Strategic Management: Text and Cases ,Gregory Dess (Author), G.T. (Tom) Lumpkin (Author), Alan Eisner (Author), Gerry McNamara (Author) 7e, solutions manual and test bank 007786252x
http://www.mediafire.com/view/kjj7pswdmbd2dli/ch2.docxhttp://www.mediafire.com/view/hxc1al01y33fqt8/IMChap002.doc
http://www.mediafire.com/view/8wh0dv88kc4emic/Case_02_Edward_Marshall_Boehm_TN.doc
- Series: Strategic Management
- Publisher: McGraw-Hill/Irwin; 7 edition (September 23, 2013)
- Language: English
- ISBN-10: 007786252X
- ISBN-13: 978-0077862527
| Analyzing the External Environment of the Firm................. | 34 (2-2) |
| Creating the Environmentally Aware Organization.............................. | 36 (2-3) |
| The Role of Scanning, Monitoring, Competitive Intelligence, and Forecasting.................................................................................................. | 36 (2-3) |
| SWOT Analysis................................................................................................................ | 41 (2-8) |
| The General Environment....................................................................... | 42 (2-8) |
| The Demographic Segment............................................................................................. | 42 (2-9) |
| The Sociocultural Segment............................................................................................. | 42 (2-9) |
| The Political/Legal Segment........................................................................................... | 44 (2-10) |
| The Technological Segment............................................................................................ | 45 (2-12) |
| The Economic Segment................................................................................................... | 45 (2-13) |
| The Global Segment........................................................................................................ | 46 (2-13) |
| Relationships among Elements of the General Environment......................................... | 46 (2-14) |
| The Competitive Environment................................................................ | 48 (2-15) |
| Porter’s Five-Forces Model of Industry Competition................................................... | 49 (2-15) |
| How the Internet and Digital Technologies are Affecting the Five Competitive Forces......................................................... | 55 (2-18) |
| Using Industry Analysis: A Few Caveats....................................................................... | 59 (2-22) |
| Strategic Groups within Industries................................................................................. | 61 (2-23) |
| Issue for Debate | 64 (2-24) |
| Reflecting on Career Implications | 64 (2-25) |
| Summary | 65 (2-27) |
Chapter 2
Analyzing the External Environment of the Firm
Summary/Objectives
The purpose of this chapter is to familiarize students with techniques for evaluating a firm’s external environment. This chapter focuses on the value managers add when they have a sense of events outside the company. By focusing on external events, managers are able to stay a step ahead of competitors by accurately anticipating and promptly responding to actions that can impact the organization. The chapter is organized into three sections.
1. The environmentally aware organization. Emphasize that managers use scanning, monitoring, and competitive intelligence to develop forecasts. Also, the role of scenario planning is discussed.
2. The influence of the six broad segments (demographic, sociocultural, political/legal, technological, economic, global) of the general environment of the firm.
3. The role of the competitive (also called the task or industry) environment and its analysis through the application of Porter’s five forces model. We address how industry and competitive practices are being affected by the internet and digital technologies. We also address the concept of strategic groups. Managers use strategic groups to identify who its main competitors are and how a company fits in with the overall industry in which it competes.
Lecture/Discussion Outline
We lead off the chapter with the opening case of Cell Zone. Here’s a firm that clearly did a poor job of recognizing and understanding the opportunity and threats in the external environment. Ask:
s Discussion Question 1: What is the biggest stumbling block for Cell Zone?
Response guidelines: Students should understand that there are a few links in the chain of events that prevent Cell Zone’s success. Most obviously, there is the issue of low demand for the product. Few restaurants and libraries are willing to pay Cell Zone, or otherwise devote space, for its cell phone booths. Restaurants might support Cell Zone if loud cell phone conversations were more of a problem, and if Cell Zone offered an effective response. The next possible issue is the rise of quiet text messaging as a way to communicate in a more considerate way. In effect, a new technology, text messaging, solved much of the loud cell phone conversation problem.
But both these issues may be only part of Cell Zone’s problem. Students may identify other relevant issues such as the effectiveness of the Cell Zone booths, the possibility of imitation booths that may use similar design, consumers’ use of other areas within restaurants for talking on their cell phones, and the possible unwillingness of customers to use the booths.
s Discussion Question 2: Are there other market segments where Cell Zone might work?
Response guidelines: Students may come up with a few intriguing suggestions. After they do, instructors may want to develop characteristics of the market segments. Some characteristics may be:
· Situations where calls contain confidential information that should not be overheard, such as lawyers, executives, military, police, and doctors.
· Places where the atmosphere requires quiet, such as libraries, lecture halls, or concert halls.
