Strategic Business Environment Concepts
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Questions and Answers

What is the primary difference between the external approach and the internal approach in strategic management?

  • The internal approach centers on market trends.
  • The external approach seeks attractive market opportunities. (correct)
  • The external approach focuses on internal capabilities.
  • The internal approach emphasizes environmental factors.

    • Which framework is explicitly mentioned as a tool for analyzing the macro-environment?

  • SWOT Analysis
  • Porter's Five Forces
  • PESTEL Framework (correct)
  • BCG Matrix

    • What term refers to environmental factors that significantly influence industries and sectors?

  • Key Drivers for Change (correct)
  • Market Interactions
  • Strategic Internal Elements
  • Operational Benchmarks

    • Scenario analysis in environmental analysis emphasizes which of the following?

    <p>Weak Signals Learning (B)</p> Signup and view all the answers

    Which of the following is not typically included in a comprehensive PESTEL analysis?

    <p>Social media trends (A)</p> Signup and view all the answers

    What is the main goal of identifying megatrends in business environments?

    <p>To understand long-term shifts and influences. (D)</p> Signup and view all the answers

    What aspect of the business environment provides organizations with their means of survival?

    <p>External environmental factors (B)</p> Signup and view all the answers

    Which question does not align with strategic self-reflection regarding an organization’s position?

    <p>What rivals are doing? (C)</p> Signup and view all the answers

    How does scenario analysis differ from alternative futures forecasting?

    <p>Scenario analysis extends into the distant future and avoids probabilistic calculations. (C)</p> Signup and view all the answers

    What is the primary purpose of developing scenarios in scenario analysis?

    <p>To explore potential events and their impacts. (C)</p> Signup and view all the answers

    What do 'key drivers for change' refer to in the scenario creation process?

    <p>Factors that influence the direction of strategic planning. (A)</p> Signup and view all the answers

    What does Porter's five forces framework evaluate?

    <p>The attractiveness of an industry based on competitive forces. (D)</p> Signup and view all the answers

    Which of the following best describes the term 'industry'?

    <p>A group of firms producing similar products or services. (D)</p> Signup and view all the answers

    What is a potential result of high competitive forces in an industry?

    <p>Reduced overall attractiveness of the industry for new entrants. (B)</p> Signup and view all the answers

    What is the relationship between industries and markets?

    <p>An industry comprises firms that serve specific markets with similar products. (D)</p> Signup and view all the answers

    Which component of Porter's five forces might involve negotiating supply prices?

    <p>Power of suppliers (A)</p> Signup and view all the answers

    What is the impact of high barriers to entry in an attractive industry?

    <p>They reduce the threat of new competitors. (A)</p> Signup and view all the answers

    Which factor is essential in determining the threat of substitutes in an industry?

    <p>The price/performance ratio of alternatives (D)</p> Signup and view all the answers

    What misconception might managers have regarding the threat from substitutes?

    <p>Substitutes are always from within their industry. (A)</p> Signup and view all the answers

    How do concentrated buyers influence buyer power?

    <p>They give buyers more negotiating leverage. (B)</p> Signup and view all the answers

    Which of the following best describes extra-industry effects related to substitution threats?

    <p>They come from products or services outside the current industry. (D)</p> Signup and view all the answers

    What role do expected retaliations play in the threat of new entrants?

    <p>They can deter new entrants from entering the market. (D)</p> Signup and view all the answers

    What should incumbents in an industry consider regarding rivalry?

    <p>Rivalry can be influenced by substitute products as well. (C)</p> Signup and view all the answers

    Which of the following does NOT reduce buyer power?

    <p>Differentiated products that reduce comparisons (D)</p> Signup and view all the answers

    What happens when buyers have high power in a market?

    <p>They can request product improvements or lower prices. (B)</p> Signup and view all the answers

    Which factor increases supplier power according to the content?

    <p>High switching costs for the buyer. (D)</p> Signup and view all the answers

    How does competitive rivalry typically affect incumbents in an industry?

    <p>It can result in reduced profitability due to price competition. (D)</p> Signup and view all the answers

    What is one contributing factor to fierce price competition within industries experiencing low growth?

    <p>Growth at the expense of rivals. (D)</p> Signup and view all the answers

    Which of the following indicates a market with high exit barriers?

    <p>Declining industries with excess capacity. (A)</p> Signup and view all the answers

    In a commodity market, firms may engage in price cuts primarily due to:

    <p>High levels of competitive rivalry. (D)</p> Signup and view all the answers

    Which type of industry is characterized by a lack of direct competitors with similar offerings?

    <p>Monopolistic industries. (B)</p> Signup and view all the answers

    What is a common outcome when firms experience high fixed costs in an industry?

    <p>Firms may cut prices to increase sales volumes. (D)</p> Signup and view all the answers

    What characterizes an oligopolistic industry?

    <p>A few firms dominating and significant power over buyers (A)</p> Signup and view all the answers

    What is a defining aspect of hypercompetitive industries?

