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Chapter 3 Banks MGT 3830

Terms in this set (46)

PESTEL Model
groups the forces in the firm's general environment into six segments (external forces): political, economic, sociocultural, technological, ecological, and legal
can create both a threat and opportunity for the firm
Political Environment
the process and actions of government bodies that can influence the decisions and behaviors of firms
Legal Environment
captures the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions - all of which can have a direct bearing of a firm's profit potential
Non-market Strategies
lobbying, contributions, litigations, etc. in ways that are favorable to the firm
Growth Rate
a measure of the change in the amount of goods and services produced by a nation's economy
Interest Rates
the amount that savers are paid for use of their money and the amount that borrowers pay for that use
Level of Employment
boom times, unemployment is low, and skilled human capital becomes a scarce and more expensive resource
economic downturns, unemployment rises
as more people search for employment, skilled human capital is abundant and wages usually fall
Price Stability
the lack of change in price levels of goods and services—is rare
Therefore, companies will often have to deal with changing price levels, which is a direct function of the amount of money in any economy
Inflation
too much money in an economy, we tend to see rising prices
Deflation
a decrease in the overall price level
Currency Exchange Rates
determines how many dollars one must pay for a unit of foreign currency
Sociocultural Factors
capture a society's cultures, norms, and values
Demographic
capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class
Technological Factors
capture the application of knowledge to create new processes and products
Ecological Factors
concern broad environmental issues such as the natural environment, global warming, and sustainable economic growth
Industry
a group of (incumbent) companies that face more or less the same set of suppliers and buyers
Industry Analysis
provides a more rigorous basis not only to identify an industry's profit potential (the level of profitability that can be expected for the average firm), but also to derive implications for one firm's strategic position within an industry
Strategic Position
relates to its ability to create value for customers (V) while containing the cost to do so (C)
Five Forces Model
to help managers understand the profit potential of different industries and how they can position their respective firms to gain and sustain competitive advantage
Threat of Entry
the risk that potential competitors will enter the industry
Entry Barriers
obstacles that determine how easily a firm can enter an industry
often one of the most significant predictors of industry profit potential
Economies of Scale
cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers
these factors in turn drive down the cost per unit, allowing large incumbent firms to enjoy a cost advantage over new entrants who can- not muster such scale.
Network Effects
describe the positive effect that one user of a product or service has on the value of that product or service for other users

the value of the product or service increases with the number of users
Switching Costs
incurred by moving from one supplier to another
changing vendors may require the buyer to alter product specifications, retrain employees, and/or modify existing processes
one-time sunk costs, which can be quite significant and a formidable barrier to entry
Outside the given industry
threat of substitutes is the idea that products or services available from
Competitive Industry Structure
elements and features common to all industries, including the number and size of competitors in an industry, whether the firms possess some degree of pricing power, and the type of product or service the industry offers
Fragmented Industry
consists of many smalls firms and tends to generate low profitability
Perfectly Competitive
fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices

many small firms, firms are price takers, commodity product, low barriers to entry
Monopolistically Competitive
characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers
Oligopoly
consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power, product differentiation
Interdependent
the actions of one firm influence the behaviors of the others
Game Theory
attempts to predict strategic behaviors by assuming that the moves and reactions of competitors can be anticipated
Non-price competition
preferred mode of competition
competing by offering unique product features or services rather than competing based on price alone
Monopoly
only one (large) firm supplying the market
unique product, and the challenges to moving into the industry tend to be high
considerable pricing power
Natural Monopoly
without them, the governments involved believe the market would not supply these products or services at all
Near Monopolies
accrued significant market power, for example, by owning valuable patents or proprietary technology
Strategic Commitments
firm actions that are costly, long-term oriented, and difficult to reverse
to a specific industry can stem from large fixed cost requirements, but also from non-economic considerations
Exit Barriers
obstacles that determine how easily a firm can leave an industry
both economic and social factors
Complement
a product, service, or competency that adds value to the original product offering when the two are used in tandem
increase the demand for primary product
Complementor
a company that provides a good or service that leads customers to value your firm's offering more when the two are combined

Google and Samsung
Co-opetion
cooperation by competitors to achieve a strategic objective
Industry Convergence
a process whereby formerly unrelated industries begin to satisfy the same customer need
Strategic Group
the set of companies that pursue a similar strategy within a specific industry
Strategic Group Model
a framework that explains differences in firm performance within the same industry by clustering different firms into groups based on a few key strategic dimensions
Mobility Barriers
industry specific factors that separate one strategic group from another
Source
this versatile framework allows managers to track important trends and developments based on the _________ of the external factors
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