Management Past Paper 2024 PDF

MANAGEMENT Mihai VRÎNCUȚ Cezar-Petre SIMION 2024 SUPPORT MATERIAL FOR THE SECOND YEAR FULL-TIME STUDENTS, CYBERNETICS, STATISTICS AND ECONOMIC INFORMATICS FACULTY 1  Introduction...

MANAGEMENT Mihai VRÎNCUȚ Cezar-Petre SIMION 2024 SUPPORT MATERIAL FOR THE SECOND YEAR FULL-TIME STUDENTS, CYBERNETICS, STATISTICS AND ECONOMIC INFORMATICS FACULTY 1  Introduction This material is a simplified adaptation of the book “Management”, Coord. Vasile Deac, destined for the ASE online platform. To the contents of the said book, the author of this material added: elements of entrepreneurship designed to provide students with the skills and abilities needed to start a business on their own; methods to stimulate creativity; innovative management tools; minimal knowledge of business registration; financing and financial management elements; the structure and elaboration of a viable business plan, in accordance with the requests of funders, clients or other stakeholders. The present paper aims to help students with the development of managerial thinking and skills. It provides the conceptual framework, methods and techniques necessary for the analysis and improvement of the activity of organizations in order for them to achieve the performance necessary to face the competition. This paper is addressed to Cybernetics, Statistics and Economic Informatics Faculty students, who attend the “Management” class in their second year of studies. The way the paper is structured and the issues addressed in each chapter aim to ensure the students develop the professional and transversal skills described in the syllabus of the “Management” discipline for the aforementioned faculty. The paper is structured into eight learning units, each learning unit aiming at transmitting and verifying knowledge related to the topic addressed. After completing a learning unit, students acquire certain skills that help them debate and solve various concrete management problems. In order to obtain good results in the learning process, in addition to this paper, students should also consult the recommended bibliography found in the syllabus of the “Management” discipline, as well as other complementary sources recommended by the Professor. © Copyright statement: this work is subject to copyright, under Romanian law 8/1996. The content of this document may not be reproduced, in whole or in part, nor may it be transferred to another storage medium/website or translated into another language without the written permission of its authors. The Authors 2 Contents LEARNING UNIT 3............................................................................................................................ 4 THE ORGANIZATION’S STRATEGIC MANAGEMENT.............................................................. 4 1. The organization’s strategy.........................................................................................................4 1.1 The concept of strategy and its components............................................................................4 1.2 The process of formulating the organization’s strategy...........................................................7 2. The competitive environment’s strategic analysis....................................................................8 3. The organization’s internal strategic analysis.........................................................................11 4. Useful tools in formulating the organization’s strategy.........................................................15 5. Bibliography...............................................................................................................................21 3  LEARNING UNIT 3 THE ORGANIZATION’S STRATEGIC MANAGEMENT 1. The organization’s strategy 1.1 The concept of strategy and its components The concept of strategy originates from the Greek language (stratos = weapons and agos = lead). The well-known publication Larousse defines strategy as “the art of coordinating the military, political, economic and moral forces implied in leading a conflict or in preparing the defense of a nation or of a community of nations”. 1 Reserved a long time strictly for the military art, in the last six decades the concept of strategy entered in the managers’ daily vocabulary when they refer to the organization’s management, and strategic planning became indispensable for a good functioning of larger organizations. What does the organization’s strategy represent? Definition: The organization’s strategy designates the totality of actions taken in order to establish the main organizational objectives for the long run, the means that will be employed to achieve these objectives (the strategic means of action), the actions of allocating the necessary resources (financial, material, human and time resources), the priorities and the means to adapt to the environmental changes, all these in order to obtain the competitive advantage and fulfil the organization’s mission. Therefore, the major components of the organization’s strategy are: 1. The organization’s vision: expresses the purpose for which the organization was/is created, while defining the product/service it will offer and the target audience for that product/service. In this sense, the vision establishes what the organization has to do, for whom and what is the purpose for which it does what it set out to do (for economic organizations in the economic sphere, the sole purpose for which they exist is to generate profit). In short, the vision helps us answer the question “where does our organization need to go?” 2. The organization’s mission: an extension of the vision, it defines in addition to the product/service offered by the organization, the customers to whom it is addressed and the purpose for which it exists another essential element, namely the organization’s source of competitive 1 Dictionnaire Larousse, www babylon.com. 4 advantage, the basis of its differentiation from other organizations who offer similar products or services to the same target audience (in other words, studying the mission of an organization we should find the answer to the question: “why would customers prefer us over a competing company?”). The mission usually has a more “marketable” (customer-oriented) wording, and can be found on the websites of most larger companies. 