The document discusses analyzing a firm's external environment to develop forecasts and strategies. It describes environmental scanning, monitoring, and competitive intelligence to gather inputs for forecasting changes in direction, scope, speed and intensity. Scenario planning involves assessing trends to develop alternative futures. A SWOT analysis considers a firm's internal strengths and weaknesses as well as external opportunities and threats from the general environment and industry competition. The analysis informs a firm's strategy to build on its strengths and address weaknesses in light of external factors.

1. Major Diseases
CHAPTER 10
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Chapter 10
Major Diseases
Learning Outcomes:Identify agents and vectors involved in the
spread of infectious diseasesDescribe the process of infection,
and the role of the body’s immune systemDiscuss prevention
and treatments for colds and influenzaName and describe
common infectious diseasesEvaluate your personal infectious
disease risk factors, and strategies to decrease risk
Infectious Diseases
Infection is triggered by a pathogen (disease-causing organism)
that is transmitted to the host (person or population) by a vector
(biological or physical vehicle)
Types of microbes that can cause infection are:
Viruses Fungi
Bacteria Protozoa
Helminths (Parasitic Worms)

2. Agents of Infection: VirusesThe most common viruses are as
follows:Rhinoviruses and Adenoviruses: which get into the
mucous membranes and cause upper respiratory tract infections
and coldsInfluenza viruses: can change their outer protein coats
so dramatically that individuals resistant to one strain cannot
fight off a new oneHerpes viruses: take up permanent residence
in the cells and periodically flare upPapillomaviruses: may be
responsible for a rise in the incidence of cervical cancer among
younger womenHepatitis viruses: cause several forms of liver
infection, ranging from mild to life threateningSlow viruses:
give no early indication of their presence but can produce fatal
illnesses within a few years
Agents of Infection: Viruses cont’dRetroviruses: named for
their backward (retro) sequence of genetic replication compared
to other viruses. One retrovirus, human immunodeficiency virus
(HIV), causes acquired immune deficiency syndrome (AIDS)
Filoviruses: resemble threads and extremely lethal
Coronavirus 2019-COVID-19CDC is responding to
a pandemic of respiratory disease spreading from person-to-
person caused by a novel (new) coronavirus. The disease has
been named “coronavirus disease 2019” (abbreviated “COVID-
19”)
COVID-19 is caused by a coronavirus. Coronaviruses are a
large family of viruses that are common in people and many
different species of animals, including camels, cattle, cats, and
bats. Reported illnesses have ranged from very mild (including

3. some with no reported symptoms) to severe, including illness
resulting in death. Older people and people of all ages with
severe chronic medical conditions — like heart disease, lung
disease and diabetes, for example — seem to be at higher risk of
developing serious COVID-19 illness
Agents of InfectionBacteria: are the most plentiful
microorganisms as well as the most pathogenic. Bacteria harm
the body by releasing either enzymes that digest body cells or
toxins that produce the specific effects of diseases such as
diphtheria or toxic shock syndromeFungi: consist of threadlike
fibers and reproductive spores. Fungi lack chlorophyll and must
obtain their food from organic material, which may include
human tissueProtozoa: single-celled, microscopic animals
release enzymes and toxins that destroy cells or interfere with
their function. The most common disease caused by protozoa in
the US is giardiasis, an intestinal infection caused by
microorganisms in human and animal feces.Helminths (Parasitic
Worms): are small parasitic worms that attack specific tissue or
organs and compete with the hosts for nutrients. Ex: the
tapeworm may be contracted from eating undercooked beef,
pork, or fish containing larval forms of the tapeworm
High risk population that can develop infections?Children and
their families: youngsters get up to a dozen colds annually;
adults average two a yearOlder adults: people over age 65 who
get the flu have a 1 in 10 chance of being hospitalized for
pneumonia or other respiratory problems and a 1 in 50 chance
of dying from the diseaseThe chronically ill: lifelong diseases,
such as diabetes, kidney disease, or sickle cell anemia,
decreases an individual’s ability to fend off infectionsSmokers
and those with respiratory problems: smokers are a high risk

