please check word doc. and pdf
Need two answers for two people.
Around 3 pages answer for each, total is 6 pages.
Need 1.5-2 pages answer for Learning Objectives Ch.1-4 *keep questions on the answer sheet and need answer the question one by one, dont put all together.
Need total 1-1.5-page answer for two Discussion Questions (ch1-2; ch3-4)
ALL answers should from your own words or the textbook (No Internet resource allowed)
You answers must related to the textbook lessons. answers are easy to find under each chapter (pdf), just use some of your word and explanations from textbook. Also you must write the page number (where is this topic come from) after your answer.
Learning Objectives Chapters 1-4
CH.1 What Is Strategy and Why Is It Important?
LO 1 What we mean by a companys strategy.
LO 2 The concept of a sustainable competitive advantage.
LO 3 The five most basic strategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage.
LO 4 That a companys strategy tends to evolve because of changing circumstances and ongoing efforts by management to improve the strategy.
LO 5 Why it is important for a company to have a viable business model that outlines the companys customer value proposition and its profit formula.
LO 6 The three tests of a winning strategy.
CH. 2 Charting a Companys Direction Its Vision, Mission, Objectives, and Strategy
LO 1 Why it is critical for company managers to have a clear strategic vision of where a company needs to head.
LO 2 The importance of setting both strategic and financial objectives.
LO 3 Why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve companywide performance targets.
LO 4 What a company must do to achieve operating excellence and to execute its strategy proficiently.
LO 5 The role and responsibility of a companys board of directors in overseeing the strategic management process.
CH.3 Evaluating a Companys External Environment
LO 1 How to recognize the factors in a companys broad macro-environment that may have strategic significance.
LO 2 How to use analytic tools to diagnose the competitive conditions in a companys industry.
LO 3 How to map the market positions of key groups of industry rivals.
LO 4 How to determine whether an industrys outlook presents a company with sufficiently attractive opportunities for growth and profitability.
CH. 4 Evaluating a Companys Resources, Capabilities, and Competitiveness
LO 1 How to take stock of how well a companys strategy is working.
LO 2 Why a companys resources and capabilities are centrally important in giving the company a competitive edge over rivals.
LO 3 How to assess the companys strengths and weaknesses in light of market opportunities and external threats.
LO 4 How a companys value chain activities can affect the companys cost structure and customer value proposition.
LO 5 How a comprehensive evaluation of a companys competitive situation can assist managers in making critical decisions about their next strategic moves.
Discussion Question (CH 1-2) (need 0.5-0.75-page answer)
Defend the need for clear operating policies in an organization and include in your discussion how organizational practices sometimes supersede the written policies of an organization. Describe how this might hinder the implementation of a strategic goal.
Discussion Question (CH 3-4) (need 0.5-0.75-page answer)
Briefly discuss the value of the Framework for Competitor Analysis and if you believe these four cover the basic framework for an analysis or should another dimension be added. And, if one needs to be added in your opinion, what do you suggest the fifth or even sixth dimension should be??
tho32789_ch03_046-081.indd 46 10/11/16 07:54 PM
THIS CHAPTER WILL HELP YOU UNDERSTAND:
LO 1 How to recognize the factors in a companys broad macro-environment that may have
LO 2 How to use analytic tools to diagnose the competitive conditions in a companys
LO 3 How to map the market positions of key groups of industry rivals.
LO 4 How to determine whether an industrys outlook presents a company with sufficiently
attractive opportunities for growth and profitability.
© Bulls Eye/Image Zoo/Getty Images
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No matter what it takes, the goal of strategy is to beat
Kenichi OhmaeConsultant and author
There is no such thing as weak competition; it grows
all the time.
Nabil N. JamalConsultant and author
Sometimes by losing a battle you find a new way to
win the war.
Donald TrumpPresident of the United States and
founder of Trump Entertainment Resorts
Every company operates in a broad macro-environment that comprises six
principal components: political factors; economic conditions in the firms general
environment (local, country, regional, worldwide); sociocultural forces; technologi-
cal factors; environmental factors (concerning the natural environment); and legal/
regulatory conditions. Each of these components has the potential to affect the firms
more immediate industry and competitive environment, although some are likely to
have a more important effect than others (see Figure 3.2). An analysis of the impact
of these factors is often referred to as PESTEL analysis, an acronym that serves as a
reminder of the six components involved (political, economic, sociocultural, techno-
logical, environmental, legal/regulatory).
