BUSA 6600 (Chapter 3) – Flashcards

major underlying causes of change in industry and competitive conditions. industry's growth potential. moves rivals are likely to make next and outmaneuvering them. principal competitive pressures in a market. six principal components of strategic significance in the macro-environment: political, economic, sociocultural, technological, environmental, and legal forces. [Correc] [Exp: An analysis of the impact of the macro-environment factors is often referred to as PESTEL analysis, an acronym that serves as a reminder of the six components involved (political, economic, sociocultural, technological, environmental, legal/regulatory).]

accounting for a large fraction of the total costs of the industry's products. [Correct] influencing the terms and conditions of supply in their favor. charging industry members exceedingly higher prices. passing costs to industry members. limiting industry members' opportunities to find a better deal. [Exp: Supplier bargaining power is stronger when the following occur: * Suppliers' products and/or services are in short supply. * Suppliers' products and/or services are differentiated. * Industry members incur high costs in switching their purchases to alternative suppliers. * The supplier industry is more concentrated than the industry it sells to and is dominated by a few large companies. * Industry members do not have the potential to integrate backward in order to self-manufacture their own inputs. * Suppliers' products do not account for more than a small fraction of the total costs of the industry's products. * There are no good substitutes for what the suppliers provide. * Industry members do not account for a big fraction of suppliers' sales.]

strong buyer loyalty to existing brands. the difficulties of building a network of distributors. small market size and special customer requirements. [Correct] sizable economies of scale in production. restrictive government policies. [Exp: Threat of entry is a stronger force when incumbents are unlikely to make retaliatory moves against new entrants and entry barriers are low. Entry barriers are high (and threat of entry is low) when the following occur: * Incumbents have large cost advantages over potential entrants due to (1) high economies of scale; (2) significant experience-based cost advantages or learning curve effects; (3) other cost advantages (e.g., favorable access to inputs, technology, location, or low fixed costs). * Customers have strong brand preferences and/or loyalty to incumbent sellers. * Patents and other forms of intellectual property protection are in place. * There are strong network effects. * Capital requirements are high. * There is limited new access to distribution channels and shelf space. * Government policies are restrictive. * There are restrictive trade policies.]

whether the costs that buyers incur in switching to the substitutes are low or high and whether the substitutes target a small customer group or the mass market whether substitutes are readily available and whether the costs that buyers incur in switching to the substitutes are low or high [Correct] whether buyers view the substitutes as attractively priced in relation to their quality, performance, and other relevant attributes, and whether the substitutes target a small customer group or the mass market whether substitutes are priced lower than competitive products and whether the buyer loyalty in the market is high or low whether substitutes are readily available and whether the rate of innovation is fast or slow [Exp: Competitive pressures from substitutes are stronger when the following occur: * Good substitutes are readily available and attractively priced. * Substitutes have comparable or better performance features. * Buyers have low costs in switching to substitutes.]

competitive pressures stemming from supplier bargaining power competitive pressures coming from other firms in the industry competitive pressures stemming from incremental innovations within the industry [Correct] competitive pressures coming from the threat of entry of new rivals competitive pressures coming from the producers of substitute products [Exp: The five forces framework holds that competitive pressures on companies within an industry come from five sources. These include (1) competition from rival sellers, (2) competition from potential new entrants to the industry, (3) competition from producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining power.]

changing societal concerns, attitudes, and lifestyles technological change and manufacturing process innovation increasing efforts on the part of industry members to collaborate closely with their suppliers [Correct] diffusion of technical know-how across more companies and more countries entry or exit of major firms [Exp: The most common drivers of industry change are * 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, and * changing societal concerns, attitudes, and lifestyles.]

there is a large pool of potential entrants, some of which have the capabilities to overcome high entry barriers. existing industry members are looking to expand their market reach by entering product segments or geographic areas where they do not have a presence. buyer demand is growing rapidly. industry members are willing and able to contest new entries. [Correct] newcomers can expect to earn attractive profits. [Exp: Threat of entry is a stronger force when incumbents are unlikely to make retaliatory moves against new entrants and entry barriers are low. Entry barriers are high (and threat of entry is low) when the follow occur. * Incumbents have large cost advantages over potential entrants due to (1) high economies of scale; (2) significant experience-based cost advantages or learning curve effects; and (3) other cost advantages (e.g., favorable access to inputs, technology, location, or low fixed costs). * Customers have strong brand preferences and/or loyalty to incumbent sellers. Patents and other forms of intellectual property protection are in place. * There are strong network effects. Capital requirements are high. * There is limited new access to distribution channels and shelf space. * Government policies are restrictive. * There are restrictive trade policies.]