4. group for respiratory infections and serious complications, such
as pneumonia. Chronic breathing disorders, such as asthma and
emphysema, also greatly increase the risk of respiratory
infectionsThose who live or work in close contact with someone
sick: health care workers who treat high risk patients, nursing
home residents and others living in close quarters (i.e. students
at dormitories face greater risks of catching others colds and
flus)
Modes of Transmission
Major vectors that transmit infectious disease to the host are:
Animals and Insects (house pets, livestock, birds, wild animals
Food (E. coli, Salmonella)
People (transmit pathogens through air, touch, or sexual
contact)
Water (typhoid fever and cholera)
High Risk Populations: children and their families, elderly,
chronically ill, smokers and those with respiratory problems,
those who live/work near someone who is ill, residents/workers
in poorly ventilated buildings
Immunity against Viruses
One can develop an immunity toward viruses either by having
the infection and producing antibodies (active natural
immunity), or by being immunized with an “attenuated” vaccine
so that the body is triggered to produce antibodies (active
artificial immunity)
It is important to stay current with your vaccinations, both for
your own health and those around you

5. Common Infectious Diseases
“Common Cold” - 200+ cold viruses
Influenza – Get vaccinated!Influenza A and Influenza B-cause
most flusCDC recommends an annual flu shot for everyone over
the age of 6 monthsH1N1 – 2009 pandemic, still around today
Meningitis: attacks the membranes around the brain and spinal
cord caused by the bacterium Neisseria Meningitidis30% of
cases - 15-24 year olds1 in 5 suffers long-term effectsPrevent
through vaccinationKnow the early symptoms – seek medical
help
Common Infectious Diseases
Hepatitis – 5+ viruses Targets the liver, common
symptomsHepatitis A: mainly food/water-borne,
vaccinationHepatitis B: blood and bodily fluids,
mainly through sexual contact;
vaccinationHepatitis C: no vaccine, risk factors include
exposure to infected blood, illegal
drug use, tattoos, body piercing – make
sure professional and sterile equipment
Insect-and Animal-Borne Infections
Enjoy the outdoors but take precautions
Lyme Disease – spread mainly by deer ticks

6. Symptoms include heart arrhythmias, joint inflammation,
headaches, memory lapses
Bull’s eye rash
West Nile Virus – spread by mosquitoes
flu-like symptoms, can interfere with normal central nervous
system function and inflammation of brain tissue
Seasonal, with elevated numbers again in 2012
Insect-and Animal-Borne InfectionsZika VirusFirst discovered
in 1947, the Zika virus often causes no symptoms or mild ones
similar to those of other infectionsIn 2016, after cases were
confirmed in South America, the World Health
Organization(WHO) declared Zika virus a public health
emergency of international concernsTransmission:Through a
mosquito biteFrom mother to childThrough sexual
contactThrough blood transfusion
Insect-and Animal-Borne InfectionsAvian InfluenzaAka “Bird
Flu” is caused by viruses that occur naturally among wild birds
and usually does not infect humans
However, influenza jumped form birds to humans three times in
the 20th century
In each case, a mutation in the genes of the virus allowed it to
infect humans. Then a further change allowed the virus to pass
easily from one human to another, and it spread rapidly around
the world
Other Infectious DiseasesEpstein-Barr Virus – (member of the
herpes virus family) causes infectious mononucleosisInfectious
Mononucleosis- viral disease transmitted through kissing or any

7. other close contactChronic Fatigue Syndrome-complex disorder
characterized by profound fatigue that does not improve with
bedrestTuberculosis-highly contagious bacterial infection that
claims the lives of more people than any other acute infectious
disease other than pneumoniaMRSA – Methicillin Resistant
Staphylococcus Aureusaka “super bug” fights off traditional
antibioticsHas a become a major health threat
Cardiometabolic Health
Referring to the heart and to the biochemical processes involved
in the body’s functioning
Risk Factors You Can Control [modifiable]
Overweight/obesity - High Blood Glucose
- Weight circumference - Hypertension
Physical inactivity - Cholesterol Levels
Tobacco Use - Triglycerides
Risk Factors You Cannot Control [non-modifiable]
Age Race Sex Heredity
Metabolic Syndrome
A cluster of disorders of the body’s metabolism that make
diabetes, heart disease, or stroke more likely
Characteristics: Larger-than-normal waist measurementHigher-
than-normal triglycerides, blood pressure, fasting blood
sugarLower-than-normal HDL

8. DiabetesInsulin ResistancePre-diabetesTypes:Type 1 – pancreas
makes little or no insulinType 2 – pancreas doesn’t make
enough, or body can’t use, insulinGestational
Diabetes – develops while pregnant
Signs and Symptoms
High Blood Pressure
Lipoprotein Profile - Cholesterol
If you are 20+, time to get it checked Know your numbers:
Table 10.6
Lowering cholesterol:Dietary changesWeight
managementPhysical activityMedications only if necessary
Cardiovascular DiseasePhysical & Psychological Risk
FactorsCoronary Artery DiseaseAtherosclerosis
Heart Attack
StrokeRisk Factors:Sex, race, ageObesity, hypertension, high
RBC, heart disease, blood fats, diabetes, HRT, diet

