1. Why must managers be aware of a firm's external environment?

Being responsive to the external environment enables firms to avoid strategic

mistakes. It is possible for firms to become internally focused, efficient producers
of obsolete goods and services (e.g. buggy whips, carbon paper).Rather,
managers need to respond to opportunities and threats from the external
environment in order to develop the most successful products and services.

7. Explain how the general environment and industry environment are highlyrelated.How
can such interrelationships affect the profitability of a firm or industry?
Response:The general environment can affect all of the five forces in various ways.A
growingeconomy can reduce the intensity of rivalry within the industry because firms will
bescrambling to meet growing demand.The Internet, a development in the technologicalsegment,
affects each of the five forces by improving search, problem solving, product/supplier evaluation,
and transactions.
8. Explain the concept of strategic groups.What are the performance implications?
Response:Strategic groups are groups of firms, usually within an industry, that share similar
strategies.The performance implications are that firms can group themselves with
closecompetitors and 1) identify barriers between groups, 2) identify positions within theindustry
that are marginal or tenuous, and 3) chart directions for future strategicdevelopment.Strategic
group analysis is a more fine-grained way to conduct industryanalysis, as the competitive
environment of an industry may differ from the competitiveenvironment of the strategic group