Chapter 3 Question
One of the factors influencing competition in an industry is the level of concentration. This refers to the number and size of firms in an industry. For instance, in a monopoly the concentration is high given the presence of only one firm in the industry. In such cases where the concentration is high, competition is usually low. It is also possible for an industry to have several firms but still have high concentration since the size of the firms in terms of market segment greatly differs where one or two firms have big market portions while others share the insignificant portion. Concentration is influenced by aspects such as barriers to entry or switching cost. The ideal industry has many firms with almost equal market segments. The concentration is low ensuing intense competition between the industry’s firms.
The nature of product differentiation is another important factor dictating the intensity of competition in an industry. Product differentiation is best defined from the customer’s perspective. If a customer perceives certain products to be different- even though they serve the same purpose- then the products are differentiated. Product differentiation is a critical factor in the pharmaceutical industry where drugs with similar purposes are priced differently. Wherever the degree of differentiation is high, competition is intense since firms compete on other levels than price differentiation.
The rate of industry growth is imperative in influencing the intensity of competition. Industries with high growth rate in terms of growing market are typified by lower competition as compared to industries where the growth rate is slow or stagnant. Firms in the later industry only grow by penetrating into each other’s market share thus will implement more radical competitive policies. The nature of price sensitivity inherent in an industry influences the level or means of competition. In instances, where the market share and profit margin is significantly affected by price changes firms resort to other non-price oriented competitive policies, thus the competition is relatively less intense.
Chapter 6 question
The compatibility of goals held by firms forming a strategic alliance is the first consideration. Compatibility refers to the objectives and energies in all parties being aligned to meet an agreed strategic alliance goal(s). Reasons for forming strategic alliances differ from mitigating effects to blocking entry however; success can be impeded by contrasting goals distinct to one party. Thus, before embarking on a strategic alliance firms should be aware of each other goals and consider their compatibility to align to the goal and procedures inherent in the alliance. These issues are better addressed in the initial meetings where resources needed for the success of the alliance or benefits expected for each member are evaluated.
Secondly, the issue of parties’ viability in reference to resources needed to make the alliance successful is imperative. Strategic alliances work on information and other resources in order to attain success. A party should evaluate the ability of the other party to provide the resources needed to attain the goal of the alliance. Additionally, the complementary nature of systems within the other party to the alliance is considered. Since the organizations involved jointly share risk trust and interdependency is imperative requiring the management teams to coordinate while on operational course. Thirdly, governmental regulations are imperative for transnational strategic alliance since they can either facilitate or create structural barriers to the cross-border cooperation. Certain governments are restrictive on the extent of co-operation between citizen and non-citizen firms while others encourage the pooling of knowledge as well are resources for industrial growth.
Chapter 8 question
Diversification allows an organization to increase or create value by reducing operational costs or increasing revenues. Consequently, if diversification allows the organization’s business units to attain the fore mentioned goals then it is strategically sound to diversify. Aspects increasing the logic sense behind diversification into new markets include excess resources or production competencies relative to competitors thus gaining market share. Additionally, when an organization perceives diversification as a more efficient manner to allocate capital then it is advisable to embark on the process. For instance in capital-intensive industries, the standard cost on a unit decreases in proportion to increase of volume making diversification a viable strategic option. Apart from increasing value, neutralization of value can necessitate or make diversification suitable. Several scenarios can induce an organization to value neutralizing diversification such as taxation, antitrust legislation or uncertainty on business cycles.
Contingencies that can affect volume of sells in a particular sector such as technological breakthroughs or financial recessions can make diversification viable to mitigate possible effects. Occasionally a business may resort to value decreasing diversification when attempting to equal a competitor’s market share. The organization may be required to acquire distribution channels analogous to competitors. In other instances, an organization may desire to reduce risks inherent in managerial employment by diversifying into several units. Accordingly, the top level will have limited liability and threat to their employment of one of the units fails.
Chapter 11 question
The fore most benefit of policies and procedures in strategy implementation is cohesion between organizational capabilities besides structure with the implementation. The level of business strategy under implementation is considered since every level has a suitable approach thus improving decision-making. Additionally, the implementation process is designed in a manner its realistic and attainable in reference to organizational resources of time and money. The details are known such as chronology, sequence and sectors unique to every phase of implementation. The right resources and individuals are assigned to particular activities and accountability channels are established. The implication is timely execution of strategy phases as well as energized implementation since confusion besides conflict is eliminated. The focus created by the policies and procedures pools together organization resources towards implementation since priories have been fore established. Energy is directed towards the issue at hand while communication lines utilized in synergizing the organization are facilitated.
Policies and procedures in implementation also aid in evaluating the success or failure of the process. They allow the measuring or quantification of change in the organization compelled by the strategies whether feasible or infeasible. Additionally, policies and procedures involve the division of the implementation into phases either annual or a suitable period. This facilitates creation of target and appraisal systems to reward the right people and desired actions. Also enabled is the analysis of the process incase there is failure where the discrepancy can be accurately traced and explained. This is imperative given most of the discrepancies arise from linkage failure between the support factors necessary for strategy implementation. Support factors such as structure, human resource and funds are best linked through policies and procedures during implementation.