9. Know the Signs – Time is critical
CancerSecond Leading Cause of Death in U.S.“Relative Risk”
FactorsHeredityRacial/Ethnic GroupsAge, SexObesityInfectious
Agents (e.g. HPV)Behaviors (e.g. smoking)
Skin CancerTanning & Tanning BedsIncreased risk: fair skin,
history of sunburns, family history, high number of moles
Breast CancerRisk Factors
Age - Family History
Age at birth of 1st child - Obesity
Breast Biopsies - Occupation
Early Menarche - Race/Ethnicity
Hormone therapy - Alcohol
Sedentary Lifestyle
Self-careImportant to conduct monthly self-
examsSkinBreastTesticular
Have regular physical exams and tests as recommended
*
CHAPTER 2
Analyzing the

10. External Environment
of the Firm:
Creating Competitive
Advantages
Copyright Anatoli Styf/Shutterstock
1
Learning Objectives
After reading this chapter, you should have a good
understanding of:
2-1 The importance of developing forecasts of the business
environment.
2-2 Why environmental scanning, environmental monitoring,
and collecting competitive intelligence are critical inputs to
forecasting.
2-3 Why scenario planning is a useful technique for firms
competing in industries characterized by unpredictability and
change.
2-4 The impact of the general environment on a firm’s
strategies and performance.
2-5 How forces in the competitive environment can affect
profitability, and how a firm can improve its competitive
position by increasing its power vis-à-vis these forces.
2-6 The concept of strategic groups and their strategy and
performance implications.
©McGraw-Hill Education.
2

11. The Importance of External Environment
Consider. . .
The best CEOs are always aware of what’s going on outside
their company. Their perceptual acuity allows them to sense
what’s coming. Detecting early warning signals, keeping pace
with changes in the external environment can sustain a
competitive advantage.
©McGraw-Hill Education.
Recall the struggles of Land’s End in Chapter 1. Perceptual
acuity = the ability to sense what is coming before the fog
clears.
3
Enhancing Awareness of the External Environment
Exhibit 2.1 Inputs to Forecasting
©McGraw-Hill Education.
So how do managers become environmentally aware? By doing
scanning, monitoring, and gathering competitive intelligence,
and using these inputs to develop forecasts. Then scenario
planning and SWOT analysis can be used to help anticipate
major future changes in the external environment, preparing the
firm to do more extensive analysis of the forces in the general
environment and the industry or competitive environment.
4
Environmental Scanning & Monitoring
Environmental scanning involves surveillance of a firm’s
external environment.
Predicts environmental changes to come

12. Detects changes already under way
Allows firm to be proactive
Environmental monitoring tracks evolution of environmental
trends.
Sequences of measurable facts/events
Streams of activities or trends from outside the organization
©McGraw-Hill Education.
Environmental scanning = surveillance of a firm’s external
environment to predict environmental changes and detect
changes already under way. Is a BIG PICTURE viewpoint of the
industry/competition, looking for key indicators of emerging
trends – what catches your eye? Alerts the firm to critical trends
before changes have developed a discernible pattern and before
competitors recognize them. Environmental monitoring = a
firm’s analysis of the external environment that tracks the
evolution of environmental trends, sequences of events, or
streams of activities. Monitor the trends that have the potential
to change the competitive landscape – what do you want to
track? Firms need to CHOOSE the trends identified via the
scanning activity and regularly monitor or track these specific
trends to evaluate the impact of these trends on their strategy
process, i.e., Johnson & Johnson tracking percentage of GDP
spent on health care, or number of active hospital beds.
5
Competitive Intelligence
Competitive intelligence
Helps firms define & understand their industry
Identifies rivals’ strengths & weaknesses
Collect data on competitors
Interpret intelligence data
Helps firms avoid surprises
Anticipate competitors’ moves

13. Decrease response time
Potential for unethical behavior while gathering intelligence
©McGraw-Hill Education.
Competitive intelligence = a firm’s activities of collecting and
interpreting data on competitors, defining and understanding the
industry, and identifying competitors’ strengths and
weaknesses. Be careful – aggressive efforts to gather
competitive intelligence may lead to unethical or illegal
behaviors. Note: See the Strategy Spotlight on Ethical
Guidelines on Competitive Intelligence: United Technologies.
6
Environmental Forecasting
Environmental forecasting predicts change.
Plausible projections about
Direction of environmental change?
Scope of environmental change?
Speed of environmental change?
Intensity of environmental change?
Scenario analysis involves detailed assessments of the ways
trends may affect an issue & development of alternative futures
based on these assessments.
©McGraw-Hill Education.
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. Asks what
would happen if the environment should change dramatically?