3. The strategic objectives represent what the organization wants to accomplish at a certain organizational level and within a certain pre-established time horizon. They usually cover longer time horizons, most of them cover 3-5 years or even more, up to 10 years. Sometimes the strategic objectives cover medium terms of 1 to 3 years. The strategic objectives are fundamental or derivate objectives of the first and second degree, according to the scope of the economic strategy. They refer to the general evolution of the activities that define the said strategy. For an accurate formulation of the economic strategy, the strategic objectives must fulfil a series of conditions that help substantiate them: strategic objectives must be part of a hierarchy according to their importance, starting from a fundamental objective for the respective period of time; strategic objectives must be measurable; strategic objectives should be realistic. In other words, they must be the result of a detailed process of internal and external diagnosis of the organization, being established according to its strengths and weaknesses and according to the opportunities and the threats from its environment; the established objectives within a strategy should be compatible with each other. Therefore, the strategic objectives that define the system of objectives for a particular strategy must not oppose each other. For example, it is not possible to set the following objective: “obtaining high quality products while registering the smallest costs”. strategic objectives must be accurately formulated (in such a way that every person they involve understands them), known by everyone that is going to contribute to their accomplishment (the transparency principle) and motivating for all the individuals who participate to their implementation. 4. The strategic means of action employed for the objectives’ accomplishment. They define the general directions in which we need to take action in order to achieve the established strategic objectives and the way in which all the activities involved in that respective strategy will evolve. For that, the specialty literature refers to them as “growth vectors”. 5  Establishing the strategic means of action involves adopting some strategic options. Usually there are several ways to achieve a particular objective, each of them involving specific actions. 5. The technical, material, human and financial resources necessary for achieving the strategic objectives and applying the strategic means of action. When the allocated resources are fewer than the necessary ones, the strategy formulation process has to restart from the beginning, resize the objectives and establish other strategic options. 6. In order to properly fulfil the objectives, apply the strategic means of action and allocate the necessary resources the strategy must also specify the initial, intermediary and final deadlines for the whole period that the strategy covers and also for its various stages. 7. Finally, the competitive advantage, the invisible, unknown by the competition element is the strategy’s component to which all the other visible strategy components are subordinated. According to Michael Porter, whose opinion is shared by almost all the specialists in the field, the competitive advantage is, essentially, related either to a lower cost of the products or services offered by the organization or to their differentiation, in one or several respects, from the competitors’ products. The cost advantage consists in obtaining lower production costs than the competitors, as a result of exploiting the economies of scale, the organization’s experience effect or any other source which reduces the unitary costs while maintaining the same or similar quality of the products/services. The main factors that contribute to costs reduction are: - economies of scale in various basic activities - the experience effect and the knowledge transfer from which the organization could benefit in each activity; - the existence of low manufacturing costs, due to a more rigorous control of the resources used in the manufacturing process; - the integration degree, whose influence over the cost varies from one industry to another; - the degree of utilization of production capacities; - the moment in time in which the company entered that industry, considering that seniority can bring advantages (a higher profile, the experience effect), but also disadvantages (the necessity to find suppliers, to train distributors, to find customers and so on); - a privileged access to certain resources at great prices; - the relations with institutional partners (government, syndicates, public power and so on) which aren’t so approachable for the other competitors. 