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Session 10.doc

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Administrative Studies
ADMS 1000
Peter Tsasis

Session 10: Chapter 9 CASE: 220-222 -Strategic management is the analysis, decisions, implementation and evaluations a firm undertakes in order to create and sustain its competitive advantage -Industry: a group of firms that share a similar resource requirement - The Five forces model (Michael Porter): systematically assess the industry environment: 1) Threats of New Entrants : new startups and diversification of existing firms can obtain market share and resources, which will bid, down prices and reduce profitability. To prevent this you must create entry barriers: 1) Economies of Scale: spreading the costs of production over the units produced 2) Capital Requirements: some industries require a lot of capital 3) Switching Costs: the costs incurred when switching from one supplier to another from the buyers prospective 4) Access to Distribution Channels: Potential entrants find it difficult to distribute products when others are controlling most of it 5) Cost Disadvantages Independent of Scale: government policies, legal protections like patents and trademarks create disadvantages for new entrants 2) Bargaining Power of Suppliers: suppliers have control over the price/profitablitiy since they hold the resource and therefore can demand a higher price. Secondly the number of suppliers available relative to the number of firms affects prices because its easier to change suppliers 3) Bargaining Power of Buyers : buyers can demand lower prices, better quality which can erode profits and performance 1) Switching Costs: bargaining powers increase as costs decrease since buyers can switch easier with little cost 2) Undifferentiated Products: Easier to buy other products 3) Importance of Incumbents Products to Buyers: more importance the less powerful 4) The Number of Incumbents Relative to Buyers the smaller amount of incumbents the less alternatives buyers have to choose from 4) Threats of Substitutes: 5) Rivalry Among Existing Firms: - Lack of Differentiation or Switching Costs: customer choices are based on price and service -Numerous/Equally balanced Competitors: when firms are smaller they tend to be more competitive because they target markets with similar resources -High Exit Barriers: fixed costs, special assets, commitment and social pressures keep firms in business -This model lacks because it does not take in technological change and government regulations, it also lacks on the power of relationships between each force Internal Environment VRIO Model - Firms resources include financial (debt, equity, earnings), physical (machines, production, plants), human (experience, knowledge, risk taking), and organizational assets (history, relationships, trust, culture) - For firms to achieve high performance there are four important questions: - 1) The Question of Value: firms need to ask if their resources add value to capture market share/gain profits - 2) The Question of Rareness: In order to gain competitive advantage firms must seek to make their resources and capabilities rare so that other firms do not have it - 3) The Question of Imitability: Managers need to know if resources are easily imitated and determine how to create a barrier for imitation to retain this competitive advantage - 4) The Question of Organization: Managers need to consider if their firms can be organized in a way that their valuable, rare,
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