Chapter 9 Responding to the Environment: Developing Business Strategy
Strategy and Planning
A comprehensive and integrated plan that states how the organization will
use its resources in the pursuit of its mission and objectives.
A process that involves defining the mission of the business and laying out
the broad strategies or courses of action the firm will use to achieve that
The Five-Forces Model
Threat of New Entrants
Can be new firms or diversifying entrants
Incumbents must create barriers to entry:
• Economies of scale
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages unrelated to scale
• Intellectual property (patents, trademarks, trade secrets)
Bargaining Power of Suppliers
• How critical are the inputs provided by suppliers?
• Are there many suppliers relative to producers?
Bargaining Power of Buyers
Are switching costs for buyers high?
Are competitive products undifferentiated?
How important are the products to buyers?
Are there many buyers relative to producers?
Threat of Substitutes
Is the industry facing many competitive substitutes?
Air vs. rail travel
Movie theaters vs. DVD rentals
CDs vs. MP3 downloads
Rivalry Among Existing Firms
Undifferentiated products and low switching costs encourage more
Many similar producers tend to compete more fiercely
High exit barriers increase competitive rivalry
High fixed costs
Specialized assets and sunk costs
Types of Strategies
Identifies the portfolio of businesses that compose the corporation and the ways in which these businesses fit together
• Market penetration