6  The differentiation strategy mainly consists in making the customers feel that the product or service the company has to offer is unique, meaning unmatched on the market, based on one or several attributes the customers value a lot, which allows the company to adopt a high prices strategy. Having in mind the organization as a whole, the most frequently used differentiation criteria are: the timing chosen to enter the industry; geographic position of business quarters; extra services that the organization provides along with its products/services; the relations maintained with important politic and social actors. In conclusion, differentiation must only affect some elements of the organization, the ones that prove to be more important to customers; the others remain unchanged. 1.2 The process of formulating the organization’s strategy The specialty literature regards the works of Harvard Business School as the initial point in the modern approach to the organization strategy, claiming that a substantial analysis framework, capable to point out the environment opportunities and threats and the organization’s strengths and weaknesses was formulated for the first time in the study written by professors Learned, Christensen, Andersen and Guth 2. This strategic analysis framework is known in the specialty literature as “The Harvard School Diagnostic Grid” or “LCAG Model”. 1. What can be done? Environment Opportunities analysis and threats 2. What can we do? Strategic Organization Strenghts and What do we do? means of potential weaknesses action 3. What do we want to do? Decision Values and makers aspirations Figure 1 – The process of formulating the organization’s strategy 2 Learned, E.P., Christensen, C.R., Andersen, K.R., Guth, W.D. – Business Policy, Text and Cases, Richard D, Irwin,1965 7  Despite all criticisms this model had to deal with (the main criticism being the fact that the model does not state the way in which the strategy should be formulated), its great advantage is that the suggested logic is eligible to be applied in any type or organization and in any context, which explains its wide spread as a reference model in all organized strategic endeavors. It remains to this day an universal model, a base for all the undertakings that followed. The answer to the question „what can be done?” is provided by the strategic analysis of the competitive environment, while the answer to the question „what can we do?” is provided by the internal strategic diagnosis of the organization. 2. The competitive environment’s strategic analysis Definition: The competitive environment’s strategic analysis is a process through which an organization evaluates the external forces that influence its activities, such as competitors, customers, suppliers, and industry regulations. This type of analysis helps identify market opportunities and threats, enabling the company to adjust its strategy in order to gain the competitive advantage. Definition: Opportunities encompass the set of positive factors, the chances offered by the organization’s competitive environment (largely uncontrollable by the organization) that can be leveraged within the chosen strategic options of the organization. Opportunities can be provided by the environment, but they can also be created by the organization as a consequence of its innovative activities. Definition: Threats represent the set of negative environmental factors for the organization (typically uncontrollable by the organization) that may endanger the execution of the organization’s strategy and the achievement of its established objectives. It is essential for the organization to anticipate or timely detect situations or events that pose a threat in order to reconsider its strategic plans, so that the impact is minimized or even avoided. The starting point of the competitive environment’s strategic analysis is the strategic segmentation. Definition: Strategic segmentation can be defined as an analysis through which the company’s elementary activities are regrouped based on the homogeneity of key success factors, focusing on the “market – product – technology” triad The strategic segmentation is a very complex issue and for now there isn’t any scientific method or precise science associated with it. It is however the preamble of any strategic analysis study. 8 It differs from market segmentation (the marketing segmentation). Strategic segmentation includes the marketing segmentation. Strategic segmentation will allow management to have a really strategic view of the organization, to look at it not as a whole or a sum of sectors, but as a group of strategic activity segments established according to several strategic variables. This new view represents a modality to highlight the strategic aspects related to the organization’s way of functioning. Definition: A strategic activity segment (SAS) represents an assembly of one or several lines of products, produced with the same technology, using the same resources, in order to deal with the same competition on the same market and based on the same key-success factors. In order to confront the competition with real chances of success an organization will have to define its competitive advantage for each SAS, and in order to do that it is compulsory for the organization to clearly understand the exact circumstances of the competitive struggle, respectively to correctly establish the key success factors for each strategic activity segment. Definition: The key success