STRATEGIC MANAGEMENT

PART 1.
1. What are the differences between the general environment and the industry environment?

The general environment includes overall trends and events in society such as social trends,
technological trends, demographics, and economic conditions. The industry consists of multiple
organizations that collectively compete with one another by providing similar goods, services, or
both. The general environment is composed of dimensions in the broader society that influence
an industry and firms within it. While on the other hand industry environment is the set of
factors that directly influences a firm. Firms cannot control general environment segments. An
analysis of the general environment focuses on environmental trends and their implications, an
analysis of the industry environment focuses on the factors and conditions influencing an
industry’s profitability potential, and an analysis of competitors is focused on predicting
competitors’ actions, responses, and intentions.

2. Why are these differences important?

Understanding the environment that surrounds an organization is important to the
executives in charge of the organizations. The environment is a source of opportunities and
threats for an organization. The environment provides resources that an organization needs in
order to create goods and services. The environment shapes the various strategic decisions that
executives make as they attempt to lead their organizations to success.

3. What is the external environmental analysis process (four steps)?

Scanning - entails the study of all segments in the general environment.
Monitoring - observe environmental changes to see if an important trend is emerging from
among those spotted through scanning.
Forecasting - develop feasible projections of what might happen, and how quickly, as a result of
the events and trends detected through scanning and monitoring.
Assessing - the objective is to determine the timing and significance of the effects of
environmental changes and trends that have been identified.

4. What does the firm want to learn when using this process?
It is an essential component to understanding and interpreting the impact external forces may
have on a business.

5. What are the seven segments of the general environment? Explain the differences among
them.

Demographic segment – segment is concerned with a population’s size, age structure,

geographic distribution, ethnic mix, and income distribution.
Economic environment – refers to the nature and direction of the economy in which a firm
competes or may compete.
Political/Legal segment – is the arena in which organizations and interest groups compete for
attention, resources, and a voice in overseeing the body of laws and regulations guiding
interactions among nations as well as between firms and various local governmental agencies.
Sociocultural segment – is concerned with a society’s attitudes and cultural values.
Technological segment – segment includes the institutions and activities involved in creating
new knowledge and translating that knowledge into new outputs, products, processes, and
materials.
Global segment – includes relevant new global markets, existing markets that are changing,
important international political events, and critical cultural and institutional characteristics of
global markets.
Sustainable physical environment segment - refers to potential and actual changes in the
physical environment and business practices that are intended to positively respond to those
changes with the intent of creating a sustainable environment.

6. How do the five forces of competition in an industry affect its profit potential? Explain.
Threat of New Entrants – The likelihood that firms will enter an industry is a function of two
factors: barriers to entry and the retaliation expected from current industry participants. Entry
barriers make it difficult for new firms to enter an industry and often place them at a competitive
disadvantage even when they are able to enter
Bargaining power of suppliers – Increasing prices and reducing the quality of their products are
potential means suppliers use to exert power over firms competing within an industry. If a firm is
unable to recover cost increases by its suppliers through its own pricing structure, its profitability
is reduced by its suppliers’ actions
Bargaining power of buyers – Firms seek to maximize the return on their invested capital.
Alternatively, buyers want to buy products at the lowest possible price— the point at which the
industry earns the lowest acceptable rate of return on its invested capital. To reduce their costs,
buyers bargain for higher quality, greater levels of service, and lower prices.
Threat of Substitute products – Substitute products are goods or services from outside a given
industry that perform similar or the same functions as a product that the industry produces
Intensity rivalry among competitors – Firms within industries are rarely homogeneous; they
differ in resources and capabilities and seek to differentiate themselves from competitors.

7. What is a strategic group? Of what value is knowledge of the firm’s strategic group in
formulating that firm’s strategy?
Strategic Group is set of firms emphasizing similar strategic dimensions and using a similar
strategy. The extent of technological leadership, product quality, pricing policies, distribution
channels, and customer service are examples of strategic dimensions that firms in a strategic
group may treat similarly. Thus, membership in a particular strategic group defines the essential
characteristics of the firm’s strategy. The notion of strategic groups can be useful for analyzing an
industry’s competitive structure. Such analyses can be helpful in diagnosing competition,
positioning, and the profitability of firms competing within an industry.

