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Chapter Final

Final Exam Review Review on chapters 5-9 Nine is incomplete, but others are well needed. Chapter nine was not needed on my exam. :) Good luck!

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Administrative Studies
ADMS 1000
Eytan Lasry

Chapter Five Strategic Management The Five Forces Model1 Threat of New Entrants Can take two basic forms such as new startups and diversification of existing firm in other industries The new entrants bring new capacity desire to gain market share and substantial resources and capabilitiesFirms would need to consider how to create entry barriers There are five major sources of entry barriers from the potential new entrants point of viewEconomies of Scale spreading the costs of production over the number of units produced It can provide companies with cost advantages on price Capital Requirements In some industries the required capital is significantly high This creates barriers of entry to new industries Switching Costs refers to costs associated with changing from one supplier to another Access to Distribution Channels accessibility to distribution channels can be an easy barrier for potential new entrants Potential entrants would find it difficult to distribute their products or services which in turn defer new entry Cost Disadvantages Independent of Scale Include legal protection and government policies and proprietary products2 Bargaining Power of SuppliersFocus in on the firms organizations individuals that provide raw materials technologies or skills to incumbents in an industry Suppliers can exert bargaining power over incumbents in an industry by demanding better prices or threatening to reduce quality of purchased goods or services The power of suppliers hold direct impact on the industry profitability as well as the incumbents performanceTwo major factors contributing to suppliers power Criticality of resources the suppliers hold The number of suppliers available relative to the number of incumbents in an industry3 Bargaining Power of BuyersBuyers can demand lower prices better quality or services or playing incumbents against each other There are many factors contributing to buyer powerSwitching Coststhe bargaining power of buyers increases as switching costs decrease Undifferentiated Productswhen other firms provide similar products or services to buyers they would not be in a good position to negotiate with the buyers Importance of Incumbents Products to Buyerswhen productsservices that incumbents offer are important or critical to buyers the power of buyers diminishes The Number of Incumbents Relative to the Number of Buyersmore firms the lower the price the consumers want4 Threats of SubstitutesOther firms will provide substitute products or services with similar purposes5 Rivalry Among Existing FirmsThe final force that affects industry structure is rivalry The rivalry among incumbents in an industry can take many different forms Rivalry can be intensified by several interacting factorsLack of Differentiation or Switching Costswhen products are significantly differentiated or switching costs of customers are minimal customers choices are often based on price or service Numerous or Equally Balanced Competitorssome firms may believe that they can initiate strategic action without being noticed Their strategic action intensifies the rivalry among companies High Exit Barriersrefer to economic strategic or emotional factors that keep firms competing even though they may be earning low or negative returns on investments Ex fixed costs specialized assets escalating commitment of management and government and social pressures The VRIO ModelManagers need to look inside their firms for competitive advantages They must ask four questions1 The Question of Valuemanagers need to ask if their firms resources and capabilities add any value to capture market share or enhance profitability either through exploiting emerging opportunities or neutralizing threats2 The Question of RarenessAlthough valuable resources and capabilities help firms survive those resources and capabilities need to be rare Managers need to assess if their valuable resources and capabilities are unique among competitors3 The Question of Imitabilitywhen imitation occurs it diminishes the degree of rareness4 The Question of Organization whether or not a firm can be organized in effective and efficient ways to exploit their valuable rare and difficult to imitate resources and capabilities to maximize their potentials Swot Analysis Strengths weaknesses opportunities threats The strategic logic behind SWOT analysis is that firms that strategically use their internal strengths in exploiting environmental opportunities and neutralizing environmental threats while avoiding internal weaknesses are more likely to increase market share sales or profitability than other firms Can use the VRIO and Five Force model to help analyze the external and internal environment Business Level StrategySometimes called generic business strategiesThey areCost Leadershipthe purpose of cost leadership is to gain competitive advantages by reducing economic cost below that of all competitors Three sources 1 economies of scale volume reduces cost 2 learning curve economies firms can reduce marginal costs by experience such as learning by doing 3 lowcost access to factors of productions Product Differentiationgain competitive advantages
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