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MGT489 - Exam 1 Notes
MGT489 - Exam 1 Notes
Rivalry among competing firms: the most powerful of the 5 forces. Can be successful only to the
extent that they provide competitive advantage over the strategies pursued by rival firms.
Changes in strategy may be met with retaliatory countermoves, such as lowering prices,
enhancing quality, adding features, providing services, extending warranties, and increasing
advertising.
Potential entry of new competitors: whenever new firms can easily enter a particular industry,
the intensity of competitive among firms increases. Barriers to entry can include the need to
gain economies of scale quickly, the need to gain technology and specialized know-how, the lack
of experience, strong customer loyalty, strong brand preferences, large capital requirements,
lack of adequate distribution channels, government regulatory policies, tariffs, lack of access to
raw materials, possession of patents, undesirable locations, counterattack by entrench firms,
and potential saturation of the market.
Potential development of substitute products: firms are in close competition with producers of
substitute products in other industries. The presence of substitute products puts a ceiling on the
price that can be charged before consumers will switch to the substitute product. Price ceilings
equate to profit ceilings and more intense competition among rivals. Competitive pressures
arising from substitute products increase as the relative price of substitute products declines
and as consumers’ costs of switch decreases. The competitive strength of substitute products is
best measured by the inroads into the market share those products obtain, as well as those
firms’ plans for increased capacity and market penetration
Bargain power of suppliers: affects the intensity of competition in an industry, especially when
there are few suppliers, where area few good substitute raw materials, or when the cost of
switching raw materials is especially high. It is often in the best interest of both suppliers and
producers to assist each other with reasonable prices, improved quality, development of new
services, just-in-time deliveries, and reduced inventory costs, thus enhancing long-term
profitability for all concerned.
In more and more industries, sellers are forging strategic partnerships with select suppliers in an
effort to (1) reduce inventory and logistics costs (e.g., through just-in-time deliveries), (2)
accelerate the availability of next-generation components, (3) enhance the quality of the parts
and components being supplied and reduce defect rates, and (4) squeeze out important cost
savings for both themselves and their suppliers
Bargaining power of consumers: when customers are concentrated or large in number or buy in
volume, their bargaining power represents a major force affecting the intensity of competition
in an industry. Rival firms may offer extended warranties or special services to gain customer
loyalty whenever the bargaining power of consumers is substantial. Bargaining power of
consumers also is higher when the products being purchased are standard or undifferentiated.
When this is the case, consumers often can negotiate selling price, warranty coverage, and
accessory packages to a greater extent.
Market development, involves introducing present products or services into new geographic
areas
Unrelated diversification, when value chains are so dissimilar that no competitively valuably
cross-business relationships exist
2. What are the 3 retrenchment strategies?
Bankruptcy
Divestiture, selling a division or part of an organization to raise capital for further strategic
acquisitions or investments
Liquidation, selling all of a company’s assets in parts for their tangible worth. Associated with
Ch. 7 bankruptcy.
3. What are the 5 generic strategies?
Type 1 and Type 2, cost leadership, emphasizes producing standardized products at a low per-unit costs
for consumers who are price sensitive. Targets a large market
Low costs, emphasizes offers products or services to a wide range of customers at
the lowest price available on the market
Best value, offers products or services to a wide range of customers at the best
price-value available on the market.
Type 3, differentiation, focus aims a producing products and services unique to the industry and directed
at Type 4 and Type 5, consumers are relatively price insensitive.
Focus means producing products and services that fulfill the needs of small groups of consumers
Low costs, offers products or services to a small range (niche) of customers at the
lowest price available on the market
Best value, offers products or services to a small range or customers at the best-
value available on the market. Focused differentiation, aims to offer a niche group
of customers the products or services that meet their tastes and requirements
better than rivals’ products do.
4. What are the right conditions to use of each of these strategies?
Type 1 & 2
Type 3
Type 4 & 5
Chapter 6:
1. What are the 3 stages in the strategy formulation framework?
Stage 1 of the strategy formulation analytical framework consists of the External Factor
Evaluation (EFE) matrix, the Internal Factor Evaluation (IFE) matrix, and the Competitive Profile
Matrix (CPM). Called the input stage, it summarizes the basic input information needed to
formulate strategies.
Stage 2, called the matching stage, focuses on generating feasible alternative strategies by
aligning key external and internal factors. Includes the Strengths-Weaknesses-Opportunities-
Threats (SWOT) matrix, the Strategic Positioning and Action Evaluation (SPACE), the Boston
Consulting Group (BCG), the Internal-External (IE) matrix, and the Grand Strategy Matrix
Stage 3, called the decision stage, involves a single technique, the Quantitative Strategic
Planning Matrix (QSPM). QSPM uses input information from Stage 1 to objectively evaluate
feasible alternative strategies identified in Stage 2. It reveals the relative attractiveness of
alternative strategies and thus provides an objective basis for selecting specific strategies.
The QSPM is a more robust way to determine the relative attractiveness of strategies than the
(1) summed ranking method described above, or the (2) individual vs. group ranking method
2. What matrices are produced in each stage?
3. How are each of these matrices constructed and interpreted?