Competitive advantage: is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Sources of competitive advantage: 1.Structural Perspective “Higher profits result from better positioning” –Rivalry restraint, structural barriers to competition. 2.Resource/Capability Perspective “Higher profits result from unique resources and superior capability” –Resource/competence-based competition, rare, valuable, inimitable, non-substitutable .3.Information Perspective “Higher profits result from superior information”–Information asymmetry, adverse selection, moral hazard 4.Commitment Perspective “Higher profits result from specificity and timing” –Asset-specificity (correct governance), first mover advantage (correct strategy) 5.Connectivity Perspective “Higher profits result from network structure and corporate ties between businesses”–Alliances, dense network, structural holes Strategic Management Process •Strategic Analysis–Goals and objectives, external environment, internal environment, intellectual capital •Strategic Formulation–Business-level strategy, corporate-level strategy, international strategy, new economy •Strategic Formulation–Strategic control, corporate governance, organizational design Chapter 2
SWOT Analysis: •Strength •Weaknesses •Opportunities •Threats Porter’s Five Forces Model of Industry Competition: 1.Threat of new entrants: –Profits of established firms in the industry may be eroded by new competitors – High entry barriers lead to low threat of new entries –Economies of scale –Product differentiation –Capital requirements –Switching costs –Access to distribution channels –Cost disadvantages independent of scale. 2.The bargaining power of buyers: –Force down prices –Bargain for higher quality or more services–Play competitors against each other• A buyer group is powerful when –purchases large volumes relative to seller sales –The products it purchases from the industry are standard or undifferentiated –The buyer has superior information –It earns low profits –The buyers pose a credible threat of backward integration –The industry’s product is unimportant to the quality of the buyer’s products or services –There are many alternative sources of suppliers that can provide similar products or services 3. The bargaining power of suppliers: Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services •A supplier group will be powerful when–The supplier group is dominated by a few companies and is more intense than the industry it sells to –The supplier group is not obliged to challenge with substitute products for sale to the industry –The industry faces high switching costs –There are limited alternative sources of suppliers that can provide similar products or services- The supplier’s product is an important input to the buyer’s business- The supplier group’s products are differentiated or it has built up switching costs for the buyer. 4.The Threat of Substitute Products and Services: •Substitutes limit the potential returns of an industry –Ceiling on the prices that firms in that industry can profitably charge The Intensity of Rivalry among Competitors in an Industry: •Jockeying for position •Price competition •Advertising battles •Product introductions •Increased customer service or warranties A bargaining situation is a situation in which two or more players have a common interest to co-operate, but have conflicting interests over exactly how to co-operate. (a) Impatience: If there is a cost for delaying to reach an agreement, a player’s bargaining power is greater the more patient she is relative to the other negotiator. (b) Risk of Breakdown: A player’s bargaining power is higher the higher is her payoff following the occurrence of the exogenous and uncontrollable factor that triggers a breakdown in...
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