8. What is the importance of collecting and interpreting data and information about
competitors?
It helps the firm determine their next move. It is a change driver that specifically aims at the
objectives of a firm.
9. What practices should a firm use to gather competitor intelligence and why?
Firms must follow relevant laws and regulations as well as carefully articulated ethical guidelines
when gathering competitor intelligence.

PART 2.
10. Why is it important for a firm to study and understand its internal organization?
Given the increasing importance of the global economy, those analyzing their firm’s internal
organization should use a global mind-set to do so. A global mind-set is the ability to analyze,
understand, and manage an internal organization in ways that are not dependent on the
assumptions of a single country, culture, or context.

11. What is value? Why is it critical for the firm to create value? How does it do so?
Value is measured by a product’s performance characteristics and by its attributes for which
customers are willing to pay. Firms create value by innovatively bundling and leveraging their
resources to form capabilities and core competencies. Firms with a competitive advantage create
more value for customers than do competitors.
12. What are the differences between tangible and intangible resources? Why is it important for
decision makers to understand these differences?
Tangible resources are assets that can be observed and quantified. Production equipment,
manufacturing facilities, distribution centers, and formal reporting structures are examples of
tangible resources. Intangible resources are assets that are rooted deeply in the firm’s history,
accumulate over time, and are relatively difficult for competitors to analyze and imitate. Because
they are embedded in unique patterns of routines, intangible resources are difficult for
competitors to analyze and imitate. Knowledge, trust between managers and employees,
managerial capabilities, organizational routines scientific capabilities, the capacity for innovation,
brand name, the firm’s reputation for its goods or services and how it interacts with people and
organizational culture are intangible resources.

13. Are tangible resources linked more closely to the creation of competitive advantages than
are intangible resources, or is the reverse true? Why?
Intangible resources are a superior source of capabilities and subsequently, core competencies.
In fact, in the global economy, a firm’s intellectual capital often plays a more critical role in
corporate success than do physical assets. Because of this, being able to effectively manage
intellectual capital is an increasingly important skill for today’s leaders to develop. Intangible
resources are less visible and more difficult for competitors to understand, purchase, imitate, or
substitute for firms prefer to rely on them rather than on tangible resources as the foundation
for their capabilities.

14. What are capabilities? How do firms create capabilities?

Reputational resources are important sources of a firm’s capabilities and core competencies.
Indeed, some argue that a positive reputation can even be a source of competitive advantage.
A reputation indicates the level of awareness a firm has been able to develop among
stakeholders and the degree to which they hold the firm in high esteem.

15. What are the four criteria used to determine which of a firm’s capabilities are core
competencies? Why is it important for firms to use these criteria in developing capabilities?
Valuable capabilities allow the firm to exploit opportunities or neutralize threats in its external
environment. Rare capabilities are capabilities that few, if any, competitors possess. A key
question to be answered when evaluating this criterion is “how many rival firms possess these
valuable capabilities?” Capabilities possessed by many rivals are unlikely to become core
competencies for any of the involved firms. Costly-to-imitate capabilities are capabilities that
other firms cannot easily develop. Capabilities that are costly to imitate are created because of
one reason or a combination of three reasons. Nonsubstitutable capabilities are capabilities that
do not have strategic equivalents. This final criterion “is that there must be no strategically
equivalent valuable resources that are themselves either not rare or imitable.

16. What is value chain analysis?

Value Chain analysis are activities or tasks the firm completes in order to produce products and
then sell, distribute, and service those products in ways that create value for customers.

17. What does the firm gain when it successfully uses this tool?
It creates value through support functions.

18. What is outsourcing? Why do firms outsource? Will outsourcing’s importance grow as we
progress in the twenty-first century? If so, why?

Outsourcing is the purchase of a value-creating activity or a support function activity from an

external supplier. Outsourcing can be effective because few, if any, organizations possess the
resources and capabilities required to achieve competitive superiority in each value chain activity
and support function. Firms should anticipate possible effects on their ability to innovate in the
future as well as the impact of losing some of their human capital. On the other hand, firms are
sometimes able to enhance their own innovation capabilities. Yes, because it will be a huge part
of innovating the business and reaching the world-wide market.

19. How do firms identify internal strengths and weaknesses? Why is it vital that managers have
a clear understanding of their firm’s strengths and weaknesses?
Firms identify their strengths and weaknesses as reflected by their resources, capabilities, and
core competencies. If a firm has weak capabilities or does not have core competencies in areas
required to achieve a competitive advantage, it must acquire those resources and build the
needed capabilities and competencies.