RSM392 Review Notes (Full)

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Rotman Commerce

RSM392 Midterm Study Notes What is StrategyA plan that specifies tradeoffs A vision for how the firm can create a defensible advantage against the forces that determine industry profitabilitySupplyDemand works well to describe certain situationsFocuses on predicting pricequantity5 Forces is more flexibleworks where assumptions of supplydemand dont holdFocuses on long run structureprofitabilityThe two work hand in handSupplier power affects marginal costsSubstitutes affect slope shape of demand curveEntry barriers affect how steep supply curve is Porters Five Forces Purpose 1 To assess current average industry profitability of incumbent firms 2 To help us understand the impact of trendsevents on average industry profitability 3 To help us make recommendations to firms on how to improve a the overall industry environmentb the firms position relative to its industry environmentIts a framework to identify the most important industry changes a starting point for strategy It allows firms to understand the structure of an industry and take a position that is profitableAll 5 forces are sources of competition and they DRIVE profits in any industry Where do they stand and why are they profitable Revealed by the 5 Forces What drives competition and profitability Industry structure not the product it produces emerging or mature high or low tech regulated or not While many factors can affect profitability in the short run it is industry structure that affects it in the mediumlong run AVERAGE LONG RUN PROFITABILITY The strongest force determines profitability Managers use this framework to position strategically enter or exit a business by analyzing its potential exploit industry change shape industry structure by redividing or expanding the pie Buyer Power determines the revenue structure of the industrySupplier Power determines the cost structure of the industryThreat of Substitutes exerts pressure on BP and SPTogether BP SP and ToS determine how much value is created in an industryRivalry speaks to the competitive intensity within an industryThreat of Entry is the extent to which nonincumbents could plausibly enter the industryTogether R and ToE determine the extent to which a firm in the industry can capture the value created Threat of Entry
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