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Universities » University of Pittsburgh (Pitt) » BUSSPP - Strategic Planning & Po.. » 0020 - MANAGING IN COMPLX ENVIRO.. » Flash Cards

Quiz 2 - Flashcards

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Class:BUSSPP 0020 - MANAGING IN COMPLX ENVIRONMNTS
Subject:Strategic Planning & Policy
University:University of Pittsburgh
Term:Spring 2011
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Industry a set of players that sell more or less the same thing.
Player could refer to an entire firm or to a division of a firm. Examples of entire firm: Coca - Cola Examples of divisions of the firm: Marathon a "player" in the petroleum industry as a division of USX (US Steele)
Systems to classify firms into one or more industries Standard Industrial Classification (SIC) North American Industrial Classification System (NAICS)
Substitutability approach to identify industries The idea here is that firms in the same industry are likely to demonstrate demand-side substitutability or supply-side substitutability or both.
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Demand-side substitutability Refers to the possibility of customers switching between suppliers. Example: a buyer of a retail checking account could buy from PNC, or Citibank, or a large number of other banks.
Supply-side substitutability Refers the similarity of technologies used by the producer. Example: Campbell's is a firm with lots of knowledge and experience turning tomatoes into prepared food. I don't think they make ketchup. Heinz does. Customers looking for ketchup won't find it by Campbell's. By the demand side definition Heinz is "in" the ketchup industry and Campbell's is not. Does Campbell's have the technology to make ketchup? If they did, then under supply-side definition, we would consider both firms in the same industry
Rivals Are a special type of competitor, namely, those competitors that sell what you sell. Rivals may "look" different depending on how the industry is defined. Rivals could be entire firms or divisions of firms.
Benefits of focus Doing one business exceedingly well.
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Diversified Firms that are in more than one business area.
Focused Firms in one business.
Related Diversification If a firm is diversified into related businesses. A firm in one business gets the maximum impact of focus, but also the greatest risk exposure.
Unrelated diversification If the multiple businesses of the firm are not related. A firm in many unrelated areas may reduce its risk exposure, but loses the benefit of focus.
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Industry Analysis The process of systematically analyzing an industry.
Five forces that affect the competitive situation 1. Competition Rivals 2. Competition from new entrants 3. Competition from substitutes 4. Relative power of customers 5. Relative power of suppliers.
Competition from Rivals Competition among the rivals currently selling more or less similar products. We expect competition among rivals is greater when: (a) there are many small producers (b) there is a weak or negative growth in demand (c) there is excess capacity that is expensive to shut down (d) there are high exit costs. All things equal, greater competition would be expected to reduce the profitability of the industry
Competition from new entrants Competition from other players that could sell more or less similar products. Entry Barriers Economies of scale brand loyalty
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Competition from substitutes Competition from players that sell substitute products. Brand loyalty Switching costs
Industry Profitability If industry profitability is high, that industry is a more attractive arena for all rivals, on average However, whether a particular firm in the industry is profitable or not is only partly dependent on industry attractiveness.
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 Industry a set of players that sell more or less the same thing.
 Player could refer to an entire firm or to a division of a firm.

Examples of entire firm: Coca - Cola

Examples of divisions of the firm: Marathon a "player" in the petroleum industry as a division of USX (US Steele)
 Systems to classify firms into one or more industries Standard Industrial Classification (SIC)

North American Industrial Classification System (NAICS)
 Substitutability approach to identify industries The idea here is that firms in the same industry are likely to demonstrate demand-side substitutability or supply-side substitutability or both.
 Demand-side substitutabilityRefers to the possibility of customers switching between suppliers.

Example: a buyer of a retail checking account could buy from PNC, or Citibank, or a large number of other banks.
 Supply-side substitutability Refers the similarity of technologies used by the producer.

Example: Campbell's is a firm with lots of knowledge and experience turning tomatoes into prepared food. I don't think they make ketchup. Heinz does. Customers looking for ketchup won't find it by Campbell's. By the demand side definition Heinz is "in" the ketchup industry and Campbell's is not.

Does Campbell's have the technology to make ketchup? If they did, then under supply-side definition, we would consider both firms in the same industry
 Rivals Are a special type of competitor, namely, those competitors that sell what you sell.

Rivals may "look" different depending on how the industry is defined.

Rivals could be entire firms or divisions of firms.
 Benefits of focus Doing one business exceedingly well.
 Diversified Firms that are in more than one business area.
 Focused Firms in one business.
 Related Diversification If a firm is diversified into related businesses.

A firm in one business gets the maximum impact of focus, but also the greatest risk exposure.
 Unrelated diversification If the multiple businesses of the firm are not related.

A firm in many unrelated areas may reduce its risk exposure, but loses the benefit of focus.
 Industry Analysis The process of systematically analyzing an industry.

 Five forces that affect the competitive situation 1. Competition Rivals
2. Competition from new entrants
3. Competition from substitutes
4. Relative power of customers
5. Relative power of suppliers.
 Competition from Rivals Competition among the rivals currently selling more or less similar products.
We expect competition among rivals is greater when:
(a) there are many small producers
(b) there is a weak or negative growth in demand
(c) there is excess capacity that is expensive to shut down
(d) there are high exit costs.

All things equal, greater competition would be expected to reduce the profitability of the industry
 Competition from new entrants Competition from other players that could sell more or less similar products.

Entry Barriers
Economies of scale
brand loyalty
 Competition from substitutesCompetition from players that sell substitute products.

Brand loyalty
Switching costs
 Industry Profitability If industry profitability is high, that industry is a more attractive arena for all rivals, on average

However, whether a particular firm in the industry is profitable or not is only partly dependent on industry attractiveness.
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