5.9 Key Terms

Barriers To Entry: Factors that prevent new firms from successfully competing in the industry. 5.4

Buyer Power:  Which refers to the balance of power in the relationship between a firm and its customers. 5.4

Capabilities Are things a firm can do, such as deliver good customer service or develop innovative products to create value. 5.5

Competition Business: Actions a firm undertakes to attract customers to its products and away from competitors’ products. 5.6

Competitive Advantage: When it successfully attracts more customers, earns more profit, or returns more value to its shareholders than rival firms do. 5.6

Competitive Environment: Factors and situations both inside the firm and outside the firm that has the potential to impact its operations and success. 5.1

Cost-Leadership Strategy: A generic business-level strategy in which a firm tightly controls costs throughout its value chain activities in order to offer customers low-priced goods and services at a profit. 5.6

Demographics: A subset of this category, includes facts about income, education levels, age groups, and the ethnic and racial composition of a population. All of these facts present market challenges and possibilities. 5.3

Differentiation Strategy: A generic business-level strategy in which firms add value to their products and services in order to attract customers who are willing to pay a higher price. 5.6

Economic Factors: PESTEL category that includes facts (such as unemployment rates, interest rates, and commodity prices) about the state of the local, national, or global economy. 5.3

External Factors: PESTEL category examines a firm’s external situation with respect to the natural environment, including pollution, natural resource availability and preservation, and alternative energy. 5.1

Environmental Scanning: the systematic and intentional analysis of both a firm’s internal state and its external, competitive environment. From a local coffee shop to an international corporation, firms of all sizes benefit from strategic analysis 5.1

External Environment for Businesses: A firm must confront, adapt to, take advantage of, and defend itself against what is happening in the world around it to succeed. To make gathering and interpreting information about the external environment easier, strategic analysts have defined several general categories of activities and groups that managers should examine and understand. 5.3

External Factors: Things in the world or industry environments that may impact a firm’s operations or success, such as the economy, government actions, or supplier power. Strategic decisions can be made in response to these things but normally cannot directly influence or change them. 5.3

Focus: A firm that focuses still must choose one of the other strategies to organize its activities. It will still strive to lower costs or add value. The difference here is that a firm choosing to implement a focused strategy will concentrate its marketing and selling efforts on a smaller market than a broad cost leader or differentiator. 5.6

Focus Strategy: A generic business-level competitive strategy that firms use in combination with either a cost-leadership or differentiation strategy in order to target a smaller demographic or geographic market with specialized products or services. 5.6

Generic Business-Level Strategies: Basic methods of organizing firm value chain activities to compete in a product market that can be used by any sized firm in any industry. 5.6

Industry: a group of firms all making similar products or offering similar services, for example, automobile manufacturers or airlines. 5.4

Internal Environment: Consists of members of the firm itself, investors in the firm, and the assets a firm has. Employees and managers are good examples; they are firm members who have skills and knowledge that are valuable assets to their firms. 5.5

Internal Factors: Are characteristics of the firm itself. To plan to compete against other firms, a firm needs to understand what physical, financial, and human resources it has, what it is good at, and how it is organized. 5.1

Legal Factors: In PESTEL, the laws impacting business, such as those governing contracts and intellectual property rights and illegal activities, such as online piracy. 5.3

Macro Environment: The outermost layer of elements in a firm’s external environment that can impact a business but are generally beyond the firm’s direct control, such as the economy and political activity. 5.3

Micro Environment: The middle layer of elements in a firm’s external environment, primarily concerned with a firm’s industry situation. 5.3

New Entrants: One of Porter’s Five Forces, the threat of new entrants assesses the potential that a new firm will start operations in an industry. 5.4

Opportunity: This is a potential situation that a firm is equipped to take advantage of. 5.2

PESTEL: A strategic analysis tool that examines several distinct categories in the macro-environment: political, economic, sociocultural, technological, environmental, and legal. 5.3

Political Factors: PESTEL factor that identifies political activities in the macro-environment that may be relevant to a firm’s operations. 5.3

Porter’s Five Forces:  Evaluate the interconnected relationships between various actors in the industry, including competing firms, their suppliers, and their customers, by examining five forces: industry rivalry, the threat of new entrants, the threat of substitutes, supplier power, and buyer power. 5.4

Primary Activities: Firm activities on the value chain that are directly responsible for creating, selling, or servicing a product or service, such as manufacturing and marketing. 5.5

Resources: These are things a firm has to work with, such as equipment, facilities, raw materials, employees, and cash. 5.5

Sociocultural Factors: PESTEL category that identifies trends, facts, and changes in society’s composition, tastes, and behaviours, including demographics. 5.3

Strategic Analysis: This is the process that firms use to study and understand the many different layers and aspects of their competitive environment. 5.1

Strategic Groups: Businesses offering similar products or services and following the same generic competitive strategy. 5.6

Strategic Positioning: A firm’s decisions on how to serve customers and compete against rivals 5.6

Strategy: This is the process of planning and implementing actions that will lead to success in competition. 5.6

Strengths: Are, to put it simply, what it is good at. 5.2

Substitute: One of Porter’s Five Forces; is products or services outside a firm’s industry that can satisfy the same customer needs as industry products or services can. 5.4

Supplier Power: One of Porter’s Five Forces; describes the balance of power in the relationship between firms in an industry and their suppliers. 5.4

Support Activities: Value chain activities that a firm performs to sustain itself; do not directly create a product or service but are necessary to support the firm’s existence, such as accounting and human resources. 5.5

Switching Costs: Penalty, financial or otherwise, that a consumer bears when giving up the use of a product currently being used to select a competing product or service. 5.4

SWOT: is an acronym for strengths, weaknesses, opportunities, and threats. Firms use SWOT analysis to get a general understanding of what they are good or bad at and what factors outside their doors might present chances for success or difficulty. 5.2

Technological Factors: PESTEL category includes factors such as the Internet, social media, automation, and other innovations that impact how businesses compete or how they manufacture, market, or sell their goods or services. 5.3

Threat: Anything in the competitive environment that would make it harder for a firm to be successful. 5.2

Value Chain: Sequence of activities that firms perform to turn inputs (parts or supplies) into outputs (goods or services). 5.5

VRIO: An analytical tool that evaluates a firm’s resources and capabilities to determine whether or not it can support an advantage for the firm in the competitive environment: value, rarity, imitation, and organization. 5.5

Weaknesses: Things that a firm does not have good capabilities to perform or gaps in firm resources. 5.2