Ch04 Study Guide STUDY GUIDE Chapter Four The External Environment STUDYING OUTLINE (LEARNING OBJECTIVES) THE

FIRMS EXTERNAL ENVIRONMENT (Page 81) After studying this section of Chapter 4, you should be able to: Identify the three interrelated subcategories of the external environment and understand why an examination of them is important. (Page 81, EXHIBIT 4.1) A host of external factors influence a firms choice of direction and action and, ultimately, its organizational structure and internal processes. These factors, which constitute the external environment, can be divided into three interrelated subcategories: factors in the remote environment, factors in the industry environment, and factors in the operating environment. In combination, these factors form the basis of the opportunities and threats that a firm faces in its competitive environment. REMOTE ENVIRONMENT (Page 81 After studying this section of Chapter 4, you should be able to: Identify and explain each of the five factors that constitute the remote environment. (Pages 81-90) The remote environment comprises factors that originate beyond, and usually irrespective of, any single firms operation situation 1. Economic Factors concern the nature and direction of the economy in which a firm operates. 2. Social Factors that affect a firm involve the beliefs, values, attitudes, opinions, and lifestyles of persons in the firms external environment, as developed from cultural, ecological, demographic, religious, educational, and ethnic conditioning. 3. Political Factors define the legal and regulatory parameters within which firms must operate. 4. Technological Factors are important for a firm to be aware of to avoid obsolescence and promote innovation. 5. Ecological Factors are the most prominent factors in the remote environment and is often the reciprocal relationship between business and the ecology. INDUSTRY ENVIRONMENT (Page 91) After studying this section of Chapter 4, you should be able to: Identify the individual that propelled the concept of industry environment into the foreground of strategic thought and business planning. (Page 91) Harvard professor Michael E. Porter propelled the concept of industry environment into the foreground of strategic thought and business planning.

HOW COMPETITIVE FORCES SHAPE STRATEGY (Page 91) After studying this section of Chapter 4, you should be able to: Explain why industry analysis is important. (Pages 91-93) Knowledge of these underlying sources of competitive pressure provides the groundwork for a strategic agenda of action. They highlight the critical strengths and weaknesses of the company, animate the positioning of the company in its industry, clarify the areas where strategic changes may yield the greatest payoff, and highlight the places where industry trends promise to hold the greatest significance as either opportunities or threats.

Explain Michael E. Porters analytic framework (i.e., Michael E. Porters five-forces model). (Pages 91-93, EXHIBIT 4.8) CONTENDING FORCES (Page 93) After studying this section of Chapter 4, you should be able to: Identify the six major sources of barriers to entry and explain how they affect the level of competition and overall profitability within an industry. (Pages 93-95) Identify the characteristics that make a supplier group powerful and explain how they affect the level of competition and overall profitability within an industry. (Page 96) Identify the characteristics that make a buyer group powerful and explain how they affect the level of competition and overall profitability within an industry. (Pages 9697) Understand the concept of substitute products or services and explain how substitutes can affect the level of competition and overall profitability within an industry. (Page 98) Identify factors related to intense rivalry and explain how they affect the level of competition and overall profitability within an industry. (Pages 98-99) INDUSTRY ANALYSIS AND COMPETITIVE ANALYSIS (Page 99) After studying this section of Chapter 4, you should be able to: Explain what an industry is. (Page 99) Understand why a definition of industry boundaries is important. (Pages 99-100) Understand the problems associated with defining industry boundaries. (Page 100) Explain how executives define the boundaries for an industry. (Pages 100-101) Explain how executives identify their firms current and potential competitors. (Page 102) Identify the common mistakes executives make in identifying competitors. (Page 103) OPERATING ENVIRONMENT (Page 103) After studying this section of Chapter 4, you should be able to: Understand why it is important to develop competitor profiles. (Page 103) Understand how to develop competitor profiles and use them to assess a firms competitive position. (Pages 103-104, EXHIBIT 4.12) Understand why it is important to develop customer profiles. (Pages 104-105) Understand how to develop customer profiles (constructed from geographic, demographic, psychographic, and buyer behavior information) and the role they play in strategy formulation. (Pages 104-105)

Explain why it is essential for a firm to have dependable relationships with its suppliers and discuss the factors/questions a firm should consider/address in its assessment of its competitive position with its suppliers. (Page 105) Explain the implications of a firms relationship with its creditors and discuss the factors/questions a firm should consider/address in its assessment of its competitive position with its creditors. (Page 106) Identify and discuss the factors that affect a firms access to needed personnel. (Pages 106-107) EMPHASIS ON ENVIRONMENTAL FACTORS (Page 107) After studying this section of Chapter 4, you should be able to: Give examples of key strategic forecasting issues for each level of environmental assessmentremote, industry, and operating. (Pages 107-109, EXHIBIT 4.13) Key Terms external environment (p. 81) remote environment (p. 81) technological forecasting (p. 86) ecology (p. 87) pollution (p. 87) eco-efficiency (p. 88) industry environment (p.91) barriers to entry (p.93) economies of scale (p. 93) product differentiation (p. 94) industry (p. 99) operating environment (p. 103) Key Exhibits EXHIBIT 4.1 EXHIBIT 4.8 EXHIBIT 4.12 EXHIBIT 4.13