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COMSATS University Islamabad, Wah Campus

Quiz-2 Fall 2020
Department of: MANAGEMENT SCIENCES

Program/Class: BBA Date: 1st November, 2020

Subject: Strategic Management Instructor: Dr. Faheem A Khan
Total Time Allowed: 7th November, 2020 (Saturday) Maximum Marks: 10

INSTRUCTIONS (READ VERY CAREFULLY)

This Quiz is meant to check your understanding of the area. Give to the point & precise answers of the following questions. Marks are
based on the content and quality of the answers not over length.

Plagiarism in your responses is not allowed, it will cost you marks

Q1 What are the five major types of external forces that should be examined as part of an 5
external audit? Give an example of each type of force.

Q2 According to Michael Porter, what are the five competitive forces that create vital 5
opportunities and threats for organizations? Which force do you feel is most important in the
computer industry today? Why?

Give your answer in the following space

Ans-1

KEY EXTERNAL FORCES:

External forces can be divided into five broad categories:

1) economic forces,

2) social, cultural, demographic and natural environment forces,

3) political, governmental and legal forces,

4) technological forces and

5) competitive force

(1) Economic forces

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Economic factors have a direct impact on the potential attractiveness of all strategies. The
auditor may wish to look into the balance sheet and financial supporting documents to see if the
company report has taken this external factor into account.

Examples:

level of disposable income, availability of credit, interest rates, value of the dollar in world
markets, & foreign countries' economic conditions.

(2) Social, cultural, demographic and natural environment forces

Social, Cultural, demographic, and environmental changes have a major impact on virtually
all products, services, markets, and customers. Small, Large, for-profit, and nonprofit
organizations in all industries are being staggered and challenged by the opportunities and
threats arising from changes in social, cultural, demographic, and environmental variables.

Examples:

Immigration and emigration rates, regional changes in tastes and preferences, life expectancy
rates, attitudes toward customer service, & social responsibility issues.

(3) political, governmental and legal forces

Political, Governmental, and Legal Factors Represent Key Forces state, local, and foreign
governments are major regulators, deregulators, subsidizers, employers, and customers of
organizations. Political, governmental, and legal factors therefore can represent opportunities or
threats for both small and big organizations.

Examples:

Equal employment laws, unionization trends, antitrust legislation, tariffs, & political
conditions in foreign countries.

(4) Technological forces

Technological forces influence organizations in several ways. A technological innovation can

have a sudden and dramatic effect on the environment of a firm.
First, technological developments can significantly alter the demand for an organization's or
industry's products or services.
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Examples:

Technological advancements that could create new markets, result in a proliferation of new
and improved products, change the relative competitive cost positions in an industry, render
existing products and services obsolete, and/or create new competitive advantages that are
more powerful than existing advantages.

(5) Competitive forces

competitive forces include the threat of substitute products, the power of customers, the power
of suppliers. And Collecting and evaluating information on competitors are essential for
successful strategy formulation.

Factors that influence the competitive position of a company in a market. Competitive forces
include (1) bargaining power of the buyers and suppliers, (2) threat of new entrants, and (3)
rivalry among existing companies.

Examples:

potential moves a competitor could make, changes to the strengths or weaknesses of

competitors, & vulnerability of competitors to a firm's alternative strategies.

Ans-2

Porter's 5 Competitive Forces

Porter's 5 Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of
Harvard grad school as a straightforward framework for assessing and evaluating the competitive
strength and position of an enterprise.

This theory relies on the conception that there square measure 5 forces that verify the competitive
intensity and attractiveness of a market. Porter’s 5 forces facilitate to spot wherever power lies in a
very business state of affairs. this can be helpful each in understanding the strength of associate
organization’s current competitive position, and therefore the strength of a foothold that associate
organization might look to maneuver into.

Strategic analysts typically use Porter’s 5 forces to grasp whether or not new product or services
square measure doubtless profitable. By understanding wherever power lies, the speculation may also
be wont to establish areas of strength, to enhance weaknesses and to avoid mistakes.
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The five forces are:

1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by
the: number of suppliers of each essential input; uniqueness of their product or service; relative size
and strength of the supplier; and cost of switching from one supplier to another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by
the: number of buyers in the market; importance of each individual buyer to the organization; and
cost to the buyer of switching from one supplier to another. If a business has just a few powerful
buyers, they are often able to dictate terms.

3. Competitive rivalry. The main driver is the number and capability of competitors in the market.
Many competitors, offering undifferentiated products and services, will reduce market attractiveness.

4. Threat of substitution. Where close substitute products exist in a market, it increases the

likelihood of customers switching to alternatives in response to price increases. This reduces both the
power of suppliers and the attractiveness of the market.

5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless
incumbents have strong and durable barriers to entry, for example, patents, economies of scale,
capital requirements or government policies, then profitability will decline to a competitive rate.

Lastly, the bargaining power of consumers which can be different within each industry, and is
probably the most important force affecting competitive advantage. Here the consumer has the ability
to influence the cost of the product or service especially when the product or service is a standard or
non-differentiated product. A good example of this would be in the computer industry today. Almost
all computer have the same capabilities as other computers within this industry. Therefore, giving the
power to the consumer overall affecting the profitability within the industry.