These two characteristics suggest segments such as law firms, prisons, government offices, schools, concert halls, and doctor’s offices. This list is only suggestive, and students can be encouraged to consider other possibilities.
I. Creating the Environmentally Aware Organization
We address three important processes—scanning, monitoring, and gathering competitive intelligence—which managers use to develop environmental forecasts. EXHIBIT 2.1 depicts relationships among these activities. Also, we address scenario analysis and its role in anticipating future major changes in the external environment as well as the role of SWOT analysis.
A. The Role of Scanning, Monitoring, Competitive Intelligence, and Forecasting
1. Environmental Scanning
Environmental scanning involves surveillance of the firm’s external environment to predict environmental changes to come and detect changes that are already underway. We discuss the example of how Procter & Gamble, with its wide range of household products, can be a good barometer of household spending.
s Discussion Question 3: Why would a retail executive be at a disadvantage if s/he were not aware of such trends?
Discussion Question 4: Would these “tips” be equally appropriate for all industries? Why? Why not?
Discussion Question 5: Could such an approach be used in other industries? What investments would be required?
Environmental scanning can also involve obtaining information from your customer base. The SUPPLEMENT below provides an example of how this was effectively used by an online contact-lens retailer, Coastal Contacts.
& Extra Example: Ask your Customers for Ideas
Coastal Contacts, one of the largest online contact-lens retailers in North America, came out of its two-day planning session with few ideas about how to spur growth. Thus, over the next six months CEO Roger hardy and his senior team called customers each week to see whether they had any ideas. To the company’s surprise, one recurring theme emerged—customers wanted to get their lenses the next day. “We started overnighting everything,” he reports. Sales in the U.S., where he recently made the change, were up 41% for the year, bringing company sales to $155 million.
Source: Harnish, V. 2011. Five ways to get your strategy right. Fortune. April 11: 42.
s Discussion Question 6: What are some other examples of firms that got excellent ideas by simply asking their customers for input?
2. Environmental Monitoring
Environmental monitoring tracks the evolution of trends, events, or streams of activities in the external environment. In this section, we present some of the factors monitored by three organizations: Motel 6, Pier 1 Imports, and Johnson and Johnson Medical Products. Such factors are vital for managers in determining their firm’s strategic direction and resource allocations.
The SUPPLEMENT below represents the factors that the Director of Planning of Vought Aircraft considered critical. You may initially ask the students:
s Discussion Question 7: What indicators do you believe a firm should monitor that produces both (1) weapon systems for the military, and, (2) key components for the commercial aircraft industry?
& Extra Example: Factors to Monitor—Vought Aircraft
Commercial Aircraft:
1. Oil prices
2. Age of fleet of airlines
3. Profitability of airlines
Defense Department:
1. Where weapons are in the life cycle
2. Mission requirements of the military
Source: Authors’ interviews.
The SUPPLEMENT below discusses how Cisco, the $46 billion (2012 revenues) networking giant, learned from its mistakes during the Internet bust in 2001—and now carefully monitors its inventory levels. It points out that managers must monitor key aspects of the firm’s internal environment—as well as the firm’s external environment.
& Extra Example: How Cisco Learned from Its Mistakes
In April, 2001, Cisco made one of the more painful confessions of the Internet bust: It had so much networking gear piled up that it had to take a $2.5 billion write-off for equipment that it figured nobody would ever buy. It has been working hard ever since to make sure that such a thing never happens again.
Supply chain chief Angel Mendez is grilled at monthly reviews by CEO John Chambers and other top executives. Now, Cisco has half the inventory it did in 2001—even though its revenues are twice as large. Says Mendez: “It didn’t take John eight years to start asking questions (about inventory levels). He asks about every eight minutes.”
Source: Burrows, P. 2009. Tech: Lean and Ready to Spring. BusinessWeek. April 27: 14-16.
s Discussion Question 8: Are you aware of other firms that have failed to effectively monitor key aspects of their internal environment? (e.g., excessive numbers of employees and layers of management; high levels of inventory that became obsolescent; insufficient sales, marketing, engineers, etc. to meet increasing demand for goods/services and innovations, etc.?)
We also discuss Dan Burrus’ valuable contribution in his recent book, Flash Foresight: How to see the Invisible and do the Impossible. Burrus makes the important distinction between:
Soft trends: Something that might happen and the probability with which it might happen can be estimated.
Hard trends: A projection based on measurable facts, events, or objects. It is something that will happen.
We illustrate these concepts in STRATEGY SPOTLIGHT 2.1 with the example of Mayo Clinic’s transformation. Here, hard trends in technology (PC and information storage) were used to help create a CD so that consumers could access reliable medical information written in an accessible fashion.
s Discussion Question 9: What are some other examples of soft and hard trends that have implications for an industry with which you are familiar? (e.g., demographic changes related to the aging of the US population provides opportunities in the health care industry (hard trend), increases (decreases) in government spending provides more (fewer) opportunities for consulting firms (soft trend).
