External Environment Analysis: Strategies for Navigating the Competitive Landscape, Exams of Nursing

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MGT 205 External Environment

Review Questions and answers

SUMMARY REVIEW QUESTIONS

1. Why must managers be aware of a firm's external environment? - answer ✅✅Being responsive to the external environment enables firms to avoid strategic mistakes. It is possible for firms to become internally focused, efficient producers of obsolete goods and services (e.g. buggy whips, carbon paper). Rather, managers need to respond to opportunities and threats from the external environment in order to develop the most successful products and services.
2. What is gathering and analyzing competitive intelligence and why is it important for firms to engage in it? - answer ✅✅Competitive intelligence is a firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths and weaknesses. It is not spying, fortune-telling, simple data collection, or an isolated activity within a firm. The purpose of competitive intelligence is to increase

management's awareness of developments in the external environment, thereby increasing the quality of strategic decisions.

3. Discuss and describe the six elements of the external environment. - answer ✅✅The 6 elements of the general environment are the demographic segment, the sociocultural segment, the political/legal segment, the technological segment, the economic segment, and the global segment. The demographic segment refers to the statistics of a population, such as age, income characteristics, ethnic groups, and geographic distribution. The sociocultural segment refers to the values, beliefs, and lifestyles of a country. The political/ legal segment refers to the creation and use of power within a country, including the effect of various regulations, including the areas of environmental protection, employment discrimination protection, and taxes. The technological segment refers to new products and services derived from advances in engineering, applied science, and/or pure science. These new products and services can change manufacturing processes, create new industries, and alter the boundaries between industries. The economic segment refers to the level and change in monetary and macroeconomic factors such as unemployment, inflation, interest rates, and economic growth. The global segment refers to effects on a country's business environment from

6. What are some of the limitations (or caveats) in using five-forces analysis? - answer ✅✅3 limitations of the 5-forces analysis are 1) the implication that low-profitability industries should be avoided may not be optimal. Low-profitability industries many be profitable opportunities for firms with innovative business models that change the competitive landscape. 2) The 5 forces model assumes a zero-sum game, with a firm's loss of profitability associated with another firm's gain. However, through strategic alliances or other forms of collaboration with suppliers, buyers, or other industry players, firms can gain both profitability and competitiveness. 3) The 5 forces model is static and does not account for constant changes in competitive postition that characterize many industries. Included in the dynamic analyses is the effect of complements, or other products and services that affect the value of a firm's own products and services. For example, software is a complement to hardware. Dynamic interactions between firms and complements can affect the profitability prospects for a firm outside of the 5 forces model.
7. Explain how the general environment and industry environment are highly related. How can such inter-relationships affect the profitability of a firm or industry? - answer ✅✅The general environment can affect all of the 5 forces in various ways. A growing economy can reduce the

intensity of rivalry within the industry because firms will be scrambling to meet growing demand.

8. Explain the concept of strategic groups. What are the performance implications? - answer ✅✅Strategic groups are groups of firms, usually within an industry, that share similar strategies. The performance implications are that firms can group themselves with close competitors and 1) identify barriers between groups, 2) identify positions within the industry that are marginal or tenuous, and 3) chart directions for future strategic development. Strategic group analysis is a more fine-grained way to conduct competitor analysis, as the competitive environment of an industry may differ from the competitive environment of the strategic group.