Strategic Management: Competitiveness and Globalization (Concepts and Cases ). Seventh Edition. Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson. Strategic Management: Competitiveness and Globalization, 7th ed. Pages · Halliday, Resnick - Fundamentals Of Physics (7Th Ed) - podmimokongist.ml Strategic Management and Strategic Competitiveness, 2. 2. of a global economy, globalization resulting from that economy, and rapid technolog-.
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Teaching Note Students should be reminded of the monopolistic nature on a market-by-market basis of the public utility industry, including local telephone service, water, electric power, and cable television. Expected Retaliation Even if a firm concludes that it can successfully overcome all of the entry barriers, it still must take into account or anticipate reactions that might be expected from existing firms.
Strong retaliation is likely when existing firms have a heavy investment in fixed assets especially when there are few alternative uses for those assets or when industry growth is slow or declining. Small entrepreneurial firms can avoid retaliation by identifying and serving neglected market segments.
For example, Honda first entered the US market by concentrating on small-engine motorcycles, a market that firms such as Harley-Davidson ignored.
After consolidating its position, Honda went on the offensive by introducing larger motorcycles and competing in the broader market. There are few suppliers, but demand for the major aircraft is also low. Boeing and Airbus compete strongly for most orders of major aircraft. However, China recently announced plans to enter the market by building large commercial aircraft, significant in a country that is projected to download thousands.
Bargaining Power of downloaders While firms seek to maximize their return on invested capital, downloaders are interested in downloading products at the lowest possible price the price at which sellers will earn the lowest acceptable return. To reduce cost or maximize value, customers bargain for higher quality or greater levels of service at the lowest possible price by encouraging competition among firms in the industry.
One reason for this shift is that individual downloaders incur virtually zero switching costs when they decide to download from one manufacturer rather than another or from one dealer as opposed to a second or third one.
Threat of Substitute Products All firms must recognize that they compete against firms producing substitute products, those products that are capable of satisfying similar customer needs but come from outside the industry and thus have different characteristics.
In effect, prices charged for substitute products represent the upper limit on the prices that suppliers can charge for their products.
Viable strategies might include price, product quality, product features, location, or service level. Competition can be based on price, quality, or innovation. In addition to actions and reactions that result as firms attempt to offset the other competitive forces in the industry - threat of new entry, power of suppliers and downloaders, and threat of substitute products - the intensity of competitive rivalry is also a function of a number of other factors.
Numerous or Equally Balanced Competitors Industries with a high number of firms can be characterized by intense rivalry when firms feel that they can make competitive moves that will go unnoticed by other firms in the industry. However, other firms will generally notice these moves and offer countermoves of their own in response. Patterns of frequent actions and reactions often result in intense rivalry, such as in local restaurant, retailing, or dry-cleaning industries.
Rivalry also is intense in an industry that has only a few firms of equivalent resources and power. Of course, Boeing versus Airbus is an especially useful example.
Because of sufficient growth in the market, firms do not concentrate on taking customers away from other firms. Though this may lower per unit costs, it also can result in excess supply if market growth is not sufficient to absorb the excess inventory.
The intensity of competitive rivalry increases as firms use price reductions, rebates, and other discounts or special terms to reduce inventory as observed in the automobile industry from the s to the present. High storage costs, especially those related to perishable or time-sensitive products such as fruits and vegetables also can result in high levels of competitive intensity as such products rapidly lose their value if not sold within a given time period.
Pricing strategies often are used to sell such products. Lack of Differentiation or Low Switching Costs Products that are not characterized by brand loyalty or perceived uniqueness are generally viewed by downloaders as commodities. For such products, industry rivalry is more intense and competition is based primarily on price, service, and other features of interest to consumers. Products for which customers incur no or few switching costs are subject to intense price- and service-based competition, similar to undifferentiated products.
High Strategic Stakes The intensity of competitive rivalry increases when success in an industry is important to a large number of firms such as the domestic airline industry following deregulation. For example, the success of a diversified firm may be important to its effectiveness in other industries, especially when the firm is in interdependent or related industries. Geographic stakes may also be high.
The importance of geographic stakes can be illustrated by the intense rivalry in the US automobile industry as Japanese manufacturers recognized the strategic importance of a US marketplace presence and US manufacturers responded.
High Exit Barriers Exit barriers - created by economic, strategic, and emotional factors that cause companies to remain in an industry even though the profitability of doing so is in question - also can increase the intensity of competition in an industry. The higher the barriers to exit, the greater the probability that competitive actions and reactions will include price cuts and extensive promotions. Some sources of exit barriers include: Investments in specialized assets, or assets whose value is linked to use in a particular industry or location, with little or no value as salvage or in other uses Fixed costs of exit, such as labor agreements or a requirement to repay federal, state, or local aid packages Strategic relationships, interdependencies within the organization e.