14. Addresses the need to consider a wider context than the narrow,
traditional markets, laying down guidelines for at least 10 years
in the future to anticipate rapid change. See Spotlight 2.2 on
PPG Industries’ approach, developing four alternative strategies
based on the cost of energy and extent of growth opportunity in
emerging markets.
7
Question
(1 of 2)
A danger of forecasting discussed in the text is that
in most cases, the expense of collecting the necessary data
exceeds the benefit.
forecasting’s retrospective nature provides little information
about the future.
managers may view uncertainty as “black and white” while
ignoring important “gray areas.”
it can create legal problems for the firm if regulators discover
the company is making forecasts.
©McGraw-Hill Education.
Answer: C.
Some forecasting issues are much more specific to a particular
firm and the industry in which it competes. Consider how
important it is for Motel 6 to predict future indicators, such as
the number of rooms available vs demand in the budget segment
of the industry. If its predictions are low, it will build too many
units, creating a surplus of room capacity that would drive down
room rates. 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.
8

15. SWOT Analysis
SWOT analysis is a basic technique for analyzing firm and
industry conditions.
Firm or internal conditions = Strengths & Weaknesses
Where the firm excels or where it may be lacking
Environmental or external conditions = Opportunities & Threats
Developments that exist in the general environment
Activities among firms competing for the same customers
Must consider both internal & external factors simultaneously
©McGraw-Hill Education.
Once environmental scanning, monitoring, intelligence
gathering, and forecasting have been done, the firm must do a
more in-depth analysis to see how all this affects its strategy.
SWOT analysis = a framework for analyzing a company’s
internal and external environment and that stands for strengths,
weaknesses, opportunities, and threats. The firm’s strengths
come from within, and are where your firm excels; the
weaknesses are where your firm is lacking relative to
competitors. The opportunities and threats can come from the
general environment and/or from the specific industry’s
competitive environment. SWOT analysis forces managers to
consider both internal & external factors simultaneously, makes
firms act proactively, raises awareness about role of strategy. 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, and protect the firm
from the threats. SWOT’s conceptual simplicity is achieved
without sacrificing analytical rigor. (However, see limitations
of a SWOT in Chapter 3).
9
The General Environment
The general environment is composed of factors that are both

16. hard to predict and difficult to control.
Demographic
Sociocultural
Political/Legal
Technological
Economic
Global
©McGraw-Hill Education.
General environment = factors external to an industry, and
usually beyond a firm’s control, that affect a firm’s strategy.
Although the effects of these factors can vary across industries,
EVERY industry has to anticipate the affect of each factor on
its firm’s long-term strategies. See Exhibit 2.3 for effects of
these various trends on certain industries. In addition, there are
many reciprocal relationships among the various elements. For
instance, the aging of the U.S. population has important
implications for the economic segment.
10
The Demographic Segment
Demographics are easily understandable & quantifiable.
Aging population
Rising affluence
Changes in ethnic composition
Geographic distribution of population
Greater disparities in income levels
©McGraw-Hill Education.
Demographic segment of the general environment = genetic and
observable characteristics of a population, including the levels
and growth of age, density, sex, race, ethnicity, education,
geographic region, and income.
11

17. The Sociocultural Segment
Sociocultural forces influence the values, beliefs, and lifestyles
of a society.
More women in the workforce
Increase in temporary workers
Greater concern for healthy diets & physical fitness (increasing
levels of obesity)
Greater concern for the environment
Postponement of marriage & family formation, having children
©McGraw-Hill Education.
Sociocultural segment of the general environment = the values,
beliefs, and lifestyles of a society. These forces might enhance
the sales of products and services in many industries but
depress sales in others. For instance, increase of women in the
workforce enhances the sale of women’s business attire (see
Case: Ascena) but reduces demand for baking products and
cooking staples (see Case: Campbell Soup).
12
The Political/Legal Segment
Political/Legal processes & legislation influence environmental
regulations with which industries must comply.
Tort reform
Americans with Disabilities Act (ADA)
Deregulation of utilities & other industries
Increases in minimum wages
Taxation
Legislation on corporate governance reforms
Affordable Health Care Act, Medicare reimbursements
©McGraw-Hill Education.
Political/legal segment of the general environment = how a