3. Competitive Intelligence
Competitive intelligence helps firms define and understand their industry and identify rivals’ strengths and weaknesses. Done properly, competitive intelligence helps a company to avoid surprises by effectively anticipating and responding to competitors’ moves.
We briefly address the importance of competitive intelligence to firms in the banking, airline, and automobile industry.
s Discussion Question 10: What are other industries where competitive intelligence is extremely important? How might such information be collected?
We address how the Internet has accelerated the speed at which firms can find competitive intelligence.
STRATEGY SPOTLIGHT 2.2 discusses some of the ethical guidelines that United Technologies has implemented.
s Discussion Question 11: Are you aware of ethical guidelines that other companies have developed? Were they effective? Why? Why not?
Teaching Tip: The discussion of Competitor Intelligence provides the instructor with an opportunity to introduce the subject of ethics into the classroom. We suggest presenting scenarios that are not “black and white.” For example, a firm advertises a position in order to get a chance to interview employees of a rival company with no intention to hire them. While this may not be illegal, clearly it is difficult to justify morally. The ensuing discussion will help to clarify the distinction between illegal and unethical behavior. 4. Environmental Forecasting
Environmental scanning, monitoring, and competitive intelligence are important inputs for analyzing the external environment. However, they are of little use unless they provide raw material that is accurate enough to help managers make accurate forecasts.
We address the twin problems of either assuming that the world is certain and open to precise predictions, or the assumption that it is uncertain and totally unpredictable. And, we provide the famous example of poor forecasting by Digital Equipment Corp. which caused it to ignore the potential of personal computers.
s Discussion Question 12: What are some other errors in forecasting with which you are familiar?
The SUPPLEMENT below provides another error (most likely!) in forecasting—the value of Apple’s stock.
& Extra Example: Forecasting Apple’s Stock Price
With every $100 level increment n Apple’s (AAPL) stock price, we hear a chorus of worrywarts on business TV saying it just can’t continue. It’s unprecedented they say. . . Yet no company this big before has ever had the opportunities and relatively low market share that Apple now has.
We’re at $600 now (March 21, 2012), but I think Apple has much further to go from here. If things play out as I expect, Apple with hit $1,650 by the end of 2015.
(Note: Apple was at $430 in early-April, 2013.)
Source: Jackson, E. 2012. Why Apple will hit $1,650 by the end of 2015. forbes.com. March 21. np.
s Discussion Question 13: Do you agree with this forecast? (Although one can’t predict where Apple’s stock price will be at the end of 2015, what do you think Mr. Jackson’s reasoning was for making such a prediction?)
5. Scenario Analysis
Scenario analysis provides a set of tools that enable managers to imagine threats and opportunities the future may bring. As a general rule, scenarios should be used by businesses whose external environments are prone to fundamental or sudden change and whose anticipation of such change is of vital strategic importance.
It is important to note that scenario analysis draws on a wide range of disciplines and interests, among them economics, psychology, sociology, and demographics.
s Discussion Question 14: Why must scenario analysis and scenario planning draw on a variety of disciplines and interests?
We provide the example of Lego, and how its position in the toy industry may become eroded if they define their industry—and its future—in a very narrow context.
STRATEGY SPOTLIGHT 2.3 includes the example of PPG Industries has benefited from the use of scenario analysis and planning.
We address the value of a firm in creating an environmentally aware organization—which includes environmental scanning and monitoring, as well as competitive intelligence, forecasting, and scenario planning. In contrast, the late Steve Jobs (Apple’s former Chairman) took a far different approach to determining what customers really wanted. Below, we discuss Jobs’ distaste for sophisticated approaches to market research.
& Extra Example: Steve Jobs’ invaluable intuition
Steve Jobs was convinced that market research and focus groups only limited one’s ability to innovate. When asked how much research was done to guide Apple when he introduced the iPad, Jobs famous quipped: “None. It isn’t the consumers’ job to know what they want. It’s hard for (consumers) to tell you what they want when they’ve never seen anything remotely like it.”
Jobs relied on his own intuition—his radar-like feel for emerging technologies and how they could be brought together to create, in his words “insanely great” products, that ultimately made the difference.” For Jobs, who died in 2011 at the age of 56, intuition was no mere gut call. It was, as he put it in his often-quoted commencement speech at Stanford, about “connecting the dots, glimpsing the relationships among wildly disparate life experiences and changes in technologies.”