    <p>Constant changes and aggressiveness among competitors (A)</p> Signup and view all the answers

    Which of the following best describes a complementor?

    <p>An organization that enhances the value of another's product (A)</p> Signup and view all the answers

    Which industry would be most likely characterized by perfect competition?

    <p>A market with numerous firms offering identical products (D)</p> Signup and view all the answers

    What does the concept of cycles of competition refer to?

    <p>Sequences of moves and counter-moves among competitors (C)</p> Signup and view all the answers

    In terms of industry analysis, what is one primary challenge identified?

    <p>Recognizing the constant change of industry boundaries (D)</p> Signup and view all the answers

    What is the five forces analysis primarily used for?

    <p>Determining the profitability and competitive dynamics (D)</p> Signup and view all the answers

    What is a high-level effect of hypercompetition on companies?

    <p>Increased instability leading to low profitability (B)</p> Signup and view all the answers

    Flashcards

    External Approach

    A strategic approach focused on external factors like market opportunities for business success.

    Internal Approach

    A strategic approach that prioritizes organizational strengths and capabilities for success.

    Key Drivers for Change

    Environmental factors significantly impacting industry success and strategy effectiveness.

    PESTEL Framework

    A framework for analyzing macro-environmental factors influencing businesses (Political, Economic, Social, Technological, Environmental, Legal).

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    Macro-environment

    The broadest environmental layer encompassing external factors impacting all businesses.

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    Industry Analysis

    Analyzing the competitive landscape and factors within a specific sector.

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    Strategic Position

    A company's overall position in the market, defined by its strategy and capabilities.

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    Environmental Analysis

    The process of studying the external factors affecting an organization.

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    Scenario Analysis (S.A.)

    A method used to explore possible future environments in situations with high uncertainty. It's used to understand different, possible futures, not to predict which will happen.

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    Scenario Cube

    A framework used to create scenarios by identifying key drivers of change and the opposing forces.

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    Industry

    A group of companies that produce similar products or services.

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    Porter's Five Forces

    A framework used to assess the attractiveness of an industry by evaluating five competitive forces.

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    Competitive Forces

    Forces like threat of entry, substitutes, buyer power, supplier power, and rivalry among existing competitors.

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    Attractive Industry Structure

    An industry structure offering favorable profit potential due to low competitive forces.

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    Market

    A group of customers interested in specific products or services.

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    Industry Attractiveness

    A useful starting point for strategic analysis, even if profit isn't the sole goal. Analyzing the strength of competitive forces within the industry.

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    Threat of Entry

    The extent to which new competitors can potentially enter an industry.

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    Barriers to Entry

    Factors that make it difficult for new businesses to enter a particular industry.

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    Threat of Substitutes

    Products or services that provide a similar benefit to existing products but through a different process.

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    Buyer Power

    The ability of customers to influence the prices and terms offered by companies in an industry.

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    Concentrated Buyers

    A situation where a small number of large customers account for a large portion of sales.

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    Extra-industry effects

    Threats coming from outside the industry the firm competes in.

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    Low Switching Costs

    A situation where customers do not have significant difficulty switching to a different provider.

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    Supplier Power

    The ability of suppliers to influence prices and terms of service from buyers.

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    Competitive Rivalry

    The intensity of competition among similar businesses targeting the same customer base.

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    Backward Integration

    A strategy where buyers acquire or develop the capability to supply themselves.

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    Forward Integration

    A strategy where suppliers acquire or develop the capability to sell directly to customers.

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    Low Switching Cost (Buyer)

    Ease of switching between different suppliers or products for buyers.

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    High Fixed Costs

    High initial investments in capital or research that become cheaper with greater volume.

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    Monopolistic Industries

    Industries characterized by one or a few major players that dominate the market and control pricing.

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    Monopoly

    An industry dominated by a single firm, lacking competitive rivals.

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    Oligopoly

    An industry where a few firms have significant market power and influence.

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    Hypercompetition

    Industries with frequent, aggressive competition, fostering constant change and instability.

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    Perfect Competition

    An industry with low barriers to entry, numerous competitors selling similar products, and freely available information.

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    Industry Life Cycle

    The stages an industry goes through: introduction, growth, maturity, and decline.

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    Five Forces Analysis

    A framework for analyzing competition within an industry by identifying key competitive pressures.

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    Complementary Organizations

    Organizations whose products enhance the value of another organization's products.

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    Key Success Factors (KSFs)

    The characteristics or activities crucial for an organization to succeed in a given business

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    Study Notes

    The Environment

    • The environment is what gives organisations their means of survival.
    • External approach focuses on attracting marketplace opportunities.
    • Internal approach focuses on strategic capabilities to build distinctive strategies and superior performance.

    Strategic Position

    • Strategic positioning involves understanding "Who am I?", "Who can I be?", and "Where am I?".
    • Potential considers the environment.
    • Strategic capability is important.
    • Ambition is vital for strategic purpose.
    • Culture and strategy drive the results.
    • Ambitions should be considered in terms of "Who do I want to be?".
    • Judging criteria should be established for "How do I judge things?".

