Lecture 2

Question 1

environmental analysis allow us to understand…

Answer 1

the business environment which is an essential part of the Strategic Management Process (SWOT)

Question 2

What does the SWOT process help us do?

Answer 2

• Uncovers opportunities and threats
• Provides information about the nature of competition
• Reveals options for collaboration
• Helps us design more effective strategies

Question 3

Give an example of environmental analysis for a macro environment

Answer 3

PESTEL Analysis (political, economic, social. Technological, environmental & legal)

Question 4

Combining PESTEL with scenario planning causes…

Answer 4

a level of uncertainty such as what technologies are going to take off and which are not, multiple outcomes such as it is looking at the plausible alternatives.

Question 5

In the industry environment, Mason & PhD student Joe Bains created…

Answer 5

Structure Conduct Performance paradigm

Question 6

Structure Conduct Performance paradigm is..

Answer 6

The structures to industry such as the barriers to entry, advertising intensity which all impacts the conduct for those firms within the industry and thus having an impact on the performance

Question 7

Michael Porter’s five forces are..

Answer 7

• Threat of new entry
• Threat of substitute
• Power of buyers
• Power of suppliers
• Increasing the threat of rivalry (the core)

Question 8

Five threats of new entry

Answer 8

• Product differentiation
• Capital requirements
• Cost disadvantages independent of size
• Access to distribution channels – not having networks
• Government policy’s – may help or deter new entries within an industry; certain licenses

Question 9

Threat of Substitute Products is..

Answer 9

a subsite in an industry product such as a bakery shop being a substitute to Tesco

Question 10

Threat of substitute products include..

Answer 10

• Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process
• Substitute can place a ceiling on the prices firms in an industry can charge before a consumer switches due to prices
• Switching costs, can be psychological costs such as from glasses to laser eye surgery
• Threat of obsolescence in some cases – example mechanical watch industry

Question 11

Power of Buyers

Five indicators of threat of buyers in an industry

Answer 11

• Number of buyers is small; restrictions can be placed by governments
• products sold to buyers are undifferentiated
• The supplies they purchase are a significant part of final costs
• Buyers are not earning significant profits
• Buyers threaten backwards vertical integration

Question 12

Vertical integration is…

Answer 12

joining up stages of the production chain, if you vertical integrate forward this is closer to the end consumer and if you vertically integrate backwards then this is closer towards the raw material supply.

Question 13

Power of Suppliers

Five indicators of threat of suppliers in an industry

Answer 13

• they are few in number
• they have differentiated products, e.g. intel microprocessor
• they are not threatened by substitution
• they threaten forward vertical integration e.g. granite vs Corian (has the same look as granite)
• firms are not important customers

Question 14

Increasing the Threat of Rivalry (The Core)

Answer 14

• Large number of competing firms
• Competing firms are similar in size and influence
• Slow industry growth
• Lack of product differentiation
• Productive capacity added in large increments

Question 15

The stronger the five forces…

Answer 15

the less attractive the industry is

Question 16

An unattractive industry includes

Answer 16

• Vigorous rivalry
• Low entry barriers
• High competition from substitutes
• Suppliers and customers have considerable bargaining power

Question 17

An attractive industry includes

Answer 17

• Suppliers and customers have weak bargaining power
• No good substitutes
• High barriers blocking further entry
• Rivalry is limited

Question 18

How do you forecast the industry profitability?

Answer 18

• Examine how the industry’s current profitability is a consequence of the present structure
• Identify the trends that are changing the industry’s structure – which forces are changing over time
• Identify how these structural changes will affect the five forces and the resulting profitability of the industry

Question 19

Strategies to alter industry structure

Answer 19

o Consolidation by acquisitions, mergers, joint ventures and alliances
o Differentiate to reduce threat of substitution
o Increase switching costs – might be contractually or loyalty programmes
o Create barriers to entry – e.g. having skills such as ACCA
o Remove barriers to exit
o Reduce supplier dependence – can we use more standardised parts

Question 20

An example of consolidation, mergers, joint ventures and alliances is…

Answer 20

a small independent booksellers have very little bargaining power thus benefiting publishers. Then the rise of internet giants such as Amazon which have changed the structure. This caused publishers to join to create one of the largest publishing industries because they needed to ensure that they have greater bargaining power when negotiating with large companies such as Amazon.

Question 21

The Five Forces criticisms

Answer 21

1. Bias of economic over politics
2. Less effective in unstable industries
3. Can be seen as a static framework
4. Difficulty in defining the industry
5. Fails to take account of co-operation (collaboration)