18. society creates and exercises power, including rules, laws, and
taxation policies. Federal legislation such as Sarbanes-Oxley
not only affected how corporations managed their corporate
governance processes, but helped create new businesses such as
professional accounting services. See Strategy Spotlight 2.2 on
how conflict minerals legislation can affect a company’s supply
chain. The Affordable Care Act (Obamacare) and changes in
how to process Medicare reimbursements will have an effect on
health care delivery mechanisms.
13
The Technological Segment
Technological developments lead to new products & services.
They can create new industries & alter existing ones.
Genetic engineering
Three-dimensional (3D) printing
Computer-aided design/computer-aided manufacturing systems
(CAD/CAM)
Research in synthetic & exotic materials
Pollution/global warming
Miniaturization of computing technologies
Wireless communications
Nanotechnology
Big data/data analysis
©McGraw-Hill Education.
Technological segment of the general environment = innovation
and state of knowledge in industrial arts, engineering, applied
sciences, and pure science; and their interaction with society.
See, for instance, physiolectics – linking wearable computing
devices with data analysis and quantified feedback to improve
performance. NOTE: some trends or events can affect multiple
segments of the general environment, i.e., data analytics = the
process of examining large data sets to uncover hidden patterns,

19. market trends, and customer preferences. Corporations are
increasingly collecting and analyzing data on their customers,
including data on customer characteristics, purchasing patterns,
employee productivity, and physical asset utilization. These
efforts, commonly referred to as “Big Data” have the potential
to enable firms to better customize their product and service
offerings to customers while more efficiently and fully using
the resources of the company. See Strategy Spotlight 2.3 for
how data analysis can make government more transparent.
14
The Economic Segment
Economic forces affect all industries.
Interest rates
Unemployment
Consumer Price Index
Trends in GDP & net disposable income
Changes in stock market valuations
©McGraw-Hill Education.
Economic segment of the general environment = characteristics
of the economy, including national income and monetary
conditions. For instance, interest rate increases have a negative
impact on the residential home construction industry but a
negligible (or neutral) effect on industries that produce
consumer necessities such as prescription drugs or common
grocery items; likewise when stock market indexes increase,
consumers’ discretionary income rises and there is often an
increased demand for luxury items such as jewelry and
automobiles.
But when stock valuations decrease, demand for these items
shrink.
15
The Global Segment

20. Global forces offer both opportunities & risks.
Increasing global trade
Currency exchange rates
Emergence of the Indian & Chinese economies
Trade agreements among regional blocs (NAFTA, EU, ASEAN)
Creation of the WTO (leading to decreasing tariffs/free trade in
services)
Increased risks associated with terrorism
©McGraw-Hill Education.
Global segment of the general environment = influences from
foreign countries, including foreign market opportunities,
foreign-based competition, and expanded capital markets.
Globalization provides both opportunities to access larger
potential markets and a broad base of production factors such as
raw materials, labor, skilled managers, and technical
professionals. (See the Starbucks Case, Heineken Case,
Emirates Airline Case, or eBay.) However, such endeavors also
carry many political, social, and economic risks. One important
trend to track is the rapid rise of the middle class in emerging
market countries. Not only does this have implications for
consumer growth, but it also increases the need for
multinational firms to hire for overseas jobs.
16
General Environment:
Relationships among Elements
Elements of the general environment interact with each other.
Demographic trends have implications for economics.
Greater access to information technology affects both
economics and global relationships.
Political/legal trends can have very different effects on different
industries.
Digital technology has altered the way business is conducted in

21. nearly every business domain.
Data analytics
©McGraw-Hill Education.
Firms must pay attention to factors in the general environment
for many reasons. Not only do these elements interact with each
other, but also the effects of trends or events in the general
environment can vary across industries. See Exhibit 2.3 for how
this may play out in different industry sectors. One example of
how one technology phenomenon alters the way business is
conducted is data analytics = the process of examining large
data sets to uncover hidden patterns, market trends, and
customer preferences. This activity links technology with
globalization, socio-cultural and economic forces, having an
effect on nearly every business domain. Companies that are
taking the lead in the analytics revolution see it as an important
source of competitive differentiation, becoming 26 percent more
profitable than their industry peers. See Strategy Spotlight 2.3
for how Open The Books is making government more
transparent.
17
The Competitive Environment
The competitive environment consists of factors in the task or
industry environment that are particularly relevant to a firm’s
strategy.
Competitors (existing or potential)
Including those considering entry into an entirely new industry
Customers (or buyers)
Suppliers
Including those considering forward integration
©McGraw-Hill Education.
In addition to the general environment, within which ALL firms

