Chapter 3

Question 1

What is the function of the PESTEL framework and what does it stand for?

Answer 1

The PESTEL framework is a way to scan, monitor, and evaluate the important external factors and trends that might impinge upon a firm. It consists of six different parts:

1. Political Factors
2. Economic Factors
3. Sociocultural Factors
4. Technological Factors
5. Ecological Factors
6. Legal Factors

Question 2

A firms performance is determined by which two factors?

Answer 2

(1) Industry effects, which refers to the firm’s performance attributed to the structure of the industry (which refers to elements such as entry and exit barriers, number and size of companies, and types of products and services offered) in which it competes, and
(2) Firm effects, which refers to the firm’s performance attributed to the action managers take.

Question 3

What is a firms strategic position?

Answer 3

A firm’s strategic position relates to its ability to create value for customers (V) while containing the cost to do so (C). The larger the gap between the value the firm’s product and services generate and cost required to produce it, the larger the competitive advantage.

Question 4

Whats the five forces model and what does it consist of?

Answer 4

To help understand the profit potential of industries, Michael Porter developed the five forces model, which is a framework that identifies five forces that determine the profit potential of an industry and shape a firm’s competitive strategy

1. Threat of entry
2. Power of Suppliers
3. Power of Buyers
4. Threat of substitutes
5. Rivalry amongst competitors

Question 5

When deciding to enter an industry or not, what are the five questions you have to answer?

Answer 5

1. Who are the players?
2. When to enter?
3. How to enter?
4. What type of entry
5. Where to enter?

Question 6

What is a strategic group?

Answer 6

A firm occupies a place within a strategic group – the set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage. These strategic groups differ from each other on important dimensions.

Question 7

Whats the strategic group model?

Answer 7

The strategic group model is a framework that explains differences in firm performance within the same industries. It clusters different firms into groups based on a few key strategic dimensions. These differences across strategic groups reflect the business strategies that firms pursue. We say that “intra-group rivalry exceeds inter-group rivalry” this is due to the fact that firms in the same strategic group tend to follow a

Question 8

What are mobility barriers?

Answer 8

Mobility barriers refer to the industry-specific factors that separate one strategic group from another. Mobility barriers are a form of strategic commitment. They prevent movement between groups, even though some strategic groups tend to be more profitable than others.