THE STRATEGICALLY RELEVANT FACTORS IN
THE COMPANYS MACRO-ENVIRONMENT
How to recognize
the factors in a
that may have
In order to chart a companys strategic course
wisely, managers must first develop a deep under-
standing of the companys present situation. Two
facets of a companys situation are especially
pertinent: (1) its external environmentmost nota-
bly, the competitive conditions of the industry in
which the company operates; and (2) its internal
environmentparticularly the companys resources
and organizational capabilities.
Insightful diagnosis of a companys external
and internal environments is a prerequisite for
managers to succeed in crafting a strategy that
is an excellent fit with the companys situation
the first test of a winning strategy. As depicted in
Figure 3.1, strategic thinking begins with an
appraisal of the companys external and internal
environments (as a basis for deciding on a long-
term direction and developing a strategic vision),
moves toward an evaluation of the most promising
alternative strategies and business models, and
culminates in choosing a specific strategy.
This chapter presents the concepts and analytic
tools for zeroing in on those aspects of a compa-
nys external environment that should be consid-
ered in making strategic choices. Attention centers
on the broad environmental context, the specific
market arena in which a company operates, the
drivers of change, the positions and likely actions
of rival companies, and the factors that determine
competitive success. In Chapter 4, we explore
the methods of evaluating a companys internal
circumstances and competitive capabilities.
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PESTEL analysis can
be used to assess the
strategic relevance of the
six principal components
of the macro-environment:
Environmental, and Legal/
FIGURE 3.1 From Thinking Strategically about the Companys Situation to
Choosing a Strategy
Since macro-economic factors affect different industries in different ways and
to different degrees, it is important for managers to determine which of these repre-
sent the most strategically relevant factors outside the firms industry boundaries.
By strategically relevant, we mean important enough to have a bearing on the deci-
sions the company ultimately makes about its long-term direction, objectives, strat-
egy, and business model. The impact of the outer-ring factors depicted in Figure 3.2
on a companys choice of strategy can range from big to small. But even if those
factors change slowly or are likely to have a low impact on the companys business
situation, they still merit a watchful eye.
For example, the strategic opportunities of cigarette producers to grow their
businesses are greatly reduced by antismoking ordinances, the decisions of
governments to impose higher cigarette taxes, and the growing cultural stigma
attached to smoking. Motor vehicle companies must adapt their strategies to cus-
tomer concerns about high gasoline prices and to environmental concerns about
carbon emissions. Companies in the food processing, restaurant, sports, and fit-
ness industries have to pay special attention to changes in lifestyles, eating habits,
leisure-time preferences, and attitudes toward nutrition and fitness in fashioning
their strategies. Table 3.1 provides a brief description of the components of the
macro-environment and some examples of the industries or business situations
that they might affect.
As company managers scan the external environment, they must be alert for
potentially important outer-ring developments, assess their impact and influence,
and adapt the companys direction and strategy as needed. However, the factors in a
companys environment having the biggest strategy-shaping impact typically pertain
to the companys immediate industry and competitive environment. Consequently, it is
on a companys industry and competitive environment that we concentrate the bulk of
our attention in this chapter.
encompasses the broad
environmental context in
which a companys industry
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FIGURE 3.2 The Components of a Companys Macro-Environment
ustry and Competitive Environment
Thinking strategically about a companys industry and competitive environment
entails using some well-validated concepts and analytic tools. These include the
five forces framework, the value net, driving forces, strategic groups, competitor
analysis, and key success factors. Proper use of these analytic tools can provide
managers with the understanding needed to craft a strategy that fits the companys
situation within their industry environment. The remainder of this chapter is
devoted to describing how managers can use these tools to inform and improve their
ASSESSING THE COMPANYS INDUSTRY
AND COMPETITIVE ENVIRONMENT
How to use analytic
tools to diagnose
conditions in a
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Political factors Pertinent political factors include matters such as tax policy, fiscal policy, tariffs, the political
climate, and the strength of institutions such as the federal banking system. Some political
policies affect certain types of industries more than others. An example is energy policy,
which clearly affects energy producers and heavy users of energy more than other types of
Economic conditions include the general economic climate and specific factors such as interest
rates, exchange rates, the inflation rate, the unemployment rate, the rate of economic growth,
trade deficits or surpluses, savings rates, and per-capita domestic product. Some industries,
such as construction, are particularly vulnerable to economic downturns but are positively
affected by factors such as low interest rates. Others, such as discount retailing, benefit when
general economic conditions weaken, as consumers become more price-conscious.
