1. Porters five forces model: a.

Definition: Most powerful and widely used tool for systematically diagnosing the principal competitive pressures in a market. Model holds that the competitive forces affecting industry profitability go beyond rivalry among competing sellers and includes pressures stemming from four coexisting sources b. Five Forces i. Inter firm Rivalry 1. Factors/Conditions affecting strength a. Low buyer demand b. Product differentiation (can find similar things cheaper) c. Excess capacity (unused) d. Exit barriers (assets cant be sold) e. Cost conditions f. Industry life cycle g. # of equally balanced competitors ii. Threat of new Entrants 1. Factors/conditions a. Decrease the threat of new entrants i. Economies of scale ii. Capital requirements iii. Access to distribution channels (hard to build network of distributors) iv. Other barriers to entry ( regulation) v. Competitive retaliation b. Makes entry attractive: high industry profitability/growth iii. Sellers of substitutes 1. Factors/conditions affecting strength a. Substitutes availability b. Switching costs (low costs = strength) c. Industry growth and demand d. Comparability of substitute in terms of quality, performance iv. Buyer bargaining power 1. Bargaining power for buyers is related to whos buying the product, and bargaining price that the product will sell at a. Conditions/Factors affecting buyer bargaining power i. Standardized industry product ii. Purchases are made in large volume iii. Number of buyers is small iv. Switching costs are low v. Buyers are well informed about sellers costs 1. Which industry 2. Who is making the purchase

a. Example: Kohls is the buyer if I buy a Seiko watch from Kohls b. Mejier is the buyer I buy the Nestle bottle from Meijer v. Bargaining power for suppliers 1. Strong bargaining power: suppliers can erode profitability by charging industry members higher prices, passing costs onto them, and limiting their options to find better deals. 2. Factors impacting a. Product represents a significant % of purchasers final product b. Few suppliers (short industry supply = strength) c. Unique product/input d. Supplied product is less expensive for purchaser to buy than make 2. Balanced Scorecard a. Tool used to help a company achieve its financial objectives by linking them to specific strategic objectives derived from the companys business model b. Provides employees with clear guidelines about how their jobs are linked to the overall objectives of the organization c. Categories i. Financial 1. How does the firm look to its Shareholders/creditors 2. Ex. ROA, ROE, Project Profitability, Cash Flow ii. Customer 1. How does the firm look to its customers 2. Ex. Customer Satisfaction, Market Share, Reputation iii. Internal Business processes 1. Identifies processes most important to meet shareholder or customer expectations 2. Ex. Quality Measurements, Order Process Time, Product Development Cycle, Innovation iv. Learning and growth 1. Indentifies the infrastructure that the firm must build to create longterm growth 2. Ex. Empowered Workforce, ISM capabilities, Motivation, and Employee capabilities, satisfaction, retention and employee productivity d. Mission Statement i. Purpose 1. Conveys a companys purpose in a language specific enough to give the company its own identity 2. Describes the enterprises current business and purpose a. Indentify companys product or services

b. Specify the buyer needs it seeks to satisfy c. Indentify the customer group/markets it wants to serve d. Give the company its own identity 3. Who we are, what we do, and why we are here 4. Strategic Vision in contrast: the direction we are headed and our aspirations for the future ii. Mission statement in relation to measuring performance 1. ???????? Page 29 3. What is Value? a. Defined: The benefits a customer receives from buying a good or service i. Price is what you pay, value is what you get b. Value Proposition: a marketplace offering that fairly and accurately sums up the value that will be realized if the good or service is purchased c. Key Success Factors i. Competitive factors that affect industry members ability to survive and prosper in the marketplace d. Value Proposition in relation to Key success factors i. Which key success factor leads to the most appropriate value proposition ii. Key success factors can be used to help answer 1. What do customers want? (demand analysis) a. Must understand target market strategy b. Must understand customer value proposition by segment 2. How does the firm survive competition? a. How strong are the competitors? b. Which ones are the strongest? c. What are the competitors offerings? 4. Grand/Growth Strategies a. Concentrated Growth: increase the use of present products in present markets i. Increase the rate at which present customers use the product/service (hospitals using wellness programs) ii. Attracting competitors customers iii. Attracting nonusers of the product (profiling and contacting potential cosmetic surgery patients) b. Market Development: selling present products in new markets i. Opening additional geographic markets ii. Attracting other market segments c. Product Development: developing new products for present markets i. Developing new product features ii. Combining quality variations iii. Brand extension 5. Differentiation/Low cost/Best cost/Focus strategy