As an incentive for diligent observation, the student who identifies the greatest number of legitimate illustrations is rewarded with bonus points. An unattractive industry has low entry barriers, suppliers and downloaders with strong bargaining positions, strong competitive threats from product substitutes, and intense rivalry among competitors, which make it difficult for firms to achieve strategic competitiveness and earn above-average returns.
An attractive industry has the mirror image of these features and offers little potential for favorable performance. Characteristics of attractive and unattractive industries are summarized below.
However, many firms in an industry may follow similar strategies. These firms are generally classified as strategic groups, or groups of firms in an industry following the same or similar strategies along the same strategic dimensions. Teaching Note Many strategy experts believe that the strategic group concept provides a useful tool for analyzing an industry from firm-specific perspectives in order to learn how to compete successfully.
However, some critics indicate that there is no convincing evidence that 1 strategic groups exist or 2 that firm performance is dependent on membership in a particular group.
Others contend that little additional understanding can be gained from industry analysis by looking at strategic groups, but recent research provides some evidence to support the usefulness of this analysis. The strategic group concept can be useful in analyzing the competitive structure of an industry and can serve as a framework for assessing competition, positioning alternatives, and potential profitability of firms in an industry.
High mobility barriers, high rivalry, and low resources among the firms within an industry will limit the formation of strategic groups. However, research suggests that once formed, strategic group membership remains relatively stable over time, making analysis easier and more useful. The relative strengths of the five competitive forces will differ among groups, thus firms in different groups may adopt different competitive strategies.
The closer the strategic groups on the relevant dimensions, the greater the likelihood of their rivalry. In fact, its sales in were a whopping percent more than its sales in , four years prior. site has been able to achieve remarkable gains in sales by providing high quality, rapid and relatively inexpensive relative to competitors service.
Walmart has been making progress in its online sales. While site dominates in online sales, a new entrant Jet. Teaching Note The Strategic Focus provides a good discussion vehicle for competitor analysis with a strategic group. How do traditional retailers compete with online competitors? What can online retailers do to compete against new entrants?
An industry analysis provides information regarding potential sources of competition including the possible strategic actions and reactions and effects on profitability for all firms competing in an industry. However, a structured competitor analysis enables the firm to focus its attention on those firms with which it will directly compete, and is especially important when a firm faces a few powerful competitors.
Competitor intelligence is performed both for domestic and international competitors. Where do we hold an advantage over our competitors? How will this change our relationship with our competitors? A specific case that contains the bulk of the required information also could be used to perform an in-class competitor analysis. It is a great managerial challenge to ensure that all data and information related to competitors are gathered both legally and ethically.
This is important because many employees may feel pressure to rely on techniques that are questionable from an ethical perspective to gather information that may be valuable to their firm, especially if they perceive value to their own careers from successfully obtaining such information. It seems obvious that information that 1 is either publicly available annual reports, regulatory filings, brochures, advertising and promotional materials or 2 is obtained by attending trade shows and conventions can be used without ethical or legal implications.
However, information obtained illegally as a result of activities such as theft, blackmail, or eavesdropping cannot - or, at least, should not - be used since its use is unethical as well as illegal. Teaching Note It might be useful and insightful to require students to develop and bring to class their own lists of questionable intelligence-gathering techniques or formulate an argument as to the circumstances if any under which these techniques might be considered ethical.
This could make for a lively discussion of the issue. Why is it important for a firm to study and understand the external environment? Matching the conditions of the two environments is the foundation the firm needs to form its vision, mission, and to take strategic actions in the pursuit of strategic competitiveness and aboveaverage returns.
The importance of understanding the external environment is further underscored by the fact that the environmental conditions facing firms in the global economy of the 21st century differ from those firms faced previously. For example, technological changes and the explosion in information gathering and processing capabilities demand more timely and effective competitive actions and responses.
The rapid sociological changes occurring in many countries affect labor practices and the nature of products demanded by increasingly diverse consumers.
Governmental policies and laws affect where and how firms choose to compete. Competitive advantage goes to those firms who know their external environment and plan their strategies so they are relevant to these conditions. What are the differences between the general environment and the industry environment? Why are these differences important? The general environment represents those elements in the broader society that can influence all or most industries and the firms that compete in those industries; it represents elements or segments that firms cannot directly control.
The industry environment is the constellation of factors that directly influences a firm and its competitive actions and responses. These factors are: threat of new entrants, bargaining power of suppliers, bargaining power of downloaders, threat from substitute products, and intensity of rivalry among competitors.