Source: Byrne, J. 2012. Great ideas are hard to come by. Fortune, April 7: 69+.
s Discussion Question 15: Would such a mindset work for other organizations? Why? Why not? (Firms in commodity industries—which experience much less uncertainty than technology industries have less need for such “intuition” since these industries face much less dramatic change in market demand and technologies. And, of course, very few firms have the visionary genius of a Steve Jobs! Also, you might point out how Ron Johnson (who was fired as CEO of J.C. Penney in early April, 2013) relied too much on his intuition and drove the firm into the ground. Only time will tell if his replacement (and his predecessor!) Myron Ullman will be able to turn things around.
B. SWOT Analysis
We briefly address SWOT Analysis at this point. SWOT stands for strengths, weaknesses, opportunities, and threats. SWOT analysis provides a framework for analyzing these four elements of a company’s internal and external environment.
It is important to note that SWOT analysis provides the “raw material”, that is, a basic listing of conditions and factors inside and outside of a company.
s Discussion Question 16: What do you consider to be some of the major advantages and disadvantages of SWOT analysis? (This issue is addressed in more detail in Chapter 3, but you should point out that a key disadvantage is that strengths may not necessarily convert to sources of competitive advantage that are sustainable in the marketplace.)
II. The General Environment
The general environment consists of factors that can have a dramatic effect on a firm’s strategy. Typically, a firm has little ability to predict trends and events in the general environment, and even less ability to control them.
We divide the general environment into six segments: demographic, sociocultural, political/legal, technological, economic, and global.
EXHIBIT 2.2 provides examples of key trends and events in each of the six segments of the general environment
s Discussion Question 17: How will the factors in Exhibit 2.3 affect specific industries?
Discussion Question 18: Which factors are more difficult to predict than others? (e.g., macroeconomic changes are typically more difficult to predict than demographic changes)
Discussion Question 19: How are these factors interrelated?
Discussion Question 20: What factors do you feel are important that are not listed in this exhibit?
A. The Demographic Segment
Demographics are the most easily understood and quantifiable elements of the general environment. Demographics include elements such as the aging population, rising or declining affluence, changes in ethnic composition, geographic distribution of the population, and income level disparities.
s Discussion Question 21: What are the implications of ethnic diversity for the work place?
Discussion Question 22: What implications do the migration to the South and West in the United States have for individual businesses?
Discussion Question 23: How does the “graying of America” affect U. S. companies?
Among the trends we discuss are the aging of the population and how it may differentially affect a wide variety of industries. We also discuss the increasing number of older Americans and its importance for attracting and retaining older workers.
Ask:
s Discussion Question 24: It might be interesting to ask what the implications (of the aging of the population) are for today’s organization (e.g., how can firms attract and retain older workers, changes in financial and non-financial incentives, etc.) as well as for public policy (e.g., changes in tax policies, increasing the number of immigrants, etc.).
B. The Sociocultural Segment
Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples include a higher percentage of women in the workforce, dual-income families, increases in the number of temporary workers, greater concern for healthy diets and physical fitness, greater interest in the environment, and families postponing having children.
s Discussion Question 25: Name two industries that have benefited from the growing awareness about health and fitness. Also name two that have been adversely affected by this trend.
Discussion Question 26: What must firms do to attract and retain women employees? Why are such efforts becoming increasingly important?
The section also addresses the increased educational attainment of women in the workplace. We discuss increases in both the number of degrees granted to women as well as the increased formation of businesses by women.
Ask:
s Discussion Question 27: Can you think of any other important implications this trend has for businesses in a specific industry?
The SUPPLEMENT below provides some perspective on why the job market for women should be very attractive over the next several years.
& Extra Example: A Favorable Job Market for Women for Years to Come!
The job market for women should be very good, according to British futurist Ian Pearson, founder of consultancy Futurizon and author of You Tomorrow. As we move further toward a service economy, skills like communication and collaboration will move to the forefront. “I call it the care economy,” he says. “A lot of women already work in those roles, and there will be more tomorrow.”
Health care and personal services are the fastest-growring sectors of the economy and are dominated by women. IN the U.S. 15 million women hold health and education jobs, up from 2.5 million in 1964. They are already the majority of nurses, pharmacists, and physical therapists, and by 2020 employment in health care is projected to grow 29% and personal care and services by 27%. The trend is not limited to the U.S. Globally, women are more than two-thirds of the graduates in health care and education programs.
In the U.S. women now hold 51.6% of all managerial and professional jobs. A new focus on “soft skills” like mentoring, inspiring, collaboration and building relationship may benefit women. In a comprehensive study of more than 7,000 leaders, women ranked higher than men in 12 out of 16 leadership attributes.
Source: Goudreau, J. 2012. A golden age for working women. Forbes. December 24: 56.
We close the section with Strategy Spotlight 2.4. We point out the trend toward increased obesity among Americans and how it has provided a business opportunity for clothing retailers.