factors (KSF) are the elements based on which an organization engages in competitive struggle. KSF are the competences and assets an organization owns, giving it a competitive advantage in the struggle with the other competitors. The KSF must be enunciated in a clean-cut, concise manner, without ambiguities, by avoiding mistaking the cause for the effect. KSF that frequently occur in the economic reality are related to: prices, costs, delivery times, quality, public image, capacity to adapt to the customers’ needs, counselling capacity, demos for the clients, administrative logistics, expanding the range of products, capability of research and development, ability to innovate, sales flexibility, sales force, reliability, robustness, packing, transport, after-sales services and so on. There are a series of criteria or variables for strategic segmentation that will allow us in most cases to perform a strategic segmentation. These criteria or variables must be adapted to the reality of the respective field of activity and according to its characteristics, other criteria could also be taken into consideration. We can point out the following criteria or variables for strategic segmentation: a. Homogeneity of the activities that define the strategic activity segment inside the respective field: research and development, design, production, merchandising and after-sales services. Activities that differ in terms of necessary competences, involved investments, synergy, manufacturing and so on will not be included in the same strategic activity segment. b. Specific market. Considering that the products belong to the same category, they may be intended for markets with the same specificity or not. 9  c. Distribution channels. The analysis of the various distribution networks through which various lines of products reach the customer or the end consumer is very important. Each distribution channel has its own KSF. It is not recommended to include in the same SAS several lines of products merchandised through distribution channels that require different competences (in other words, only the distribution channels that need the same competences will be grouped in the same SAS). d. Common experience background. The variables related to this criterion allow us to take into consideration the specific characteristics of a line of products in relation to others. This specificity can stem from: - using a specific technology (a required technological competence); - particular habits that arise from certain well defined consumption habits of the market. These variables could explain some particularities which are not distinguishable by other criteria, for example cultural, organizational or any other type of particularities encountered especially when it comes to multinational organizations. e. Cost structure. The structure of costs in a certain organization has to be taken into consideration, meaning that there should be clear which of the costs are specific to each line of products and which ones are shared by several lines of products, along with the proportion between each category of products’ own costs and the shared ones. The higher the proportion of shared (common) costs in relation to the total costs of the respective lines of products, the more justified it is to include these products in the same SAS. We have to specify that while establishing the SAS, we should not disregard the customers or the competition, having in mind that the end purpose of this segmentation of the company’s activities is to exert a strategic competitive advantage on the competition, determining the target customer to prefer the company’s products. An efficient cost management and a clear understanding of costs in the activity of strategic segmentation can provide an efficient strategic positioning of the organization opposite to the competitors. The economic reality proved that many companies disappeared due to an inefficient cost understanding and management. f. Customer type. This criterion includes in the same SAS those lines of products that target customers capable to respond to the same KSF and toward which which the organization can exert the same competitive advantage. These aspects assume that the group of customers that are targeted by the products included in the same SAS have the same demand intensity, same consumption habits, same buying criteria and so on. 10  The difficulty of using this criterion when it comes to strategic segmentation stems from the understanding of the concept of “customer”. g. Involved competencies and technologies. h. Geographic market. It is not necessary to prove this reality: customers’ geographical location has an influence on their needs and on the distribution costs. The geographical criteria include the clients’ geographical location (regions, countries), aspects regarding the climate, development stage, technology mastery and so on. Therefore it can be asserted that these strategic segmentation criteria allow the performing of a strategic segmentation without omitting some key strategic aspects. They can be classified in three categories of variables, respectively: external variables – customer type, specific market, distribution channels, geographic market; product-oriented variables – technology, involved resources, competencies, synergy; internal variables – common experience background, cost structure. 