MGMT 4800 Flashcards

Question

Emergent versus Intended Strategies

Answer 1

1. Firms begin operations with a well-defined, well-formed strategy (Intended/ Deliberate Strategy) but find it necessary to modify this strategy so much once it is actually implemented in the marketplace that it bears little resemblance to the theory with which the firm started (Emergent Strategy). 2. Emergent strategies are theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented. In reality, at the time when a firm chooses its strategies, some of the information needed to complete the strategic management process may simply not be available (a firm simply has to make its “best bet”). → A firm’s ability to change its strategies quickly to respond to emergent trends in an industry may be as important a source of competitive advantage as the ability to complete the strategic management process.

Answer 2

broad trends in the context within which a firm operates that can have an impact on a firm’s strategic choices

Answer 3

(a) technological change, (b) demographic trends, (c) cultural trends, (d) the economic climate, (e) legal and political conditions, and (f) specific international events

Answer 4

significant impacts on the ways firms do business and on the products and services they sell (e.g. digital information, biotechnology, etc.). Technological change creates both opportunities (as firms begin to explore how to use technology to create new products/services) and threats (as technological change forces firms to rethink their technological strategies).

Answer 5

the distribution of individuals in a society in terms of age, sex, marital status, income, ethnicity, and other personal attributes that may determine buying patterns. → Help a firm determine whether its products/services will appeal to customers and how many potential customers for these products/services it might have

Answer 6

3. Culture is the values, beliefs, and norms that guide behavior in a society, defining what is “right or wrong”, “acceptable or unacceptable”, and “fashionable or unfashionable” in a society. Failure to understand changes in culture, or differences between cultures, can have a very large impact on the ability of a firm to gain a competitive advantage. Understanding the cultural context within which a firm operates is important in evaluating the ability of a firm to generate competitive advantages.

Answer 7

4. The economic climate is the overall health of the economic systems within which a firm operates. The health of the economy varies over time in a distinct pattern. Business cycle: prosperity followed by recession (depression - a severe recession that lasts for several years), followed by prosperity. Although government policy can have a significant impact on the frequency and the size of economic downturns, these policies are unlikely to be able prevent these downturns altogether.

Answer 8

5. The legal and political conditions refer to the laws and legal system’s impact on business, together with the general nature of the relationship between government and business.

Answer 9

Antitrust laws are regulations that encourage competition by limiting the market power of any particular firm. This often involves ensuring that mergers and acquisitions don't overly concentrate market power or form monopolies, as well as breaking up firms that have become monopolies.

Answer 10

include civil wars, political coups, terrorism, wars between countries, famines, and country or regional economic recessions. → All of these can have an enormous impact on the ability of a firm’s strategies to generate competitive advantages This general environmental analysis must be accompanied by an analysis of a firm’s more local environment (Porter’s Five Forces Analysis) if the threats and opportunities facing a firm are to be fully understood.

Answer 11

1. The model (Porter’s Five Forces Model) identify the five most common “threats” faced by firms in their local competitive environments ([a] threat from new competition; [b] threat from competition among existing competitors; [c] threat from superior or low-cost substitutes; [d] threat of supply leverage; and [e] threat from buyers’ influence) and the conditions under which these threats are more or less likely to be present.

Answer 12

is any individual, group, or organization outside a firm that seeks to reduce the level of that firm’s performance.

Answer 13

increase a firm’s costs, decrease a firm’s revenues, or reduce a firm’s performance.

Answer 14

New competitors are firms that have either recently started operating in an industry or that threaten to begin operations in an industry soon. 2. New competitors are motivated to enter into an industry by the superior profits that some incumbent firms in that industry may be earning. → Thereby increasing the level of industry competition and reducing the performance of incumbent firms

Answer 15

The extent to which new competitors act as a threat to an incumbent firm’s performance, If the cost of entry into an industry is greater than the potential profits a new competitor could obtain by entering, then entry will not forthcoming

Answer 16

attributes of an industry’s structure that increase the cost of entry. When there are significant barriers to entry, potential new competitors will not enter into an industry even if incumbent firms are earning competitive advantages.

Answer 17

(1) Economies of scale; (2) Product differentiation; (3) Cost advantages independent of scale; and (4) Government regulation of entry.

Answer 18

exist in an industry when a firm’s costs fall as a function of its volume of production. A firm that can’t produce the minimum efficient scale will be at a disadvantage. Potential new competitors have other options besides (1) entering at the efficient scale and losing money or (2) entering at an inefficient scale and losing money. For example: (1) attempting to expand the total size of the market, (2) attempting to develop new production technology, and (3) trying to make their products seem very special to their customers to charge higher prices. But, if the cost of engaging in these “barrier-busting” activities is greater than the return from entry, entry will not occur, even if incumbent firms are earning positive profits.

Answer 19

exist when a firm’s costs rise as a function of its volume of production.

Answer 20

Incumbent firms possess brand identification and customer loyalty that potential new competitors do not 2. New competitors not only have to absorb the standard costs associated with overcoming starting production in a new industry; they also have to absorb the costs associated with overcoming incumbent firms’ differentiation advantages (i.e. brand identification and customer loyalty). If the cost of overcoming these advantages is greater than the potential return from entering an industry, entry will not occur, even if incumbent firms are earning positive profits.