Buyers are not very price-sensitive. [Correct] Buyers have the ability to postpone purchases. Buyers are large and few in number relative to the number of industry sellers. Buyer costs of switching to competing products are low. Buyer demand is weak in relation to industry supply. [Exp: Competitive pressures from buyers increase when they have strong bargaining power and are price-sensitive. Buyer bargaining power is stronger when * Buyer demand is weak in relation to industry supply. * the industry's products are standardized or undifferentiated. * buyer costs of switching to competing products are low. * buyers are large and few in number relative to the number of industry sellers. * buyers pose a credible threat of integrating backward into the business of sellers. * buyers are well informed about the quality, prices, and costs of sellers. * buyers have the ability to postpone purchases. * Buyers are price-sensitive and increase competitive pressures when * buyers earn low profits or low income. the product represents a significant fraction of their purchases. * Competitive pressures from buyers decrease and become a weaker force under the opposite conditions.]

elect to simply protect its present position, investing cautiously if at all and looking for opportunities in other industries. [Correct] improve its long-term competitive position in the business. invest aggressively to capture the opportunities it sees. look into acquiring weaker rivals. see its best option as finding a buyer, perhaps a rival, to acquire its business. [Exp: When a strong competitor concludes an industry is becoming less attractive, it may elect to simply protect its present position, investing cautiously—if at all—and looking for opportunities in other industries.]

Strategic group maps help managers understand why some parts of the map are better than others. Strategic group maps determine which companies seem destined to struggle because of their position. Strategic group maps reveal which companies can engage in joint lobbying efforts to improve trade associations. [Correct] Strategic group map analysis entails drawing conclusions about where on the map is the best place to be and why. Strategic group maps reveal which companies are close competitors and which are distant competitors. [Exp: Strategic group maps are revealing in several respects. The most important has to do with identifying which industry members are close rivals and which are distant rivals. The second thing to be gleaned from strategic group mapping is that not all positions on the map are equally attractive. Part of strategic group map analysis always entails drawing conclusions about where on the map is the "best" place to be and why. Which companies/strategic groups are destined to prosper because of their positions? Which companies/strategic groups seem destined to struggle? What accounts for why some parts of the map are better than others?]

It enables more accurate predictions about how long it will take a particular rival to copy most of what the strategy leader is doing. It helps managers construct up-to-date strategic profiles of rivals. [Correct] It helps in determining whether a rival is gaining or losing market share. It entails drawing the conclusion that companies seem destined to struggle because of their position. It points to those things that every firm in the industry needs to attend to in order to retain customers and weather the competition. [Exp: Many companies have a competitive intelligence unit that sifts through the available information to construct up-to-date strategic profiles of rivals.]

are the major underlying causes of change in industry and competitive conditions affecting the company directly. are those competitive factors that most affect industry members' ability to prosper in the marketplace. [Correct] depend on how many rivals are trying to move from one strategic group to another. hinge on how many different strategic groups the industry has. are determined by the industry's driving forces. [Exp: Key success factors are the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are essential to surviving and thriving in the industry.]

(1) the extent to which buyers are price-sensitive and (2) the competitiveness of the market. (1) the extent to which buyers can exercise enough bargaining power to influence the conditions of sale in their favor and (2) whether strategic partnerships between certain industry members can adversely affect other industry members. (1) how much buyer preferences vary within the industry and (2) whether industry members are spending more or less on advertising. (1) the degree to which buyers have bargaining power and (2) how much buyer preferences vary within the industry. (1) the degree to which buyers have bargaining power and (2) the extent to which buyers are price-sensitive. [Correct] [Exp: Whether buyers are able to exert strong competitive pressures on industry members depends on (1) the degree to which buyers have bargaining power and (2) the extent to which buyers are price-sensitive.]