    Layers of the Business Environment

    • Layers of the business environment can be seen in a concentric circle structure where the outer ring consists of the macro-environment, followed by industry (or sector), then competitors and finally the organisation, in the middle.
    • Markets lie outside the organisation, in the outer ring.

    Macro-environment Analysis Tools

    • PESTEL analysis is used to evaluate the macro-environment.
    • PESTEL analysis encompasses market and non-market factors.
    • Analysis tools include forecasting (prediction emphasis), scenario analysis, megatrends, inflexion points, and weak signals.

    Industry Analysis

    • The industry environment consists of suppliers, competitors, and customers, all influenced by the natural environment, demographics, and social forces.
    • Environmental analysis precedes industry analysis.

    PESTEL Framework

    • The PESTEL framework provides a structured evaluation tool.
    • Factors considered include environmental, economic, population, technological, weather, and discriminatory laws.

    Example: PESTEL Analysis of Tesla

    • Political factors have supported Tesla's growth and expansion.
    • Government incentives have strengthened its financial performance, driven by environmental sensitivity.
    • Economic factors relate to the company's growth and profitability.
    • The electric car sector is a boost for the global economy.
    • Socio-cultural factors demonstrate and mold the population, thus aiding marketers in understanding their target audience.
    • Environmental factors highlight Tesla's support for expanding environmental programmes.
    • Legal factors are required for Tesla as it expands operation in other countries and has to maintain compliance.

    Competitive Forces—The Five Forces Framework

    • Porter's model describes five competitive forces which measure industry attractiveness.
    • These forces are the threat of entry, threat of substitutes, buyer power, supplier power and competitive rivalry.
    • Industries with high levels of these forces are less attractive.
    • The five forces analysis can set an agenda for actions that control excessive rivalry in a particular industry.

    The Five Forces Framework

    • This framework includes potential entrants, rivalry among existing firms, threat of substitutes, bargaining power of buyers, and bargaining power of suppliers.

    Structural Determinants

    • Various factors affect each force, and these are known as structural determinants.
    • Factors include, for example, capital requirements, product differentiation, cost conditions, and retaliation.

    Threat of Entry

    • The threat of entry is based on the barriers new entrants have to overcome to participate in an industry.
    • The barriers to entry can include scale & experience, access to supply & distribution channels, expected retaliation, legislation/government action, and differentiation.

    Threat of Substitutes

    • A substitute is a product/service which offers similar benefits with different process approaches, e.g. aluminium instead of steel in automobiles; or trains instead of cars.
    • The price/performance ratio is critical to substitution threats.
    • Extra industry effects are the core of substitution effect.

    Buyer Power

    • Buyers are the organization's immediate customers.
    • Concentrated buyers, low switching costs, and buyer competition can affect the power of buyers.

    Supplier Power

    • Suppliers provide what is needed to produce/deliver products or services
    • Supplier power includes concentrated suppliers, high switching costs, and the threat of supplier competition.

    Competitive Rivalry

    • Competitive rivalry involves organisations with similar products aimed at the same customers (not substitutes).
    • Intensity of rivalry affects the welfare of incumbent firms (existing ones) and industries.

    Forces Affecting Rivalry

    • The severity of competitive rivalry depends on the balance of factors like competitor balance (size), industry growth, fixed costs, and exit barriers.

    Dynamics of Industry Structure: The Industry Life Cycle

    • The dynamics of industry structure are characterized by stages like development, growth, shake-out, maturity, and decline, with each stage having particular market size, rivalry, typical five forces, and key factors.

    Solar Industry Example

    • The solar industry's growth is presented in a graph that shows the adoption curve for solar PV power producers.

    Cycles of Competition

    • Competition cycles involve counter-moves known as cycles of competition.
    • These cycles can create hypercompetition for various participants, leading to lower profitability.

    Identifying Key Success Factors

    • Identifying key success factors requires understanding customers' needs and analyzing competition, focusing on how to survive competition, and obtaining superior competitive positioning.

    Value Net

    • A value net visually represents organisations and their related factors (customers, competitors/substitutes, company, and complementors/suppliers).
    • It's a tool to understand opportunities for cooperation and competition.

    Value Net Model for Air Traffic Management System

    • The model shows the components necessary for the function of an air traffic management system.
    • The model includes customers, competitors, suppliers, and complementors.

    Types of Industry

    • Industries are classified into various types, including monopolies, oligopolies, hypercompetitive industries, and perfectly competitive industries.

    Implications of Five Forces Analysis

    • Organizations use the analysis to decide which industries to enter or leave, the amount of influence to exert and how competitors will be affected.

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    Environment PDF

    Description

    This quiz explores key concepts of the business environment, focusing on strategic positioning, organizational capabilities, and market opportunities. Delve into the layers of the business environment and understand how internal and external factors influence organizational survival and performance.

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