What is the external environmental analysis process four parts? What does the firm want to learn when using this process? The environmental analysis process represents an organized attempt by the firm to better understand turbulent, complex, and global environments.
This is achieved by scanning studying all segments of the general environment to identify existing or potential changes , monitoring observing the pattern of changes over time in an attempt to detect meaning or identify trends , forecasting developing feasible projections of what might happen, and how quickly, as a result of changes and trends identified from scanning and monitoring activities and assessing determining the timing and significance of environmental changes and trends on the strategic management of the firm.
Stated differently, this analysis should examine and process external data on a continuous basis. What are the seven segments of the general environment? Explain the differences among them. The demographic segment is concerned with characteristics of the population or society that makes up the general environment. Characteristics of interest are size, age, structure, geographic distribution, ethnic mix, and income distribution. The economic segment refers to the nature and direction of the economy in which a firm competes or may compete in the future.
Important characteristics include inflation and interest rates, trade deficits or surpluses , budget deficits or surpluses , individual and business savings and investment rates, and gross domestic product. In other words, this segment is concerned with how firms and other organizations attempt to influence government and how governmental entities in turn influence them. The sociocultural segment is concerned with the social attitudes and cultural values of different societies.
The technological segment is made up of the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, or materials. The global segment includes relevant new global markets and existing ones that are changing, important international political events, and critical cultural and institutional characteristics of relevant global markets. This segment recognizes that firms now compete in a competitive landscape where both competitors and customers are global, due in part to the rapid diffusion of both information and technology.
Competitors will no longer be domestic; they can originate from industrialized, newly industrialized, or emerging countries. Customer demands and expectations have changed; they are based on an ever-increasing awareness of global products and services.
The physical environment segment refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes. How do the five forces of competition in an industry affect its profit potential?
This model of industry competition recognizes that suppliers can influence industry profitability by raising prices or reducing the quality of goods sold if industry participants are unable to recover cost increases through pricing structures.
downloaders can influence the profit potential of an industry if the downloader group is able to successfully bargain for higher quality, greater levels of service, and lower prices. New entrants to an industry influence industry profitability because they bring additional production capacity to the industry.
This reduces profitability for all firms in the industry. The intensity of rivalry among competitors reflects competitor actions and responses as firms initiate moves to improve their competitive position or when they act in retaliation for competitive pressures brought about by the strategic actions of rival firms. Generally, the greater the intensity of competitive rivalry, the lower the overall profitability of an industry. What is a strategic group? A strategic group is a group of firms within an industry that generally follow the same or a similar strategy, competing along the same strategic dimensions such as product quality, pricing policy, distribution channels, or level of customer service.
Such analyses can be helpful in diagnosing competition, positioning, and the profitability of firms within an industry. Strategic group analysis shows which companies are competing similarly in terms of how they use similar strategic dimensions. At the same time, research has found that strategic groups differ in performance, suggesting their importance. Strategic group membership also remains relatively stable over time, making analysis easier and more useful.
Strategic groups have several implications. First, because firms within a group offer similar products to the same customers, the competitive rivalry among them can be intense. Second, the strengths of the five industry forces the threats posed by new entrants, the power of suppliers, the power of downloaders, product substitutes, and the intensity of rivalry among competitors differ across strategic groups. Third, the closer the strategic groups are in terms of their strategies, the greater is the likelihood of rivalry between the groups.
In the end, having a thorough understanding of primary competitors helps a firm formulate and implement an appropriate strategy.
What is the importance of collecting and interpreting data and information about competitors? What practices should a firm use to gather competitor intelligence and why? Through effective competitive and public policy intelligence, the firm gains the insights needed to create a competitive advantage and to increase the quality of the strategic decisions it makes when deciding how to compete against its rivals. The line between legal and ethical practices can be difficult to ascertain, especially when it comes to electronic transmissions.
Often it is difficult for a firm to know how to gather intelligence and how to prevent competitors from gathering competitive intelligence that may threaten its own competitive advantage. The firm can frame these practices in terms of respect for the principles of common morality and the right of competitors not to reveal information about their products, operations, and strategic intentions. Despite its importance, evidence suggests that a relatively small percentage of firms use formal processes to study competitors.
Failure to do so may lead to incomplete or distorted insights about competitors. Application Discussion Questions 1. Given the importance of understanding the external environment, why do some firms fail to do so? Students can provide examples of firms that did not understand their external environment. Have students select a firm and describe its external environment.
