© Lucas Wenger 2018 Welcome to Strategic Management Week 3 Chapter 2 Review Evaluating a Firm’s External Environment © Lucas Wenger 2018 What is External Environment Analysis? © Lucas Wenger 2018 The Structure-Conduct-Performance Model © Lucas Wenger 2018 Types of Competition Type Q(Firms) Product Type Barriers Perfect Competition ↑∑Firms Homogenous Products ↓Entry/Exit Cost Parity Monopolistic Competition ↑∑Firms Heterogenious Products ↓Entry/Exit Cost CA Oligopoly ↓∑Fims Homogenous Products ↑Entry/Exit Cost CA Monopoly One Firm ↑Entry/Exit Cost CA © Lucas Wenger 2018 Ethics & Strategy • Which of these types of competition is most beneficial to society (social welfare)? • What do we want? (low cost, high quality) • What about innovation • SCP – ID whether competitiveness and intervene – Flipped to learn how to gain competitive advantage – Is that good for society – How do firms create CA/EV (address consumer needs) © Lucas Wenger 2018 General Environment © Lucas Wenger 2018 Demographics & Culture • What do each of these mean? • How predictable are they? • How can they be measured? • How are they relevant to strategic management? © Lucas Wenger 2018 Legal/Political & Economic Climate • What do each of these mean? • How predictable are they? • How can they be measured? • How are they relevant to strategic management? © Lucas Wenger 2018 Technological Change • How predictable is this? • How can it be measured? • How is it relevant to strategic management? © Lucas Wenger 2018 Major International Events • How predictable is this? • How can it be measured? • How is it relevant to strategic management? © Lucas Wenger 2018 There are two parts of the Environment: General (PEST/PESTLE/DPest) & Competitive Source: Ireland, Hitt & Hoskisson 2006 – Copyright Thompson Business & Professional Publishing Q © Lucas Wenger 2018 BUYERS Threat of new entrants MARKET COMPETITORS Bargaining power of customers SUPPLIERS SUBSTITUTES Rivalry among existing firms Bargaining power of suppliers Threat of substitute products or services Source: Porter (1980) POTENTIAL ENTRANTS The Competitive Environment of the Firm and the 5-Forces Framework P, Q © Lucas Wenger 2018 What do we look for to determine whether rivalry is high? © Lucas Wenger 2018 Rivalry is high when: • Industry concentration is low • Competitors are very homogeneous • Little product differentiation exists • Excess capacity and exit barriers are present • Scale economies are high and the ratio of fixed to variable costs is high © Lucas Wenger 2018 What do we look for to determine how high the threat of substitutability is? © Lucas Wenger 2018 The threat of substitutes is high when: • Buyers have a high propensity to substitute • The relative price and performance of substitutes is high © Lucas Wenger 2018 What do we look for to determine whether buyers have a high or low power? ©.