3. The organization’s internal strategic analysis Definition: An organization’s internal strategic analysis aims to investigate the organization’s internal potential in correlation with that of other competitors in its field of activity, establishing the relative position of the organization compared to the competition on the markets on which it activates. It is not about saying “we know how to do this”, but rather “how do we do it compared to others, on that specific market”. The object of this analysis is to establish the organization’s strengths and weaknesses and its distinctive competencies. Definition: Strengths are internal factors of the organization, under the organization's control, that it possesses at a superior level compared to competing organizations, providing it with a competitive advantage. Definition: Weaknesses are internal factors of the organization, under the organization's control, that it possesses at an inferior level compared to competing organizations, which constitute vulnerabilities. Definition: A distinctive competence of an organization is a particular or exclusive skill or resource in which the organization excels, constituting an important competitive asset. We think that an internal strategic analysis should allow an organization’s management: 11  - to identify the strengths and weaknesses of the organization as a whole and of its various strategic activity segments separately; - to allow a comparison between the respective organization’s strengths and weaknesses and the ones of the competitors; - to allow an evaluation of the relative position of the organization as opposed to the ideal “profile” imposed by the environment and the competitive circumstances; - to determine the organization’s internal potential in terms of existent or potential sources of competitive advantage in relation to the competition. The analysis of the organization’s internal potential includes the following three partial analyses that will allow an organization to understand the true sources of the current competitive advantage and to identify the way in which it could enhance an existing competitive advantage or create a new one. - the strategic analysis of resources, which aims to identify the totality of technical, human, financial and informational resources, both internal and external, that the organization can exploit in order to put into practice or consolidate its strategy; - the strategic analysis of the organization’s competencies, respectively identifying the distinctive competences; - the financial analysis, that will allow a better positioning of the organization compared to its main competitors in terms of effectiveness and efficiency of using financial resources. 1. The strategic analysis of the resources Definition: Strategic resource diagnosis is the process through which an organization thoroughly evaluates its available resources, both internal and external, in order to determine its capacity to implement or strengthen its strategy. This involves analyzing resources across several categories: technical, human, financial, and informational. The goal of this diagnosis is to understand to what extent these resources are sufficient and adequate for achieving strategic objectives and to identify any gaps or opportunities for optimization. Within this diagnosis, we consider: a. Technical resources These refer to the technological infrastructure, equipment, machinery, and production processes available to the organization. Evaluating technical resources involves: The quality and modernity of the equipment and technology; Production capacity and operational process efficiency; The flexibility of technologies in adapting to industry innovations. 12  The need for modernization or investment in new technologies. This diagnosis helps determine whether the organization can support the necessary innovations for strategy implementation or if technological improvements are needed. b. Human resources Human resources represent the organization's human capital, including employees’ skills, qualifications, and motivation. The evaluation of human resources includes: The level of qualification and competence of the workforce; The ability to recruit and retain talent; The organizational structure and culture, as well as management efficiency; The flexibility of teams in adopting new working methods and technologies. The diagnosis of human resources is crucial for assessing whether the organization has the necessary personnel to support the strategy or if it needs to invest in training and development. c. Financial resources Financial resources reflect the organization’s ability to support the necessary investments for implementing the strategy. The analysis of financial resources includes: The current financial situation (liquidity, debts, capital); The ability to attract investments or loans; Profitability and past financial performance; Efficiency in managing costs and generating revenue. This evaluation helps the organization understand to what extent the available financial resources allow for strategy implementation or if adjustments are needed. d. Informational resources Informational resources include IT systems, databases, IT infrastructure, and access to critical information for strategic decisions. The evaluation of informational resources involves: The quality and accessibility of data necessary for decision-making; The organization’s ability to collect and analyze market information; Information security and management; The level of digitalization and use of information technologies. The diagnosis of informational resources enables the organization to determine if it has the necessary data and infrastructure to support the decision-making process and strategy execution. e. External resources The organization must also consider the external resources it can access for strategy implementation, such as: 13  Strategic partnerships, suppliers, and collaboration networks; Access to external technologies through collaborations, licensing, or outsourcing; External funding sources, including European funds or other types of grants; Market information and trends available through partnerships or external consultancy. 