22. compete, each firm must also pay attention to its competitive
environment = factors that pertain to an industry and affect a
firm’s strategies. Industry = a group of firms that produce
similar goods or services. One interesting concept is forward
integration, a form of vertical integration whereby a firm
expands activities to include control of the direct distribution of
its products, e.g. a farmer sells his/her crops at the local market
rather than to a distribution center for eventual sale to a
supermarket (This definition is not in the textbook, but comes
from
http://www.investopedia.com/terms/f/forwardintegration.asp.
See more about vertical integration in Chapter 6.)
18
Porter’s Five Forces Model of Industry Competition
Exhibit 2.4 Porter’s Five Forces Model of Industry Competition
Source: From Michael E. Porter, “The Five Competitive Forces
That Shape Strategy,” Special Issue on HBS Centennial..
Harvard Business Review 86, No. 1 (January 2008), 78-93.
Reprinted with permission of Michael E. Porter.
Jump to Appendix 1 for long description.
©McGraw-Hill Education.
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. Includes 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. Each of these forces
affects a firm’s ability to compete in a given market. Together
they determine the profit potential for a particular industry.
19

23. The Threat of New Entrants
The threat of new entrants – possibility that the profits of
established firms in the industry may be eroded by new
competitors.
Depends on existing barriers to entry:
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
©McGraw-Hill Education.
Threat of new entrants = the possibility that the profits of
established firms in the industry may be eroded by new
competitors. Economies of scale = decreases in cost per unit as
absolute output per period increases. Forces the new entrant to
come in at a large scale and risk strong reaction from existing
firms, or come in at a small scale and accept a cost
disadvantage. Product differentiation = the degree that a product
has strong brand loyalty or customer loyalty. New entrants must
spend heavily to overcome existing customer loyalties.
Switching cost = one-time costs that a buyer/supplier faces
when switching from one supplier/buyer to another. In some
industries, large financial resources or access to distribution
channels are required in order to set up operations. Other
advantages that existing competitors might have include
proprietary products; favorable access to raw materials;
government subsidies; or favorable government policies.
Managers often tend to overestimate barriers of entry in many
industries. New entrants can sometimes find innovative ways to
enter industries by cleverly mixing and matching existing
technologies so state-of-the-art technology does not have to be
developed internally.

24. 20
Question
(2 of 2)
If you are considering opening a new pizza restaurant in your
community, what would be the threat of new entrants? How
would you evaluate Porter’s other forces for this industry?
Explain.
©McGraw-Hill Education.
Answer: The threat of new entrants in the food industry is very
high, which is why a majority of new food restaurants fail
within their first year. The minimum requirements to open a
pizza shop are an oven and a small amount of capital. The
potential number of competitors is unlimited due to these
factors. Based on other forces also, this industry is not very
attractive: for instance there is no industry growth, and a lack of
differentiation among competitor’s products, so competition is
based on cost or service, and the industry has low profit
margins as it is.
21
The Bargaining Power of Buyers
Buyers have bargaining power.
Buyers can force down prices, bargain for higher quality or
more services, or play competitors against each other.
Buyer groups are powerful.
Purchasing standard products are in large volumes.
Profits are low & switching costs are few.
Backward integration is possible.
Buyer’s product quality is not affected by industry product.
©McGraw-Hill Education.
Bargaining power of buyers = the threat that buyers may force

25. down prices, bargain for higher quality or more services, and
play competitors against each other. These actions will erode
overall industry profitability, forcing all firms to pay attention.
Firms therefore need to know who the important buyers are: is
there a single buyer, or ones who purchase in high volume?
These buyers will have the ability to dictate terms. In addition,
if the products needed by buyers are standard or
undifferentiated, such as commodity grain products, buyers can
play one company against another. Also, if the buyer’s profits
are low and it won’t cost much to switch suppliers, this is an
incentive for buyers to bargain. Backward integration is always
possible – a form of vertical integration that involves the
purchase of suppliers. Companies will pursue backward
integration when it will result in improved efficiency and cost
savings. For example, backward integration might cut
transportation costs, improve profit margins and make the firm
more competitive. An example of backward integration would
be if a bakery business bought a wheat processor and a wheat
farm. (Definition is not in the textbook. Comes from
http://www.investopedia.com/terms/b/backwardintegration.asp.)
NOTE there’s a difference between customers/buyers, and
CONSUMERS. Consumers rarely have any “buyer power” – can
you negotiate the price of a movie ticket? Yet the chain of
“buyers” in the movie industry is multi-layered – from
production studio to distributor to theater owner, with each
buyer group having different degrees of power.
22
The Bargaining Power of Suppliers
Suppliers can exert bargaining power by threatening to raise
prices or reduce the quality of purchased goods and services.
Supplier groups are powerful.
Only a few firms dominate the industry.
There is no competition from substitute products.
Suppliers sell to several industries.
Buyer quality is affected by industry product.