Answer 21

Incumbent firms may have a whole range of cost advantages, independent of economies of scale, compared to new competitors. New competitors can engage in activities to overcome the cost advantages of incumbent firms, but as the cost of overcoming them increases, the economic profit potential from entry is reduced (overcoming those advantages can be prohibitive). 1. When incumbent firms have Proprietary (secret or patented) Technology that reduces their costs below the costs of potential entrants, (1) potential new competitors must develop their own substitute technologies to compete (the cost of developing new technology can act as a barrier to entry) or (2) run the risks of copying another firm’s patented technologies (substantial economic costs - patent infringement lawsuits). 2. When incumbent firms have Managerial Know-How (the often-taken–for- granted knowledge, skills, and information that are needed to compete in an industry on a day-to-day basis and that takes years to develop) that is not possessed by potential new competitors, the cost of developing this know-how can act as a barrier to entry. 3. When incumbent firms have low-cost access to critical raw materials not enjoyed by potential competitors (Favorable Access to Raw Materials), the cost of gaining similar access can act as a barrier to entry. 4. When the cumulative volume of production of incumbent firms gives them cost advantages (Learning-Curve Cost Advantages) not enjoyed by potential competitors, these cost disadvantages of potential entrants can act as a barrier to entry (e.g. airplane manufacturing).

Answer 22

Governments may decide to increase the cost of entry into an industry and this occurs most frequently when a firm operates as a government- regulated monopoly. The government conclude that it is in a better position to ensure that specific products or services are made available to population at reasonable prices than competitive market forces. Electric power generation and elementary/secondary education have been protected from new competitors by government restrictions on entry.

Answer 23

1. This environmental threat comes from the intensity of competition among a firm’s “current direct” competitors. 2. Direct competition threatens firms by reducing their economic profits (e.g. frequent price cutting, frequent introduction of new products, intense advertising campaigns, rapid competitive actions and reactions – such as, competing airlines quickly matching the discounts of other airlines). 3. Attributes of an industry that increase the threat of direct competition: (1) Large number of competing firms that are roughly the same size (2) Slow industry growth: When industry growth is slow, firms must often acquire market share from established competitors to increase their sales (e.g. Intense price rivalry emerged in the U.S. fast food industry). (3) Lack of product differentiation: When product differentiation is not a viable strategic option, firms are often forced to compete only on the basis of price (e.g. Intense competition on longer routes in the U.S. in the airline industry). (4) Production capacity added in a large increments: If production capacity must be added in large increments (to obtain economies of scale), an industry is likely to experience periods of oversupply, leading to price cuts

Answer 24

1. Substitutes meet approximately the same customer needs, but do so in different ways (The products/services from a firm’s direct competitors meet approximately the same customer needs in the same ways as the products /services by the firm itself). 2. Substitutes place a ceiling on the prices firms in an industry can charge and on the profits firms in an industry can earn. 3. In the extreme, substitutes can ultimately replace an industry’s products and services 4. Substitutes are playing an important role in reducing the profit potential in a variety of industries.

Answer 25

1. Suppliers make a wide variety of raw materials, labor, and other critical assets available to firms. 2. Suppliers can threaten the performance of firms in an industry by increasing the price of their supplies or by reducing the quality of those supplies. 3. Indicators of the threat of supplier leverage in an industry: (1) Supplier’s industry is dominated by small number of firms (2) Suppliers sell unique or highly differentiated products (3) Suppliers are not threatened by substitutes (4) Suppliers threaten Forward Vertical Integration (5) Firms are not important customers for suppliers

Answer 26

Suppliers cease to be supplier only and become both suppliers and rivals

Answer 27

1. Buyers purchase a firm’s products or services and powerful buyers act to decrease a firm’s revenues (Powerful suppliers act to increase a firm’s costs). 2. Indicators of the threat of buyers’ influence in an industry: (1) Number of buyers is small (2) Products sold to buyers are undifferentiated and standard (3) Products sold to buyers are a significant percentage of a buyer’s final costs (Buyers are likely to be very concerned about the costs of their supplies and constantly on the lookout for cheaper alternatives) (4) Buyers threaten Backward Vertical Integration (buyers become both buyers and rivals, locking in a certain percentage of an industry’s sales).

Answer 28

buyers become both buyers and rivals, locking in a certain percentage of an industry’s sales

Answer 29

1. The overall level of threat in an industry can be used to anticipate the average level of performance of firms in an industry. 2. The real question to ask in anticipating the average performance of firms in an industry is: “Are one or more threats in this industry powerful enough to appropriate most of the profits that firms in this industry might generate?” Yes – the anticipated the average level of performance will be low No - the anticipated the average level of performance will be high 3. But, this is acceptable if a firm’s industry is the primary determinant of its overall performance (The industry might not be the only determinant of a firm’s performance).

Answer 30

If all threats are high, expect normal profits If all threats are low, expect above normal profits

MGMT 4800 Flashcards

(54 cards)