2. The strategic analysis of the company’s competencies In general, at company level, there are three main categories of strategic competencies: additional competencies, required competencies and fundamental competencies. The additional competencies are related to the company’s existence itself, not being related to the company’s line of business. For example, the companies which keep their own accountancy or those who handle their human resources activities on their own, have at least some minimal competencies in accountancy, respectively in labour law and payroll. These competencies are widely spread within companies, being necessary for their management, and the cases in which they represent a valuable source of competitive advantage for the company or for the customers are quite rare. The required (specific) competencies are tightly related to the company’s line of business. In order to perform an activity in any line of business, all the companies wanting to take part in that line of business must possess some absolutely necessary competencies (certain technical features, a certain labour force qualification and structure, a certain costs structure) and, generally speaking, the majority of organizations in a certain field possess the competencies that are specific to that field. The fundamental competencies are given by those unique or extremely rare strengths that an organization possesses in its respective line of work. They result from the unique knowledge that an organization possesses and from its ability to coordinate and integrate the activities of the different existing structures in the use of this knowledge. An efficient management of the competencies portfolio will allow on one hand obtaining a competitive advantage by using the fundamental competencies or some competencies which are specific to a certain line of business in other lines of business, where the competition doesn’t have them (the portfolio of activities is different from one organization to another), and on the other hand it can represent a source of synergy between the various activities of the company. 3. The financial analysis This process involves evaluating the financial health of the organization to determine its ability to support and implement short and long-term strategies. Through financial diagnosis, the organization can identify financial strengths and weaknesses. Here we discuss: 14  a. Analysis of the organization’s financial situation: the structure of the balance sheet is analyzed, along with the ability to cover debts and overall liquidity; cash flow analysis examines how the organization generates and uses cash in order to assess its ability to sustain daily operations and the necessary investments for strategy implementation; profitability indicators (profit margin, net profit, return on investment) are analyzed to understand operational efficiency and the organization’s ability to generate revenue from current activities. b. Analysis of financial indicators: - liquidity indicators (current ratio, quick ratio, payment capacity ratio); - solvency indicators (debt ratio, debt/equity ratio); - profitability indicators (return on assets, return on equity); - efficiency indicators (inventory turnover, cash conversion cycle). c. Analysis of cost structure: fixed and variable cost structure is evaluated in order to identify optimization opportunities. Understanding costs is essential for adjusting pricing and profitability strategies. 4. Useful tools in formulating the organization’s strategy 1. SWOT analysis is an important tool in strategic business management. SWOT analysis is also a useful tool for understanding different situations and for making strategic decisions of allocating the organization's resources. SWOT analysis - acronym for Strengths-Weaknesses-Opportunities-Threaths – is an examination of internal strengths and weaknesses, as well as opportunities and threats from the external environment, done in order to identify priority directions for action. Following the competitive environment’s strategic analysis (which we discussed earlier) we identify the requirements it has from our organization, as well as the opportunities and threats it presents in relation to our organization. The construction of a SWOT analysis always starts with the external environment’s analysis. Certain characteristics of the analyzed object cannot be classified as strengths or weaknesses without a reference to the requirements of the external environment. What follows is an internal strategic diagnosis of the analyzed object’s strengths and weaknesses. 