The strongest of the five competitive forces is often the market maneuvering for buyer patronage that goes on among rival sellers of a product or service. Rivalry increases if products of industry members are strongly differentiated. [Correct] Rivalry intensifies as the number of competitors increases and as competitors become more equal in size and competitive strength. Competitive battles among rival sellers can assume forms that extend well beyond lively price competition. Rivalry is stronger when high exit barriers keep unprofitable firms from leaving the industry. [Exp: The following will increase rivalry increases and result in it becoming a stronger force: * Buyer demand is growing slowly. * Buyers' costs to switch brands are low. * The products of industry members are commodities or else weakly differentiated. * The firms in the industry have excess production capacity and/or inventory. * The firms in the industry have high fixed costs or high storage costs. * Competitors are numerous or are of roughly equal size and competitive strength. * Rivals have diverse objectives, strategies, and/or countries of origin. * Rivals have emotional stakes in the business or face high exit barriers.]

the PESTEL analysis. strategic group mapping. [Correct] the value net framework. the five forces framework. the macro-environment analysis. [Exp: Understanding which companies are strongly positioned and which are weakly positioned is an integral part of analyzing an industry's competitive structure. The best technique for revealing the market positions of industry competitors is strategic group mapping.]

Drivers of change are major underlying causes of changing industry and competitive conditions and have the biggest influences in reshaping the industry landscape and altering competitive conditions. Many drivers of change originate in the outer ring of the company's external environment, but others originate in the company's more immediate industry and competitive environment. Although some drivers of change are unique and specific to a particular industry situation, most drivers of industry and competitive change are comparable and fall into specific categories. Developments that can affect an industry powerfully enough to qualify as a driving force are limited. [Correct] For each industry, no more than three or four driving forces are likely to be powerful enough to qualify as the major determinants of why and how an industry's competition is changing. [Exp: The most powerful of the change agents are called driving forces because they have the biggest influences in reshaping the industry landscape and altering competitive conditions. Driving forces are the major underlying causes of change in industry and competitive conditions. Some driving forces originate in the outer ring of the company's macro-environment, but most originate in the company's more immediate industry and competitive environment. Many developments can affect an industry powerfully enough to qualify as driving forces. Some drivers of change are unique and specific to a particular industry situation, but most drivers of industry and competitive change fall into specific categories. While many forces of change may be at work in a given industry, no more than three or four are likely to be true driving forces powerful enough to qualify as the major determinants of why and how the industry is changing.]

the industry's growth potential how well the company's strategy delivers on the industry's key success factors the industry's opportunities for international expansion [Correct] whether the company occupies a stronger market position than rivals whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces [Exp: The important factors on which to base a conclusion include the following: * how the company is being impacted by the state of the macro-environment * whether strong competitive forces are squeezing industry profitability to subpar levels * whether the presence of complementors and the possibility of cooperative actions improve the company's prospects * whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces. * whether the company occupies a stronger market position than rivals * whether this is likely to change in the course of competitive interactions * how well the company's strategy delivers on the industry key success factors]

supplier services are critical to industry members' production process. supplier products are differentiated and short in supply. industry members have the potential to integrate backward and self-manufacture their own requirements. [Correct] suppliers are not dependent on the industry for a large portion of their revenues. the supplier industry is more concentrated than the industry it sells to. [Exp: Supplier bargaining power is stronger when the following occur: * Suppliers' products and/or services are in short supply. * Suppliers' products and/or services are differentiated. * Industry members incur high costs in switching their purchases to alternative suppliers. * The supplier industry is more concentrated than the industry it sells to and is dominated by a few large companies. * Industry members do not have the potential to integrate backward in order to self-manufacture their own inputs. * Suppliers' products do not account for more than a small fraction of the total costs of the industry's products. * There are no good substitutes for what the suppliers provide. * Industry members do not account for a big fraction of suppliers' sales. * Supplier bargaining power is weaker under the opposite conditions.]

short delivery time capability low marketing expenses efficient distribution capabilities high levels of customer service high-capacity utilization [Correct] [Exp: An industry's key success factors (KSFs) are those competitive factors that most affect industry members' ability to survive and prosper in the marketplace: the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak competitor—and between profit and loss.]

are producing standardized goods. have integrated backward into the business of sellers. [Correct] are large and few in number relative to the number of sellers. have the option to delay their purchases of durable goods. are well informed about sellers' products, prices, and costs. [Exp: Companies like Anheuser-Busch, Coors, and Heinz have partially integrated backward into metal-can manufacturing to gain bargaining power in obtaining the balance of their can requirements from otherwise powerful metal-can manufacturers.]