Sociocultural forces include the societal values, attitudes, cultural influences, and lifestyles
that impact demand for particular goods and services, as well as demographic factors such as
the population size, growth rate, and age distribution. Sociocultural forces vary by locale and
change over time. An example is the trend toward healthier lifestyles, which can shift spending
toward exercise equipment and health clubs and away from alcohol and snack foods. The
demographic effect of people living longer is having a huge impact on the health care, nursing
homes, travel, hospitality, and entertainment industries.
Technological factors include the pace of technological change and technical developments
that have the potential for wide-ranging effects on society, such as genetic engineering,
nanotechnology, and solar energy technology. They include institutions involved in creating
new knowledge and controlling the use of technology, such as R&D consortia, university-
sponsored technology incubators, patent and copyright laws, and government control over
the Internet. Technological change can encourage the birth of new industries, such as the
connected wearable devices, and disrupt others, such as the recording industry.
These include ecological and environmental forces such as weather, climate, climate change,
and associated factors like water shortages. These factors can directly impact industries
such as insurance, farming, energy production, and tourism. They may have an indirect but
substantial effect on other industries such as transportation and utilities.
These factors include the regulations and laws with which companies must comply, such as
consumer laws, labor laws, antitrust laws, and occupational health and safety regulation. Some
factors, such as financial services regulation, are industry-specific. Others, such as minimum
wage legislation, affect certain types of industries (low-wage, labor-intensive industries) more
TABLE 3.1 The Six Components of the Macro-Environment
The character and strength of the competitive forces operating in an industry are never
the same from one industry to another. The most powerful and widely used tool for
diagnosing the principal competitive pressures in a market is the five forces frame-
work.1 This framework, depicted in Figure 3.3, holds that competitive pressures on
THE FIVE FORCES FRAMEWORK
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companies within an industry come from five sources. These include (1) competition
from rival sellers, (2) competition from potential new entrants to the industry, (3)
competition from producers of substitute products, (4) supplier bargaining power, and
(5) customer bargaining power.
Using the five forces model to determine the nature and strength of competitive
pressures in a given industry involves three steps:
· Step 1: For each of the five forces, identify the different parties involved, along
with the specific factors that bring about competitive pressures.
FIGURE 3. 3 The Five Forces Model of Competition: A Key Analytic Tool
coming from other firms in
Competitive pressures coming from
the threat of entry of new rivals
Firms in Other
Competitive pressures coming
from the producers of substitute
Sources: Adapted from M. E. Porter, How Competitive Forces Shape Strategy, Harvard Business Review 57, no. 2 (1979), pp. 137145; M. E.
Porter, The Five Competitive Forces That Shape Strategy, Harvard Business Review 86, no. 1 (2008), pp. 8086.
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· Step 2: Evaluate how strong the pressures stemming from each of the five forces
are (strong, moderate, or weak).
· Step 3: Determine whether the five forces, overall, are supportive of high industry
Competitive Pressures Created by the Rivalry
among Competing Sellers
The strongest of the five competitive forces is often the rivalry for buyer patronage
among competing sellers of a product or service. The intensity of rivalry among
competing sellers within an industry depends on a number of identifiable factors.
Figure 3.4 summarizes these factors, identifying those that intensify or weaken rivalry
among direct competitors in an industry. A brief explanation of why these factors
affect the degree of rivalry is in order:
FIGURE 3.4 Factors Affecting the Strength of Rivalry
Rivalry among Competing Sellers
Rivalry increases and becomes a stronger force when:
Rivalry decreases and becomes a weaker force under the opposite
Buyer demand is growing slowly.
Buyer costs to switch brands are low.
The products of industry members are commodities or else
The firms in the industry have excess production capacity
The firms in the industry have high fixed costs or high storage costs.
Competitors are numerous or are of roughly equal size and
Rivals have diverse objectives, strategies, and/or countries of origin.
Rivals have emotional stakes in the business or face high exit barriers.