C. The Political/Legal Segment
Political processes and legislation influence the regulations with which industries must comply. Some important elements of the political/legal arena include tort reform, the Americans with Disabilities Act (ADA), the repeal of the Glass-Stegall Act in 1999 (now banks may offer brokerage services), deregulation of utilities and other industries, and increases in the federally mandated minimum wage.
s Discussion Question 28: What do you see as some of the pros/cons of the Americans with Disabilities (ADA) Act?
Discussion Question 29: Do you think the federally mandated minimum wage should be increased? What are the implications?
Another area where visa restrictions is having an important impact is “very close to home” — universities. In the SUPPLEMENT below we provide an example of one student who elected to attend an M.B.A. program in China (because of visa concerns in the United States) and the fact that applications from Asian students have declined by as much as 50 percent at some U.S. business schools.
We close this section with a brief discussion of how legislation in the U.S. has restricted the number of H-1B visas for highly skilled professionals. We discuss the proactive step Microsoft has taken (e.g. setting up a research facility in Vancouver, Canada) to address this issue.
s Discussion Question 30: Should the U.S. Congress increase the number of H-1B visas? Why? Why not?)
The SUPPLEMENT below discusses how government legislation can have a dramatic impact on housing foreclosures. In Germany, large down payments are required and mortgage interest is not tax deductible. Thus, the country has experienced far fewer foreclosures than the U.S.
& Extra Example: German Legislation leads to far Few Housing Foreclosures
Germany has one of the lowest homeownership rates among wealthy nations—46 percent versus two-thirds in the United States—as well as one of the most stable housing markets. According to the Association of German Pfandbrief Banks, prices of owner-occupied housing in Germany were up 9 percent between 2003 and 2009.
What’s their secret? Housing is less subject to booms and busts because only highly qualified buyers can get a mortgage. Down payments are usually at least 20 percent, often 40 percent—thus, homeowners have some of the proverbial “skin in the game.” Mortgage interest is also not tax-deductible, as it is in the U.S. Thus, excessive leverage is discouraged. Germans are justly proud of their Pfandbrief, an ultrasafe bond whose collateral is a set of standardized mortgages whose loan-to-value ratio can’t exceed 60 percent. The bank that sells a mortgage-backed Pfandbrief to investors retains all the risk of default, providing it the incentive to underwrite cautiously.
Source: Coy, P. 2011. Minimize mortgages. Bloomberg BusinessWeek. June 13-19: 54.
s Discussion Question 31: Should the U.S. adopt Germany’s approach to mortgage lending? (This question may inspire some debate given that many students may feel that home ownership is critical to the “American Dream.” Point out, of course, that tougher lending rules would lessen the risk of another housing crash but in the long-run America would have to accept a lower rate of home ownership. And, if such policies were implemented it would result in a drop in real estate prices because there would be less demand for housing.)
D. The Technological Segment
Developments in technology lead to new products and services and improve how they’re produced and delivered to the end user. Innovations can create entirely new industries and alter existing industries.
s Discussion Question 32: Ask students to speculate on the impact of the following technologies on American industry: (1) the Internet, (2) manufacturing innovations (e.g., robotics), (3) genetic engineering/designer genes. (The last items may provoke some heated discussion regarding the ethical implications.)
We discuss the key implications that the Internet, information technology, and nanotechnology has had on industry — in particular, its impact on productivity gains.
We also address a fascinating issue: some of the promising future applications of nanotechnology and how it will impact some industries.
We close out the section by addressing some of the “downsides” of technology. In addition to ethical issues, we discuss environmental damage, such as the emission of greenhouse gases. We discuss BP Amoco’s innovative approach to this matter.
The SUPPLEMENT below illustrates how technology improves the fuel efficiency of cargo ships and results in carbon reduction. It points out that technology is now one of the important key aspects of the firm’s external environment.
& Extra Example: How Shipping Companies Use Technology to Improve Fuel Efficiency
The cargo ships that sail the world’s oceans are leading contributors to global warming. Commercial vessels emitted 3 percent of the world’s carbon in 2007, and that may increase to 18 percent by 2050, as global trade increases. U.N. measures to halve carbon emissions from shipping could come into effect as soon as 2012, so the industry is scrambling to clean up its act. “The marine industry is gearing up for the biggest revolution since World War II,” says Lee Sokje, an analyst at Mirae Asset Securities in Seoul. “You’re either ahead of the game or you’re out.”
Rivals, meanwhile, are exploring other routes to fuel efficiency. China Cosco Holdings is considering bringing back nuclear-powered cargo ships, introduced in the early 1960s. “We’re not only looking into nuclear but also wind energy and solar energy,” says Zhang Liang, president of China Cosco. Analysts warn that the costs of deploying some alternative energy technologies are prohibitive. “Ship prices are going to go through the roof if any of these ships using renewable energy are built,” says Mirae’s Lee Sokje.