15  An essential issue for strategic analysis is the emphasis that must be placed and the link that must exist between external environment analysis and internal analysis, because the qualification of an aspect as a strenght or weakness, respectively as an opportunity or threat, is made only by comparison and reporting. Thus, the existence of a skilled workforce can be assessed as a strenght only if it translates into a higher value (quality) of the products or services offered, which in turn is “acknowledged” by the market. The elements of the SWOT analysis were previously defined in the discussions related to the strategic analysis of the competitive environment and the internal strategic diagnosis of the organization. Following the analysis of the external and internal factors that impact the activity of the organization, we construct a SWOT matrix that will display horizontally the vectors of external factors and vertically the vectors of internal factors. This allows highlighting the possible combinations of opportunities or threats within the external environment and strengths or weaknesses within the organization. Table 1 - General framework of the SWOT matrix By quantifying the strengths, weaknesses, opportunities and threats we establish in which quadrant the business is located (what predominates in the external and internal environment). SO quadrant decisions are taken while the environmental opportunities and strengths of the company are real, both at high level. The preferred strategy adopted is a growth or development strategy. 16  If we fall into the WO quadrant, that means external opportunities do exist but the internal environment is dominated by weaknesses. You have to seize the opportunities offered by the external environment in order to overcome internal economic, technical, technological, cultural or commercial weaknesses. ST quadrant means we are dealing with a strong company in an unfavorable external environment. The organization must create barriers against threats (new technology developments, the emergence of new competitors) using its strengths. In the WT quadrant, the company is weak and the environment is not favorable either. The clear strategic choice is to give up the non-performing strategic segment. The objective of your strategy should be related to minimizing the negative consequences of the unfavorable overall situation 3. 2. The five competitive forces model that shape every industry, designed by M. Porter, quickly became a reference element in the specialty literature and in management practice when the organization considers entering a new market. According to this model, there are five forces that determine the intensity of competition within an industry, shown schematically in figure 2. Figure 2 - The forces that determine the competition in a certain sector The five „forces” that the model refers to are: a. Analysis of rivalry between competitors within the same sector 3 Deac Vasile (coord.), Management, ASE, 2017 17  Intense rivalry is often the result of the partial or total interaction of the following main factors: Numerous competitors and/or of a sensibly equal force; A low rate of progress in the sector; Higher fixed or storage costs; Weak product differentiation or lack of transfer costs; Important strategic stakes; Powerful exit barriers. b. Analysis of the danger of intensifying competition by potential new competitors The actual threat represented by the potential competitors for the organizations that already operate within the sector depends on the following factors: the level of the entry barriers; the expected reaction from the existing competitors. Definition: The entry barrier represents an obstacle related to the nature of the activity or the result of a voluntary or involuntary action of one or several organizations that already exist on the market, preventing in a more or less efficient way the potential competitors to manifest themselves on the market. These barriers differ from a field of activity to another and from one organization to another. Generally speaking there are six categories of entry barriers: transfer costs; the experience effect; access to distribution networks; the existence of production capacity reserves; the need for capital; government policies and existing regulations. Transfer costs. They refer to the immediate costs that a buyer has to pay in order to change the supplier. This barrier can be purely psychological and related to the already formed image about a brand, but it can also represent an important expenditure if switching to another product/raw material from another supplier also involves the adaptations of other production factors. The experience effect. It refers to the cost advantage that a company that settled on the market a while ago has over its potential new competitors. Access to distribution networks. Having in mind that the organizations that already activate on the market use the various distribution chains to sell their products, a new organization will have to persuade these chains to accept its products, by offering them several advantages, which all translate 18 into various cost-related disadvantages. The existence of production capacity reserves. The presence on the market of an organization with a relatively substantial production capacity reserves represents an entry barrier considering that the said organization has the capacity to quickly saturate the market if the demand increases. The need for capital. When an organization launches on a market, it must have some considerable financial resources in order to face the competition - not only a lot of funds for research and development activities and a serious investment to obtain the new product, but also a large amount of money for aggressive advertising, promoting, all to compensate for the lost start. A lack of the necessary funds to put up with these expenditures can represent an authentic entry barrier. Government policies