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· Rivalry increases when buyer demand is growing slowly or declining. Rapidly
expanding buyer demand produces enough new business for all industry members
to grow without having to draw customers away from rival enterprises. But in
markets where buyer demand is slow-growing or shrinking, companies eager to
gain more business are likely to engage in aggressive price discounting, sales pro-
motions, and other tactics to increase their sales volumes at the expense of rivals,
sometimes to the point of igniting a fierce battle for market share.
· Rivalry increases as it becomes less costly for buyers to switch brands. The less
costly it is for buyers to switch their purchases from one seller to another, the
easier it is for sellers to steal customers away from rivals. When the cost of switch-
ing brands is higher, buyers are less prone to brand switching and sellers have
protection from rivalrous moves. Switching costs include not only monetary costs
but also the time, inconvenience, and psychological costs involved in switching
brands. For example, retailers may not switch to the brands of rival manufacturers
because they are hesitant to sever long-standing supplier relationships or incur the
additional expense of retraining employees, accessing technical support, or testing
the quality and reliability of the new brand.
· Rivalry increases as the products of rival sellers become less strongly differentiated.
When the offerings of rivals are identical or weakly differentiated, buyers have less
reason to be brand-loyala condition that makes it easier for rivals to convince buy-
ers to switch to their offerings. Moreover, when the products of different sellers are
virtually identical, shoppers will choose on the basis of price, which can result in
fierce price competition among sellers. On the other hand, strongly differentiated
product offerings among rivals breed high brand loyalty on the part of buyers who
view the attributes of certain brands as more appealing or better suited to their needs.
· Rivalry is more intense when industry members have too much inventory or
significant amounts of idle production capacity, especially if the industrys product
entails high fixed costs or high storage costs. Whenever a market has excess supply
(overproduction relative to demand), rivalry intensifies as sellers cut prices in a des-
perate effort to cope with the unsold inventory. A similar effect occurs when a prod-
uct is perishable or seasonal, since firms often engage in aggressive price cutting to
ensure that everything is sold. Likewise, whenever fixed costs account for a large
fraction of total cost so that unit costs are significantly lower at full capacity, firms
come under significant pressure to cut prices whenever they are operating below
full capacity. Unused capacity imposes a significant cost-increasing penalty because
there are fewer units over which to spread fixed costs. The pressure of high fixed
or high storage costs can push rival firms into offering price concessions, special
discounts, and rebates and employing other volume-boosting competitive tactics.
· Rivalry intensifies as the number of competitors increases and they become more
equal in size and capability. When there are many competitors in a market, com-
panies eager to increase their meager market share often engage in price-cutting
activities to drive sales, leading to intense rivalry. When there are only a few com-
petitors, companies are more wary of how their rivals may react to their attempts
to take market share away from them. Fear of retaliation and a descent into a
damaging price war leads to restrained competitive moves. Moreover, when rivals
are of comparable size and competitive strength, they can usually compete on a
fairly equal footingan evenly matched contest tends to be fiercer than a contest
in which one or more industry members have commanding market shares and
substantially greater resources than their much smaller rivals.
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· Rivalry becomes more intense as the diversity of competitors increases in terms
of long-term directions, objectives, strategies, and countries of origin. A diverse
group of sellers often contains one or more mavericks willing to try novel or rule-
breaking market approaches, thus generating a more volatile and less predictable
competitive environment. Globally competitive markets are often more rivalrous,
especially when aggressors have lower costs and are intent on gaining a strong
foothold in new country markets.
· Rivalry is stronger when high exit barriers keep unprofitable firms from leaving
the industry. In industries where the assets cannot easily be sold or transferred to
other uses, where workers are entitled to job protection, or where owners are com-
mitted to remaining in business for personal reasons, failing firms tend to hold on
longer than they might otherwiseeven when they are bleeding red ink. Deep
price discounting of this sort can destabilize an otherwise attractive industry.
The previous factors, taken as whole, determine whether the rivalry in an industry
is relatively strong, moderate, or weak. When rivalry is strong, the battle for mar-
ket share is generally so vigorous that the profit margins of most industry members
are squeezed to bare-bones levels. When rivalry is moderate, a more normal state,
the maneuvering among industry members, while lively and healthy, still allows most
industry members to earn acceptable profits. When rivalry is weak, most companies in
the industry are relatively well satisfied with their sales growth and market shares and
rarely undertake offensives to steal customers away from one another. Weak rivalry
means that there is no downward pressure on industry profitability due to this particu-
lar competitive force.