Source: Park, K. 2010. Deconstructed: Big ships go green. Bloomberg Businessweek. May 17: 35.
s Discussion Question 33: Are you aware of other cases where technology is a key factor that is reshaping an industry? What industries are most likely to be influenced by technological changes?
Discussion Question 34: Do such initiatives tend to lead to advantages that are difficult to rivals to imitate? Why? Why not?
E. The Economic Segment
The economy has an impact on all industries, from suppliers of raw materials to manufacturers of finished goods and services, as well as all organizations in the service, wholesale, retail, government, and nonprofit sectors of economies. Key indicators include interest rates, unemployment rates, the consumer price index (CPI), the Gross Domestic Product (GDP), and net disposable income.
s Discussion Question 35: Compare the impact of rising (or declining) interest rates on the overall demand for the following industries: (1) housing (will have a significant impact), (2) automobiles (will have a significant impact), (3) fast food (will have very little effect).
F. The Global Segment
Globalization provides both opportunities to access larger potential markets and a broad base of factors of production such as raw materials, labor, skilled managers, and technical professionals. However, such endeavors carry many political, social, and economic risks. Examples of important elements in the global segment include currency exchange rates, increasing global trade, the economic emergence of India, China’s admittance to the World Trade Organization, trade agreements among regional blocs (e.g., EC), and the GATT Agreement (lowering of tariffs).
s Discussion Question 36: Provide examples of firms that have succeeded (stumbled) in their efforts to expand into international markets. What factors can explain their success (failure)?
The SUPPLEMENT below suggests various implications of the earthquake that hit Japan in 2011to the global economy—given the extent of the globalization in the automobile industry.
& Extra Example: The Global Implications of the 2011 Japanese Earthquake
A ferocious tsunami hit the coast of Northeast Japan on March 11, 2011 after a magnitude 9.0 earthquake. The tsunami slammed the coast and killed thousands of people as it swept away cars, hotels, and homes. Meanwhile, the Fukushima nuclear plant exploded and led to radiation leakage after the earthquake damaged the facility.
Damages also spread from the local to the global economy. Globalization may make Japan more vulnerable than in the past, as it offers Japan’s export customers alternatives they might not have enjoyed a decade or two ago. Hyundai and Ford now are good substitutes for Toyota’ cars, and even more so, Caterpillar tractors make in China can now replace Komatsu’s earth movers.
Source: Morici, P. 2011. Japan crisis—The economic consequences of disaster. www.foxnews.com. March 15: np.
We also address the rising middle class in emerging countries and how it has led to increased employment in those countries by multinationals.
s Discussion Question 37: What are the risks associated with accessing a larger potential market overseas as a result of the process of globalization? Do the risks of globalization outweigh its benefits?
G. Relationships among Elements of the General Environment
In our discussion of the general environment, we have addressed many relationships among the various elements.
EXHIBIT 2.3 provides many examples of how the impact of trends or events in the general environment can vary across industries.
The SUPPLEMENT below provides some insights on how many elements of the General Environment are interrelated. It is a rather interesting context—Cairo, Egypt after the Arab Spring.
& Extra Example: Entrepreneurship in Cairo after the Arab Spring
A different type of grassroots revolution has begun in the aftermath of the Arab Spring. According to Ramez Mohamed, CEO of Flat6Labs, a Cairo-based startup accelerator, entrepreneurship has thrived over the past two years. He contends that Egypt’s youth feel empowered to make a difference, one venture at a time.
Here are some of his firm’s most promising startups and the opportunity that they are tackling:
· Ekshef: With an Arabic-only platform and Yelp-like rating system, the service enables Egyptians to search, review, and recommend doctors form the directory. Opportunity: The country has more than 75,000 health care clinics, but it is hard for patients to find the right physician.
· Nafham: The service condenses the country’s public school curriculum into online, crowdsourced lessons. Users can vote up or down based on quality. Its staff also produces video content. Opportunity: Egypt’s rising population is putting a squeeze on classroom space.
· Eshtery: The utility lets users shop by scanning codes on signs around town and having the items delivered to them. The business was inspired by Home Plus, a supermarket that offers a similar service in South Korea. Opportunity: It is hard to buy groceries if you work two hours from the market.
· Ogra: A mobile app, a la Uber, which connects passengers with reliable drivers. Opportunity: With social tensions spilling onto the street, public transportation that is dependable is hard to find.
Source: Anonymous. 2013. Emerging tech scene: Cairo. Fast Company. March: 31.
