ADMS 1000 Full Notes
CHAPTER 5 – STRATEGIC MANAGEMENT
Developing Business Strategy
Industry: a group of organizations/firms that share similar resource requirements (raw materials, labour, technology, customers).
Five-Forces Model – Analyzing External Environment
Allows us to systematically assess the industry environment.
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The relationships between the five forces determines attractiveness of the industry environment - Used to make strategic decisions that leave the firm in the best position to defends itself
1. Threats of New Entrants
Two forms; new start-ups, or diversification of existing firms in other industries
New entrants bring new capacity, desire to gain market share, substantial resources, and capabilities which can reduce profitability. Incumbents need to create entry barriers;
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Economies of scale: spreading costs of production over the number of units produced cost advantages Capital Requirements: extremely high for a new firm, threat of new entrants is reduced as the level of required capital increases
Switching Costs: refers to the costs (monetary or psychological) associated with changing from one supplier to another from the buyer perspective. Threat of new entrants is greater when the switching costs of customers in minimal in that they can easily switch buying products from one firm to another
Access to Distribution Channels: If incumbents control most of the distribution channels, potential entrants would find it difficult to distribute their products or services
Cost Advantages Independent of Scale: Advantages independent of economic factors such as governmental policies, legal production (patents, trademarks), and proprietary products. These defer entries
2. Bargaining Power of Suppliers
Supplier power, the entities that provide raw materials, technologies, or skills to incumbents. Can demand better prices or threaten to reduce quality. This can occur depending on the criticality of the resources, the more critical,
Developing Business Strategy
Industry: a group of organizations/firms that share similar resource requirements (raw materials, labour, technology, customers).
Five-Forces Model – Analyzing External Environment
Allows us to systematically assess the industry environment.
-
The relationships between the five forces determines attractiveness of the industry environment - Used to make strategic decisions that leave the firm in the best position to defends itself
1. Threats of New Entrants
Two forms; new start-ups, or diversification of existing firms in other industries
New entrants bring new capacity, desire to gain market share, substantial resources, and capabilities which can reduce profitability. Incumbents need to create entry barriers;
-
-
Economies of scale: spreading costs of production over the number of units produced cost advantages Capital Requirements: extremely high for a new firm, threat of new entrants is reduced as the level of required capital increases
Switching Costs: refers to the costs (monetary or psychological) associated with changing from one supplier to another from the buyer perspective. Threat of new entrants is greater when the switching costs of customers in minimal in that they can easily switch buying products from one firm to another
Access to Distribution Channels: If incumbents control most of the distribution channels, potential entrants would find it difficult to distribute their products or services
Cost Advantages Independent of Scale: Advantages independent of economic factors such as governmental policies, legal production (patents, trademarks), and proprietary products. These defer entries
2. Bargaining Power of Suppliers
Supplier power, the entities that provide raw materials, technologies, or skills to incumbents. Can demand better prices or threaten to reduce quality. This can occur depending on the criticality of the resources, the more critical,