The Choice of Competitive Weapons
Competitive battles among rival sellers can assume many forms that extend well
beyond lively price competition. For example, competitors may resort to such market-
ing tactics as special sales promotions, heavy advertising, rebates, or low-interest-rate
financing to drum up additional sales. Rivals may race one another to differentiate
their products by offering better performance features or higher quality or improved
customer service or a wider product selection. They may also compete through the
rapid introduction of next-generation products, the frequent introduction of new or
improved products, and efforts to build stronger dealer networks, establish positions
in foreign markets, or otherwise expand distribution capabilities and market pres-
ence. Table 3.2 displays the competitive weapons that firms often employ in battling
rivals, along with their primary effects with respect to price (P), cost (C), and value
(V)the elements of an effective business model and the value-price-cost framework,
discussed in Chapter 1.
Competitive Pressures Associated with the Threat
of New Entrants
New entrants into an industry threaten the position of rival firms since they will
compete fiercely for market share, add to the number of industry rivals, and add to
the industrys production capacity in the process. But even the threat of new entry
puts added competitive pressure on current industry members and thus functions as
an important competitive force. This is because credible threat of entry often prompts
industry members to lower their prices and initiate defensive actions in an attempt
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Types of Competitive Weapons Primary Effects
Discounting prices, holding
Lowers price (P), increases total sales volume and market share, lowers profits
if price cuts are not offset by large increases in sales volume
Offering coupons, advertising items
Increases sales volume and total revenues, lowers price (P), increases unit
costs (C ), may lower profit margins per unit sold (P – C )
Advertising product or service
characteristics, using ads to enhance
a companys image
Boosts buyer demand, increases product differentiation and perceived value
(V ), increases total sales volume and market share, but may increase unit costs
(C) and lower profit margins per unit sold
Innovating to improve product
performance and quality
Increases product differentiation and value (V ), boosts buyer demand, boosts
total sales volume, likely to increase unit costs (C)
Introducing new or improved
features, increasing the number of
styles to provide greater product
Increases product differentiation and value (V ), strengthens buyer demand,
boosts total sales volume and market share, likely to increase unit costs (C)
Increasing customization of product
Increases product differentiation and value (V ), increases buyer switching
costs, boosts total sales volume, often increases unit costs (C)
Building a bigger, better dealer
Broadens access to buyers, boosts total sales volume and market share, may
increase unit costs (C)
Improving warranties, offering low-
Increases product differentiation and value (V), increases unit costs (C),
increases buyer switching costs, boosts total sales volume and market share
TABLE 3.2 Common Weapons for Competing with Rivals
to deter new entrants. Just how serious the threat of entry is in a particular market
depends on two classes of factors: (1) the expected reaction of incumbent firms to
new entry and (2) what are known as barriers to entry. The threat of entry is low in
industries where incumbent firms are likely to retaliate against new entrants with
sharp price discounting and other moves designed to make entry unprofitable (due
to the expectation of such retaliation). The threat of entry is also low when entry
barriers are high (due to such barriers). Entry barriers are high under the following
· There are sizable economies of scale in production, distribution, advertising, or
other activities. When incumbent companies enjoy cost advantages associated
with large-scale operations, outsiders must either enter on a large scale (a costly
and perhaps risky move) or accept a cost disadvantage and consequently lower
· Incumbents have other hard to replicate cost advantages over new entrants.
Aside from enjoying economies of scale, industry incumbents can have cost
advantages that stem from the possession of patents or proprietary technology,
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exclusive partnerships with the best and cheapest suppliers, favorable locations,
and low fixed costs (because they have older facilities that have been mostly
depreciated). Learning-based cost savings can also accrue from experience in
performing certain activities such as manufacturing or new product develop-
ment or inventory management. The extent of such savings can be measured
with learning/experience curves. The steeper the learning/experience curve,
the bigger the cost advantage of the company with the largest cumulative pro-
duction volume. The microprocessor industry provides an excellent example
Manufacturing unit costs for microprocessors tend to decline about 20 percent each time
cumulative production volume doubles. With a 20 percent experience curve effect, if the
first 1 million chips cost $100 each, once production volume reaches 2 million, the unit
cost would fall to $80 (80 percent of $100), and by a production volume of 4 million, the
unit cost would be $64 (80 percent of $80).3
· Customers hav