a. Differentiation strategy: when a firm attempts to provide something unique that is valuable to buyers beyond simply offering a low price (Trump Tower) i. Firms pursue differentiation based on demand or supply 1. Demand involves understanding customers and their needs and preferences 2. Supply involves being aware of the resources, capabilities, skills and knowledge that a firm can leverage to create uniqueness ii. Sources of advantage: 1. Product features and product performances 2. Complementary service ( delivery, repair) 3. Reputation 4. Quality of purchased inputs 5. Technology embedded in design and manufacture 6. Location b. Low cost strategy: the firm attempts to be the low cost provider of a product or service (Motel 6) i. Sources of advantage 1. Product design 2. Input costs 3. Capacity Utilization 4. Managerial/organizational efficiency c. Best Cost: combines advantages based on both low cost and differentiation (Kimpton Hotels) i. Firm is able to offer what customers perceive as valuable while at the same time being cost efficient d. Focus Strategy: the firm focuses on a narrower segment of the industry i. Example: Papa Joes, Oink Oink inc 6. Key Success Factors/Driving forces? a. Key Success Factors i. Depends on industry b. Driving Forces i. Ask yourself if driver will change demand for the industrys product, increase/decrease competition, and lead to higher/lower profitability. ii. Examples: 1. Changes in an industrys long term growth rate 2. Increasing globalization 3. Changes in who buys the product and how they use it 4. Technology change 5. Emerging new internet capabilities and applications 6. Product and Marketing innovation 7. Entry/exit of major firms 8. Government policy changes

7. Environment levels a. Macro Environment i. Factors 1. Economic a. GDP, interest rates, money supply 2. Technological a. Total govt. spending for R&D, new developments 3. Political/legal a. Regulation, environmental protection, tax laws 4. Social/cultural a. Birth rates, life expectancy, demographics, growth rate in population b. Industry Environment i. Industry: a group of companies creating/making/providing similar goods/services 1. Dominant Economic traits 2. Industry structure and industry drivers 3. Driving forces 4. Industry life cycle 5. Competitive forces (porters five forces) c. Operating Environment i. Most of where B2C, B2B happen 1. Specific a. competitors b. customers c. suppliers d. pools of labor e. creditors d. Relation of Environments i. Whatever happens at the Macro level, affects all ii. Every firm has its own operating environment (has relationship with their suppliers/subset) 8. Business Model a. Sets forth the economic logic for making money in a business, given the companys strategy. b. Provide customers with value c. Generate revenue sufficient to cover costs and produce attractive profits 9. Strategies a. Corporate CEO, senior executives i. How to gain advantage from managing a group of businesses b. Business ( one for each business the company has diversified into) general managers i. How to strengthen market position and gain competitive advantage

c. Functional area ( within each business)- heads of functional areas i. Provide a game plan for managing a particular activity in ways that support the business strategy d. Operating (within each business)-brand managers, operating managers of plants 10. 1 11. 1 12. Industry structure a. Refers to those enduring characteristics that give an industry its distinctive character. i. Economics of scale 1. Requirement, firms saving to get bigger ii. Product differentiation 1. Gasoline is a commodity, cant change it much iii. Barriers to Entry/Exit 1. Entry: due to capital, regulation, permission 2. Exit: Germany labor laws (cant just leave) iv. Information Availability 1. How much knowledge about processes is available for competitors v. Concentration 1. Small number of firms own most of the market vi. Fragmentation 1. Small to medium size firms own. No clear market leader 13. Competitive Advantage a. Ability to meet customer needs more effectively (command higher price), with product or services that customers value more highly, or more efficiently, at lower cost.