and existing regulations. The government can limit or even prohibit new entries on specific markets or sectors through setting various restrictions or requirements the organizations have to comply with. These barriers are a lot subtler, because they are represented by regulations like: pollution rules, regulations regarding the efficiency, the product’s quality and security, and so on. The reactive measures taken when a new competitor enters the market - the actual threat represented by the new competitors also depends on the reaction they expect from the organizations already on the market. The condition to enter a sector or market can be summarized by the concept “inhibitive entry price”, imposed by organizations already in the sector/on the market. This “inhibitive entry price” covers the costs imposed by the current production and sale conditions, including the costs the new competitor foresees in order to deal with the entry barriers and the counter-reactions of the organizations already in the sector/on the market. c. The pressure exerted by substitute products The substitution phenomenon represents a consequence of the technologic evolution, the technological innovation being the one that makes this phenomenon happen, through replacing the existing products with products obtained by various technologies and, starting from the products, replacing the existing fields of activity with new ones. The substitution products are considered, on the one hand, products that are similar to the already existing products but that managed in time to obtain a better performance/price ratio in relation to them, and, on the other hand, completely different products that are able to satisfy the same necessities and which can compete with the existing products in terms of performance/price ratio. 19  d. The bargaining power of customers Customers try to obtain price reductions, they negotiate in order to obtain extended or better quality services, pressure the companies, threatening that they will look for better deals elsewhere, all these actions being to the detriment of the sector’s overall profitability. The intensity of their action depends on the power of the various groups of customers within the sector. A group of customers will become powerful in one of the following conditions: they buy important amounts of products in proportion to the supplier’s turnover; the products they buy within the sector represent an important percentage of the customer’s costs or of the total value of the customer’s purchases. In that event, the customer won’t hesitate to inform himself in order to obtain the lowest possible prices; the products are either standardized or hardly differentiated from one another. When it comes to that, customers are always positive that they will be able to find other suppliers who will be tempted to compete, case in which they can choose the best offer; the transfer costs the customers have to pay when they change their suppliers are low; customers are either partially upstream integrated or there is a credible threat of an upstream integration; the sector’s product does not influence by any means the quality of the customer’s products. In this case, customers will get extremely sensitive when it comes to the price variable and they will try to obtain prices as low as possible the offer exceeds the demand. In this case, customers might opt for better products or for a lower price. An organization will be capable to improve its strategic position if it manages to work with customers who are less inclined to affect it in an unfavourable way. e. The bargaining power of suppliers Suppliers, by increasing prices, reducing the quantity of delivered products or through operating changes in the conditions of sales, have the possibility to lower a sector’s profitability. Suppliers are more powerful when negotiating with their customers (other organizations) if: the group of suppliers is more concentrated than the sector in which they sell. When it comes to selling to more dispersed customers, their freedom of influencing the prices, the product quality and the conditions of sale increases; they are not compelled to fight against any substitute products; the sector is a less important client for the group of suppliers. In these conditions, suppliers do not have to concern themselves with practicing reasonable prices in order not to lose 20  their main source of income; the supplier’s product is an important mean of production in the customer’s sector of activity. In that event, the supplier has great power, especially if the respective product cannot be stored; the group of suppliers have differentiated their products or established transfer costs, thus reducing the customer’s possibilities to make the suppliers compete with each other; the group of suppliers represents a credible threat of downstream integration. They can use this threat to impose their prices. 5. Bibliography 1. Ansoff, I., Strategie du developpement de l’entreprise, Les Edition d’Organisation, Paris, 1989 2. Cârstea, G.; Deac, V., ș.a., Analiza strategică a mediului concurențial, Editura Economică, București, 2002 3. Deac, V. (coord.), Management, ASE, București, 2017 4. Deac, V.; Bâgu, C., Strategia Firmei, Editura Eficient, București, 2000 5. Ducreux, J. M.; Abate, R.; Kachaner, N., Le grand livre de la strategie, Editions d’Organisation, Paris, 2009 6. Garibaldi, G., Analyse strategique, Editions d’Organisation, Paris, 2009 7. Nicolescu, O. 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