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Definition
| Strategic management consists of the analysis, decisions, implementations and evaluations a firm undertakes in order to create and sustain its competitive advantages. It can be an ongoing process where managers of a firm constantly analyze their external and internal environments, make decisions about what kinds of strategies they should pursue, implement the strategies and evaluate the outcomes of the implementations to make any change if necessary. It is critical to firm performance and survival. Although strategy is goal-directed and intended, it sometimes can unintentionally evolve with either the internal and external environment due to their unpredictability. |
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Term
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Definition
There are five major groups associated with an industry (group of organizations/firms that share similar resource requirements. The resource requirements range from raw materials to labour to technology to customers). It is showed on the five-forces model, which allows us to systematically assess the industry environment. They determine the attractiveness of the industry environment, make strategic decisions of how to achieve organizational goal or to industry’s position.
1. Threats of new entrants - new entrants can take two basic forms, such as new start-ups and diversification of existing firms in other industries. There are five major sources of entry barriers:
a. Economies of scale - increased efficiency over time; the cost of a product per unit declines as the number of units per period increases; creates cost advantages
b. Capital requirements - required capital to establish a new firm is significantly high
c. Switching costs - refers to the costs (monetary or psychological) associated with changing from one suppliers to another form from the buyer perspective. The threat of new entrants (the barrier of new entrants) increases (decreases) as the switching costs decreases
d. Access to distribution channels - incumbents control most of the distribution channels, potential entrants would find it difficult to distribute their products or services, which in turn defers new entry
e. Cost advantages independent of scale - they include government policies, legal protection such as patents and trademarks
2. Bargaining power of suppliers - the relation with suppliers and firms that provide towards the incumbents in an industry. There are two major factors that contribute to suppliers power
a. Criticality of resources the suppliers hold to the incumbents
b. Number of suppliers available relative to the number of incumbents in an industry
3. Bargaining power of buyers
a. Switching costs - when buyers can easily switch incumbents with little cost the incumbents have little power over the buyer to enhance their performance
b. Undifferentiated products - when incumbents provide similar products or service to buyers, they would not be in a good position to negotiate with the buyers
c. Importance of incumbents’ products to buyers - is the demand for the product fixed/inelastic?
d. The number of incumbents relative to the number of buyers - monopoly extreme example
4. Threats of substitutes - all firms in an industry often compete with other firms in different industries where the firms provide substitute products or services with similar purposes
5. Rivalry among firms - can take many different forms - can take many forms
a. Lack of differentiation or switching costs - in this case, the customer’s choices are often based on price and service. May experience pressure by enhancing short term performance; rivalry intensified
b. Numerous or equally balanced competitors - the rivalry between firms tends to be highest when the firms are similar in size and resources -- allows sneaky strategies
c. High exit barriers - exit barriers refer to economic, strategic, and emotional factors that keep firms competing even thought they may be earning low or negative returns on their investments. Includes fixed costs, specialized assets, escalating commitment of management and government and social pressures.
Each model had its limitations; model does not explicitly take roles of technological change and government regulations into consideration. They need to anticipate the effects of technological change, government regulations and industry trends on industry structure and their positions in the industry. |
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Definition
In order for a firm to achieve high performance, managers need to look at their resources and capabilities and ask four important questions.
A. Question of Value - managers must ask if the firm’s resources and capabilities add any value to capture market share or enhance profitability, either though exploiting emerging opportunities or neutralizing threats
B. Question of Rareness - resources and capbilties need to be rare; have to be controlled by only a small number of firms to gain a competitive advantage. Need to unique.
C. Question of Imitability - substitutes
D. Question of Organization - consider whether their firms can be organized in effective and efficient ways to exploit their valuable resources and capabilities to maximize their potentials. |
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Definition
| Strength/Weakness/Opportunity/Threats |
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