26. Products are differentiated & have switching costs.
Forward integration is possible.
©McGraw-Hill Education.
Firms need to pay attention to their suppliers because powerful
suppliers can squeeze the profitability of firms so far that they
can’t recover the costs of raw material inputs. Bargaining power
of suppliers = the threat that suppliers may raise prices or
reduce the quality of purchased goods and services. Forward
integration = a form of vertical integration whereby a firm
expands activities to include control of the direct distribution of
its products, e.g., a farmer sells his/her crops at the local market
rather than to a distribution center for eventual sale to a
supermarket, or the example of Delta Pride Catfish cutting out
the large agribusiness processing plants by building their own.
(This definition is not in the textbook, but comes from
http://www.investopedia.com/terms/f/forwardintegration.asp.)
23
The Threat of Substitute Products & Services
Substitute products & services limit the potential returns of an
industry.
Substitutes come from another industry.
Substitutes can perform the same function as the industry’s
offerings.
Substitutes place a ceiling on prices that firms in an industry
can profitably charge.
The more attractive the price/performance ratio, the more the
substitute erodes industry profits.
©McGraw-Hill Education.
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

27. 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. Identifying substitute products
might involve searching for other products or services that can
perform the same function as the industry’s offerings. This may
lead a manager into businesses seemingly far removed from the
industry. Example is ice cream – an expensive summer time
treat. Frozen fruit smoothies are a substitute. See Case Dippin’
Dots vs. Case Jamba Juice.
24
The Intensity of Rivalry among Competitors in an Industry
Rivalry tactics include price competition, advertising battles,
new product introductions, increased customer service or
warranties.
Interacting factors lead to intense rivalry.
Numerous or equally balanced competitors
Slow industry growth
High fixed or shortage costs
Lack of differentiation or switching costs
Capacity augmented in large increments
High exit barriers
©McGraw-Hill Education.
Intensity of rivalry among competitors in an industry = the
threat that customers will switch their business to competitors
within the industry. Rivalry between firms is often based solely
on price, but it can involve other factors. Rivalry occurs when
competitors sense the pressure or act on an opportunity to
improve their position. See the example of the intense
competition between ride-sharing companies Uber Technologies
and Lyft. Rivalry also differs across industries. See Case Global
Casino Industry for cutthroat tactics.
25

28. How the Internet and Digital Technologies Affect Competitive
ForcesCompetitive ForcesBenefits to IndustryDisadvantages to
IndustryThreat of New EntrantsLower barriers to entry
increases number of new entrants.
Many Internet-based capabilities can be easily
imitated.Bargaining Power of BuyersReduces the power of
buyer intermediaries in many distribution channels.Switching
costs decrease.
Information availability online empowers and users.Bargaining
Power of SuppliersOnline procurement methods can increase
bargaining power over suppliers.The Internet gives suppliers
access to more customers and makes it easier to reach end users.
Online procurement practices deter competition and reduce
differentiating features.Threat of SubstitutesInternet-based
increases in overall efficiency can expand industry
sales.Internet-based capabilities create more opportunities for
substitution.Intensity of RivalrySince location is less important,
the number of competitors increases.
Differences among competitors are harder to perceive online.
Rivalry tends to focus on price and differentiating features are
minimized.
Sources: Bodily, S., & Venkataraman, S. 2004. Not walls,
windows: Capturing value in the digital age. Journal of
Business Strategy. 25(3): 15-25; Lumpkin, G.T. Droege, S.B., &
Dess, G.G. 2002. E-commerce strategies: Achieving sustainable
competitive advantage and avoiding pitfalls. Organizational
Dynamics, 30 (Spring): 1-17.
©McGraw-Hill Education.
The Internet and other digital technologies have fundamentally
changed the ways businesses interact with each other and with
consumers. These changes have affected industry forces in ways
that have created many new strategic challenges.
26

