Chap 2

• Perceptual acuity


  The ability to sense what is coming before the fog clears
• Three important processes used to develop forecasts

  • Scanning
  • Monitoring
  • Gathering competitive intelligence
• Environmental scanning


  Surveillance of a firm's external environment to predict environmental changes and detect changes already under way
• Environmental monitoring


  A firm's analysis of the external environment that tracks the evolution of environmental trends, sequences of events, or streams of activities
• Competitive intelligence


  A firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths and weaknesses
• Environmental forecasting


  The development of plausible projections about the direction, scope, speed, and intensity of environmental change
• Scenario analysis


  An in-depth approach to environmental forecasting that involves experts' detailed assessments of societal trends, economics, politics, technology, or other dimensions of the external environment
• A danger of forecasting is that managers may view uncertainty as black and white and ignore important gray areas. The problem is that underestimating uncertainty can lead to strategies that neither defend against threats nor take advantage of opportunities
• SWOT analysis


  A framework for analyzing a company's internal and external environments and that stands for strengths, weaknesses, opportunities, and threats
• The general idea of SWOT analysis is that a firm's strategy must: Build on its strengths, Remedy the weaknesses or work around them, Take advantage of the opportunities presented by the environment, Protect the firm from the threats
• SWOT analysis provides "raw material"—a basic listing of conditions both inside and surrounding your company
• Strengths and Weaknesses


  Internal conditions of the firm—where your firm excels (strengths) and where it may be lacking relative to competitors (weaknesses)
• Opportunities and Threats


  Environmental conditions external to the firm
• First, SWOT analysis forces managers to consider both internal and external factors simultaneously. Second, its emphasis on identifying opportunities and threats makes firms act proactively rather than reactively. Third, it raises awareness about the role of strategy in creating a match between the environmental conditions and the firm's internal strengths and weaknesses. Finally, its conceptual simplicity is achieved without sacrificing analytical rigor
• While analysis is necessary, it is also equally important to recognize the role played by intuition and judgment
• Segments of the general environment

  • Demographic
  • Sociocultural
  • Political/legal
  • Technological
  • Economic
  • Global
• Demographic segment


  Genetic and observable characteristics of a population, including the levels and growth of age, density, sex, race, ethnicity, education, geographic region, and income
• Sociocultural segment


  The values, beliefs, and lifestyles of a society
• Political/legal segment


  How a society creates and exercises power, including rules, laws, and taxation policies
• Technological segment


  Innovation and state of knowledge in industrial arts, engineering, applied sciences, and pure science; and their interaction with society
• Economic segment


  Characteristics of the economy, including national income and monetary conditions
• Global segment


  Influences from foreign countries, including foreign market opportunities, foreign-based competition, and expanded capital markets
• Data analytics


  The process of examining large data sets to uncover hidden patterns, market trends, and customer preferences
• Industry


  A group of firms that produce similar goods or services
• Competitive environment


  Factors that pertain to an industry and affect a firm's strategies
• Porter's five forces model of industry competition

  A tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs
• Five basic competitive forces

  • The threat of new entrants
  • The bargaining power of buyers
  • The bargaining power of suppliers
  • The threat of substitute products and services
  • The intensity of rivalry among competitors in an industry
• Threat of new entrants


  The possibility that the profits of established firms in the industry may be eroded by new competitors
• Bargaining power of buyers


  The threat that buyers may force down prices, bargain for higher quality or more services, and play competitors against each other
• A buyer group is powerful when: It is concentrated or purchases large volumes relative to seller sales, The products it purchases from the industry are standard or undifferentiated, Buyer faces few switching costs, It earns low profit, Buyers pose a credible threat of backward integration, Industry's product is unimportant to the quality of the buyer's products or services
• Bargaining power of suppliers

  The threat that suppliers may 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 concentrated (few firms dominate the industry) than the industry it sells to, The supplier group is not obliged to contend with substitute products for sale to the industry, Industry is not an important customer of the supplier group, Supplier's product is an important input to the buyer's business, Supplier group's products are differentiated, or it has built up switching costs for the buyer, Supplier group poses a credible threat of forward integration
• Threat of substitute products and services

  The threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge without losing too many customers to substitute products
• Substitute products and services

  Products and services outside the industry that serve the same customer needs as the industry's products and services
• Intensity of rivalry among competitors in an industry


  The threat that customers will switch their business to competitors within the industry
• Intense rivalry is the result of several interacting factors, including: Numerous or equally balanced competitors, Slow industry growth, High fixed or storage costs, Lack of differentiation or switching cost, Capacity augmented in large increments, High exit barrier
• Economies of scale


  Decreases in cost per unit as absolute output per period increases
• Product differentiation


  The degree to which a product has strong brand loyalty or customer loyalty
• Switching costs


  One-time costs that a buyer/supplier faces when switching from one supplier/buyer to another
• Barriers to entry


  • Capital requirements
  • Switching costs
  • Access to distribution channels
  • Cost disadvantages independent of scale