1. Crowdsourcing: A Technology that Impacts Multiple Segments of the General Environment
We introduce the term and provide examples, including STRATEGY SPOTLIGHT 2.5– How Goldcorp Used Crowdsourcing to Strike Gold! In several of the other chapters of the book, we have additional detailed examples in STRATEGY SPOTLIGHTS.
Here, we define crowdsourcing as “a practice where the Internet is used to tap a broad range of individuals and groups to generate ideas and solve problems.” We list examples of the Linux operating systems, Amazon’s online reviews of books, and Wikipedia (the free online encyclopedia).
With crowdsourcing, stakeholders can also fulfill multiple roles (drawing from Chapter 1). STRATEGY SPOTLIGHT 2.4 discusses how world class talent (that was not directly associated with Goldcorp) became valued suppliers of technical expertise—and in the process helped Goldcorp survive and prosper.
s Discussion Question 38: To get the students familiar with the concept, ask them what other examples of crowdsourcing they are familiar with? And, ask if they are successful? Why? Why not?
III. The Competitive Environment
Here, we draw upon a well-known analytic tool, Michael Porter’s five forces model of industry competition. We introduce this model and discuss examples of each force. We then address the impact of the Internet on the five forces and the strategic groups concept and its implications for studying rivalry and competition.
A. Porter’s Five Forces Model of Industry Competition
EXHIBIT 2.4 illustrates Porter’s five forces model of industry competition
When introducing this model, it is useful to show how the model provides insight into an industry’s dynamics and expected profit levels. The SUPPLEMENT below provides such an analysis on the paint and allied products industry. The analysis is restricted to the trade sales (i.e., house paint) segment of the industry. The competitive forces are very different for other segments such as the specialized high-tech automobile finishes.
Note: For our purposes of illustrating the “basics” of the “five forces,” the analysis has been simplified. We assume buyers to be consumers, although there are, of course, other distinct groups such as hardware stores, and large discounters such as Wal-Mart. Obviously firms’ bargaining power vis-Ã -vis paint manufacturers vary significantly. Similarly, our analysis assumes the industry’s products to be commodity products. However, there are exceptions, such as Olympic Stain, that have successfully differentiated their products on the basis of quality.
& Extra Example: The Paint and Allied Products (PAP) Industry
An analysis of the Paints and Allied Products industry (SIC 2851), using the five forces model, demonstrates why this industry has traditionally been caught in a price-cost squeeze and is unable to pass on rising raw material costs to its customers.
To illustrate the price-cost squeeze that this industry is facing, consider that between the years 1995 to 2000, the PPI (producer price index — the price for which it sells its output) of the PAP industry increased an average of only 2 percent. The PPI for petroleum refining and related products — a key supplier to this industry — increased at a rate of 6 percent over this same period of time. Hence the price of this key raw material was roughly twice the rate of inflation (about 3 percent); whereas, the PAP industry was lower than the rate of inflation. Thus, the PAP industry has been unable—due to unfavorable industry competitive forces — to pass on cost increases to their suppliers; thus eroding profitability.
Consider the PAP industry in terms of each of Porter’s Five Forces:
Threats of Entry: Very High (minimal capital investment needed, little proprietary technology, regional firms can compete in local markets due to high transportation costs, little brand identification of existing competitors)
Buyer Power: Very High (low brand loyalty, relatively little product differentiation, relatively low switching costs)
Supplier Power: High (especially for petroleum derivative raw materials—a key input in industry)
Substitute Products: High (plastics, wood paneling, wallpaper coverings, etc.)
Rivalry: High (competition is based mostly on price competition, because of little brand loyalty and product differentiation; easy entry and exit from the industry gives rise to frequent price wars; little price leadership exhibited by larger firms)
Sources: www.bls.gov (Bureau of Labor Statistics); www.ita.doc.gov (International Trade Administration)
It is useful to point out that there can also be very profitable opportunities to compete in industries that have overall low profits, overall. For example, in the paint industry, Olympic Stain has typically been a very successful and highly-profitable firm because they have found an attractive niche in the market and developed a differentiated product (through product development and advertising).
1. Threat of New Entrants
After summarizing the major barriers to entry, ask students to provide examples of industries characterized by each of these entry barriers. This may help them to understand what initially may appear to be rather complex ideas.
We discuss the example of ProCD — a firm (producing electronic telephone books) that failed because of low entry barriers.
