external forces in the task environment
ones that managers have some control over such as their composition of rivals or the structure of the industry
PESTEL model
a framework that categorizes and analyzes an important set of external forces that might impinge upon a firm and groups the environment into 6 segments. Allows us to scan, monitor, and evaluate the external environment to identify opportunities and threat
6 segments of the PESTEL model
1. political
2. economic
3. sociocultural
4. technological
5. ecological
6. legal
industry
a group of companies that face more or less the same set of suppliers and buyers and the firms tend to offer similar products or services to meet specific customer needs
industry analysis
provides a more rigorous basis to identify an industry's profit potential and to derive implications for one firm's strategic position within the industry
strategic position
relations to a firms ability to create value for customers while containing the cost to do so
Porter's 5 forces model
used to help managers understand the profit potential of different industries and how they can position their respective firms to gain and sustain competitive advantage. the stronger the 5 forces the lower the industry's profit potential
what are the 5 forces in the Porter model
1. threat of entry
2. power of suppliers
3. power of buyers
4. threat of substitutes
5. rivalry among existing competitors
7 entry barriers
1. economies of scale
2. network effects
3. customer switching costs
4. capital requirements
5. advantages independent of size
6. government policy
7. credible threat of retaliation
4 factors the determine intensity of rivalry among competitors
1. competitive industry structure
2. industry growth
3. strategic commitments
4. exit barriers
competitive industry structure
refers to elements and features common to all industries. Structure is captured largely by the number/size of competitors, whether the firms possess some degree of pricing power, the type of product/service, and the height of entry barriers
monopolistic competition
many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers
strategic commitments
firm actions that are costly, long-term oriented, and difficult to reverse. If firms make these commitments to compete in an industry then rivalry is more intense. Can be large fixed cost requirements or non-economic considerations or also political
complement
a product/service/competency that adds value to the original product offering when the two are used in tandem. They increase demand for the original product thereby enhancing the profit potential for the industry and the firm
complementor
a company where if customers value your product offering more when they are able to combine it with the other company's product or service
industry convergence
a process whereby formerly unrelated industries begin to satisfy the same customer need
strategic group
a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage
strategic group model
clusters different firms into groups based on a few key strategic dimensions in order to explain differences in firm performance within the same industry