, consideration of opportunities and threats associated with different groups (competitors, entrants, buyers, suppliers, and substitutes).
- Opportunities are advantageous positions.
- Threats are potential disadvantages that could negatively impact the firm.
- Examined among different players, such as competitors, entrants, buyers, suppliers, and existing substitutes.
Industry Analysis
- Key elements of the industry structure include producers, customers, suppliers, and substitute goods producers.
Key Success Factors
- Understanding customer needs, competitive factors, and market dynamics is pivotal for success.
- Identifying key success factors requires examining the demand side (customer needs) to determine who customers are, what they want, and what they need.
- Competitive analysis entails examining factors driving competition, identifying competitor strategies, assessing competition intensity, and formulating strategies for achieving a distinctive competitive advantage.
Forecasting Industry Profitability
- Industry analysis can reveal reasons for high or low profitability.
- However, the aim is to predict future profitability by analyzing trends.
Segmentation Analysis
- Industries are often segmented into different markets.
- This is needed because of the difficulty in defining industry boundaries.
- Attractive segments may be identified and tailored strategies employed. Identifying the most attractive segments and developing appropriate strategies.
Stages in Segmentation
- Steps involved in segmenting a market:
- Identifying segmentation variables (customer and product characteristics, substitutability).
- Constructing a segmentation matrix.
- Assessing segment attractiveness based on Porter's framework.
- Determining key success factors of segments and buyer purchase criteria to establish bases of competition.
Bases of Market Segmentation
- Criteria used for segmentation, including demographics, purchasing situations, product characteristics, and preferences.
Complements, Dynamic Nature of Competition, and Game Theory
- Porter's framework can be improved by considering complements, the dynamic nature of competition, and game theory elements.
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Description
Test your knowledge on the concepts of external environment analysis in strategic management. This quiz covers the cyclical strategic management model, including components such as environmental scanning, strategy formulation, implementation, and evaluation. Challenge yourself to understand how these elements interact in the strategy development process.