What actions do you believe the firm should take, given its external environment, and why? How is it possible that one firm could see a condition in the external environment as an opportunity whereas a second firm sees it as a threat? Select a firm in the local community. How could the Internet be used to complete this activity?
Have students select an industry that is of interest to them. What actions could firms take to erect barriers of entry to this industry? What conditions would cause a firm to retaliate aggressively against a new entrant to the industry? Ethics Questions 1.
Does use of the Internet to monitor the environment lead to additional ethical issues? If so, what are they? What is an ethical issue associated with each segment? Are firms across the globe doing enough to deal with the issue? What is the importance of using ethical practices between a firm and its suppliers?
In an intense rivalry, especially one that involves competition in the global marketplace, how can the firm gather competitor intelligence ethically while maintaining its competitiveness? Ask the class what they believe determines whether an intelligence-gathering practice is or is not ethical? If so, why?
Do they see this changing because of the Internet? If so, how? The following activities can be assigned within MindTap for students to complete. These exercises provide students with the opportunity to practice strategic management in a business scenario utilizing company case studies. Students are placed in the role of a decision maker and asked to consider the needs and priorities of stakeholders as they determine strategy recommendations for a company. The Movie Exhibition Industry The movie cinematic industry is not what it once was.
Back in the s, a trip out to the theater was a common occurrence. The typical American saw 28 films a year in the theater. Now, that number has dropped dramatically to 4. It is your duty to help turn the movie industry around and return it to the popularity it once was. Your first order of business is to become familiar with the industry and start by identifying early signals of environmental changes and trends. Students will review these concepts: General environments and industry environments External environmental analysis process The five forces of competition The ideal path that earns a perfect score is the following: Scanning the general environment While performing the industry analysis, two threats have presented themselves: the threat of substitution and the threat of new entrants.
You choose to neutralize the threats You recommend competing with the threat of substitution By neutralizing the threat, you recommend theaters leverage their downloading power with studios to put limits on the catalog available to streaming services. Formalization is limited to foster change and promote new ideas. Overall structure is organic. Semi-specialized jobs. All rights reserved 28 Corporate-Level Strategies and the Multidivisional Structure A A firm s s continuing success that leads to: Product diversification, or Market diversification, or Both product and market diversification.
Increasing diversification creates control problems that the functional structure can t handle. All rights reserved 29 Corporate-Level Strategies and the Multidivisional Structure cont d Diversification strategy requires firm to change from functional structure to a multidivisional structure. All rights reserved 32 Multidivisional Structure: Cooperative Form Horizontal integration is used to bring about interdivisional cooperation.
Sharing divisional competencies facilitates development of economies of scope. Use of liaison roles Rewards are subjective, emphasizing overall corporate performance in addition to divisional performance. Each SBU is a profit center controlled and evaluated by the headquarters office. Used by large firms Can be complex due to an organization s s size and diversity in products and markets. All rights reserved 38 Multidivisional Structure: Competitive Form A A structure in which there is complete independence among the firm s s divisions Divisions do not share common corporate strengths.
Because strengths aren t t shared, integrating devices aren t t developed. Organizational arrangements emphasize divisional competition rather than cooperation. All rights reserved 39 Competitive Form cont d Three benefits from the internal competition Flexibility corporate headquarters can have divisions working on different technologies to identify those with greatest future potential.
Challenges the status quo and inertia. Motivates effort. Creates specific profit performance expectations for each division to promote internal competition for resources. All rights reserved 44 Worldwide Geographic Area Structure Worldwide Geographic Area Structure Emphasizes national interests Facilitates the firm s s efforts to satisfy local or cultural differences Multidomestic Strategy Requires little coordination between different county markets: integrating mechanisms aren t t needed.
Effects on Firm Success depends on firm s s ability to develop and take advantage of economies of scope and scale on global level. All rights reserved 47 Worldwide Product Divisional Structure Centralizes decision-making authority in the worldwide division headquarters. Headquarters coordinates and integrates decisions and actions among divisional business units. All rights reserved 48 Combination Structure: A Transnational Strategy Transnational Strategy Combines multidomestic strategy s s local responsiveness with global strategy s s efficiency.
All rights reserved 50 Matches between Cooperative Strategies and Network Structures Network strategy exists when: Partners form several alliances in order to improve performance of the alliance network itself through cooperative endeavors. All rights reserved 53 Strategic Center Firm Is the foundation for the strategic network s structure.
Concerned with aspects of organizational structure such as formal reporting relationships. Manages the complex, cooperative interactions among network partners. All rights reserved 54 Implementing Business-Level Cooperative Strategies Vertical Complementary Alliances Firms have complementary competencies in different value chain stages that let them cooperatively integrate their different skills.