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Part 1 Strategy Analysis

Part 1 Strategy Analysis. EXHIBIT 3.1. The Firm Embedded in Its External Environment. Political Variables. Governments influence behavior of firms Subsidies for renewable energy High-mileage automobiles Investments in R&D Campaigns by candidates for office

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Part 1 Strategy Analysis

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  1. Part 1 Strategy Analysis

  2. EXHIBIT 3.1 The Firm Embedded in Its External Environment

  3. Political Variables • Governments influence behavior of firms • Subsidies for renewable energy • High-mileage automobiles • Investments in R&D • Campaigns by candidates for office • Taxation at local, state, federal levels • Political pressure on firms • Negotiations on pharmaceutical prices • Modify home loans

  4. Economic Variables • Growth Rates • GDP Trends • Interest Rates • Employment Levels • Inflation Rates • Currency & Money Supply • Disposable & Discretionary Income

  5. Socio-Cultural Variables • Lifestyle Changes • Career Expectations • Demographics • Life expectancies • Aging population • Rising affluence • Changes in ethnic composition • More women in workforce globally • Increase in temporary workers • Geographic distribution of global population

  6. Technological Variables • Productivity Improvements • Focus of Technological Efforts • Industrial Spending for R&D • Patent Protection • Digital Communications • E-tailers • Mobile devices • Biotechnology • Genetic engineering • Nanotechnology

  7. Ecological Variables • Global Warming • Sustainable Economic Growth • Carbon Footprint • Fossil Fuel Consumption • Pollution of air & water • Toxins in food and products Business Sustainability Video

  8. Legal Variables • Antitrust Regulations • Tort Reform • Environmental Protection Laws • CARB zero-emission regulation passed in 1990. • GM, Toyota, & Honda all had EVs by 1997. • Regulation was revoked & EVs withdrawn in 2002. • Hiring and Promotion Laws • Americans with Disabilities Act of 1990 • Sarbanes-Oxley Act of 2002

  9. PESTEL Framework • Political • Gov’t pressures • Subsidies & incentives • Differences in countries, states, Countries & regions • Economic • Growth rates • Interest rates • Employment levels • Currency exchange • Sociocultural • Norms, culture, values • Demographics • Lifestyle changes • Technological • Innovation • Diffusion • Research & development • Environmental • Global warming • Sustainability • Pollution • Legal • Court system • Legislation • Hiring laws, ADA, SBOX

  10. THE STRUCTURE-CONDUCT PERFORMANCE (SCP) • Perfect Competition • Many small firms – commodity products • Ex. Pet supply stores • Monopolistic Competition • Many firms – differentiated products • Ex. Computer hardware, organic foods • Oligopoly • Few large firms – interdependent • Ex. Express mail, soft drinks • Monopoly • One supplier – often government approved • Ex. Utilities for electricity, gas, and water

  11. EXHIBIT 3.2 Industry Structures along the Continuum Bank Oligopolies Video

  12. COMPETITIVE FORCES AND FIRM STRATEGY • The Five Forces Model • The classic industry analysis model • Threat of Entry • Power of Suppliers • Power of Buyers • Threat of Substitutes • Rivalry Among Existing Competitors

  13. EXHIBIT 3.3 Porter’s Five Forces Model 5 forces video- M. Porter Source: Porter, M. E. (2008), “The five competitive forces that shape strategy,” Harvard Business Review

  14. Threat of Entry – HIGH IF: • Customer Switching Costs are Low • Capital Needs are Low • Retaliation is Not Expected • Incumbents don’t have: • Proprietary technology • Established brands • Closed distribution channels • BYD entrance?? • Electric vehicles “level the auto field” • BYD has strength working multinational firms

  15. Power of Suppliers – HIGH IF: • Forward Integration is a credible threat • No substitutes for supplier products • Suppliers products are differentiated • Incumbents face high switching costs • Product is important input to buyer • BYD suppliers?? • They make the batteries • Chevy, Ford are buying from suppliers! Suppliers exert power in the industry by: threatening to raise prices or to reduce quality. Powerful suppliers can squeeze industry profitability.

  16. Power of Buyers – HIGH IF: Buyers compete with the supplying industry by: Bargaining down prices Forcing higher quality Playing firms off of each other • A few large buyers • Large buyers relative to a seller • Products are standardized • Buyers face few switching costs • Backward Integration is credible • Buyer has full information • BYD Buyers?? • Product is differentiated • Switching costs from gas to electric

  17. Threat of Substitutes – HIGH IF: Products with similar functions limit the prices firms can charge • Substitute is good price-performance trade-off • Buyers switching costs to substitute is low • BYD Substitutes?? • Electric vs. gas cars • Bus, train, bikes

  18. Incumbent Rivalry– HIGH IF: • Many competitors in the industry • Firms are equal size • Industry growth is slow or shrinking • Exit barriers are high • Contractual obligations • Geographic or historical attachments • Products and services are direct substitutes • BYD rivals?? • Entrance of BYD (& Tesla) increases rivalry

  19. Substitutes and Complements • Substitute:An alternative from outside the given industry for its product or service. When its performance increases or its price falls, industry demand decreases. • Plastic vs. aluminium containers • Video conference vs. business travel

  20. Substitutes and Complements • Complement: A product or service or competency that adds value to original product. When its performance increases or its price falls, industry demand increases. • Paper for Xerox copiers • iTunes for iPod music players • Complementor: If customers value your product more when combined with another firm’s product or service. • Michelin tires for Ford & GM

  21. EXHIBIT 3.5 Determining Industry Attractiveness

  22. CHANGES OVER TIME: INDUSTRY DYNAMICS • Industry Growth Rates Highly Variable (Exh. 3.6) • Metals & Internet at the top • Retailers and food at the bottom • Structures Change too • U.S. banking industry – major consolidations • Big 8 accountants are now Big FOUR • Stock brokerage firms have grown – Internet catalyst • Industry Convergence • Formerly unrelated industries collide • Media – newspapers, TV, movies • Online business model?

  23. Strategic Groups • Mapping Groups • Auto industry example • GM, Ford, Toyota – gas • BYD, Tesla – electric • ID best dimensions • Choose two for map • Locate firms on map • Bubble size = market share • Rivalry is strongest in SAME group • Some groups more profitable than others • Mobility Barriers • Firms would try to move to the profit spots BUT… • Specific factors that separate groups • Airlines • International routes • Regulations: airport slots

  24. Strategic Groups and Mobility Barrier – U.S. Airlines EXHIBIT 3.7

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