29. Using Industry Analysis:
A Few Caveats
Managers must not always avoid low profit industries; these can
still yield high returns for players who pursue sound strategies.
Five forces analysis implicitly assumes a zero-sum game. Yet
mutually beneficial relationships can still be established with
buyers & suppliers.
Five forces analysis is essentially a static analysis, yet external
forces can still change the structure of all industries.
See the value net extension of five forces analysis.
Vertical dimension = suppliers & customers
Horizontal dimension = substitutes & complements
©McGraw-Hill Education.
Industry analysis helps a firm evaluate the profit potential of an
industry and consider various ways to strengthen its competitive
position. However, strategists must be wary – it’s not always
simple. Zero-sum game = a situation in which multiple players
interact, and winners win only by taking from other players.
Complements = products or services that have an impact on the
value of a firm’s products or services. For instance, Apple’s
iTunes was software that made the iPod hardware such a
popular product. See Case Apple.
27
The Value Net
Exhibit 2.6 The Value Net
Source: Adapted from “The Right Game: Use Game Theory
Shape Strategy,” by A. Brandenburger and B.J. Nalebuff, July-
August 1995 Harvard Business Review.
Jump to Appendix 2 for long description.
©McGraw-Hill Education.

30. The value net is based on game-theory, and represents all the
players in the game, analyzing how their interactions affect a
firm’s ability to generate and appropriate value. The …
Contraception and
Reproduction
CHAPTER 9
*
Chapter 9
Contraception and Reproduction
Learning Outcomes:Describe the process of human conception
Identify factors to consider and discuss with your partner when
choosing a contraceptive method
Identify conceptive methods and discuss the advantages and
disadvantages of each
Chapter 9
Contraception and Reproduction
Learning Outcomes:Evaluate contraceptive methods that would
meet your personal criteria if, or when, you need them

31. Describe methods used to perform abortions
Discuss the physiological effects of pregnancy and describe
fetal development
Describe the three stages of labor and the birth process
Conception or Contraception?
If one is engaging in intercourse, one must consider the
consequences of such action and decisions that need to be
madeConception (fertilization) – Pregnancy
Birth Control: Contraception – prevent conception
If so, which method
Other MeansSterilizationAbortion
ConceptionMerging of sperm and egg – fertilizationSperm
travel from vagina through uterus into fallopian tube where it
fertilizes the ovum (egg)Zygote: fertilized eggBlastocyst –
zygote divides into small cluster of cells as it travels down the
fallopian tubeImplantation in the uterus - embryo
Birth ControlAny method used to prevent pregnancyFactors to
consider when choosing a birth control
methodEffectiveness/Reliability in preventing
pregnancyEffectiveness/Reliability in preventing
STIsSuitabilitySide EffectsHealth Risks/SafetyFuture
fertilityPersonal values

32. Comparing Effectiveness
Contraceptive MethodsAbstinence100% effective to prevent
pregnancy
Nonpenetrative Activity“outercourse”Effective against
pregnancy and STIs if no bodily fluid is exchanged
Withdrawal (Coitus interuptus)Not very reliable to prevent
pregnancy
Barrier Methods
Blocks the meeting of egg and sperm by means of a physical
barrier and/or a chemical oneProper usage is critical to it’s
reliability and effectiveness against pregnancyEffectiveness
against STIs depends on type
Nonprescription barriers:
male condom, female condom, contraceptive sponge,
spermicides and film
Prescription barriers:
diaphragm, cervical cap, Femcap
Hormonal ContraceptivesProper Use is critical for
reliability/effectiveness against pregnancyDoes not protect
against STIsHealth Risks/Side effects associated with use
Oral contraceptives – “the pill”Monophasic pill, progestin-only
pill, extended use pillThe Patch (Ortho Evra); Vaginal Ring;

33. Implants; Injectable, Intrauterine (IUD)Emergency
Contraception
Other Forms of Birth ControlSterilization
Male: vasectomy
Female: tubal ligation, tubal occlusion
AbortionMedical abortion – “abortion pill”Surgical
abortionPsychological issuesPolitics
PregnancyPreconception, as well as prenatal care, are very
important in both the health of the woman and
babyComplications of PregnancyEctopic
pregnancyMiscarriageInfectionsGenetic DisorderPremature
Labor
ChildbirthPreparing for ChildbirthLabor & Delivery3 phases of
laborEffacement and dilationMovement of baby into and
through birth canal“Afterbirth” – expulsion of placenta
Caesarean Birth