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Teaching Tip: The chapter explains how economies of scale and economies of experience (learning curve) erect significant entry barriers. In the auto industry, U.S. manufacturers such as Ford and G.M. have high economies of scale (being the large producers) and all the benefits of learning curve (having been in the business for almost a century). Despite these advantages, foreign auto producers have entered the U.S. market and have increasingly gained market share over the past few decades. Ask the students why this happened? Does this prove that the concepts we discussed are wrong? Or does it point out that additional factors have to be considered? Point out that foreign producers have the benefits of lower labor costs and/or have developed better manufacturing technologies (such as Toyota’s lean manufacturing). 2. Bargaining Power of Buyers
Briefly summarize some of the conditions under which a supplier group may become powerful. It may be interesting how things have changed (if they have) with regard to the power of buyers of talent (i.e., businesses of varying sizes and industries) and suppliers of talent (i.e., business school graduates—either undergraduate or MBA).
We also discuss how universities (during the recent recession) may take advantage of their “bargaining position” when increasing tuition and fees that they charge students. Ask: Are such actions justified or not? (Caution: This may be a “high risk” question!)
3. Bargaining Power of Suppliers
Briefly discuss some of the conditions under which a supplier group may become powerful. The bargaining power of suppliers can be presented as the mirror opposite of the bargaining power of suppliers. For example, the relative sizes and concentrations largely determine the bargaining power of the two parties involved in the transaction.
The section discusses the relative power of the providers of talent — ranging from unskilled labor (low) to highly skilled professionals (high). Especially hard hit will be several unions such as those in declining industries such as steel manufacturing.
4. The Threat of Substitute Products and Services
Emphasize that the viability of a substitute product depends largely on its relative price-performance trade-off, i.e., more value for the same price or the same value for a lower price. Examples are electronic security systems versus security guards, and the use of steel versus plastic for components in the manufacture of automobiles.
We discuss substitutes and give the example of IBM’s use of teleconferencing. Clearly, this technology poses a threat to the airline industry.
STRATEGY SPOTLIGHT 2.6 addresses the decreasing role of hybrids as a substitute for gasoline-powered cars.
5. The Intensity among Competitors in an Industry
After discussing the factors that lead to intense rivalry in an industry, provide an example of an industry in which competition has recently been intense. For example, most students are familiar with the recurring price wars in the U. S. airline industry. Ask them to explain this using the factors discussed (e.g., undifferentiated service, low switching costs, slow industry growth, numerous competitors, etc.) You might point out that this industry was expected to report huge losses in 2001 even before the September 11, 2001 terrorist attack. Beginning in late 2005, the airlines’ problems were further aggravated by extremely high fuel costs.
In this section we discuss the intense rivalry between Pfizer’s Viagra (impotence treatment product) and a competing product developed by Eli Lilly & Company and Icos—Cialis. This provides an example that intense rivalry can take place on factors other than pricing in an industry that is highly profitable.
The SUPPLEMENT below is Michael Porter’s response to a question as to whether or not he would add a “sixth force” if he were developing his framework today.
& Extra Example: Should There Be a “Sixth Force?” Michael Porter’s Perspective
“There have been two nominees for the sixth force. One is government. After much further work using and teaching the framework, I have reaffirmed my original conclusion that government is not a sixth force because there is no monotonic (direct linear) relationship between the strength and influence of government and profitability of an industry. You can’t say that “government is low, industry profitability is high.” It all depends on exactly what government does. Also, there are many different parts of government, each with its own distinct impacts. And, how do you assess the consequence of what government does? Well, you look at how it affects the five forces.
“The other, more recent, candidate for a sixth force involves organizations whose products and services are complementary to the primary organization’s products and services. Again, there is no monotonic relationship between the extent of complements and profitability. Sometimes having many complements is consistent with high industry profitability, sometimes with low profitability. It has to do with how complements affect the five forces…Clearly, complements have much to do with the size of the pie, but their role in the division of the pie is independent on other factors.”
Source: Argyres, N. & McGahan, A. M. 2002. An interview with Michael Porter. Academy of Management Executive. 16 (2): 43-52.
EXHIBIT 2.5 provides a summary of key points from the discussion of industry five forces analysis.
B. How the Internet and Digital Technologies Are Affecting the Five Competitive Forces
The changes caused by the Internet economy have made strategizing more challenging. Strategic analysis, informed formulation, and successful implementation may be even more difficult in the Internet era because of the uncertainty surrounding the new technology. In this section we address the impact of the Internet and digital technologies in terms of Porter’s five-forces model of competition.
1. The Threat of New Entrants
In most industries, new entrants will be a bigger threat because the Internet lowers barriers to entry. Thus, scale economies may be less important in an Internet context and new entrants can go to market with lower capital costs.Businesses launched on the Internet may enjoy savings on traditional expenses such as office rent, salaries, and postage. Thus, a new entrant could use the savings to charge lower prices and compete on price despite an incumbent competitor’s scale advantages. Alternatively, a new entrant may be able to serve a market more effectively, with more personalized services and greater attention to product details. Then they could build a reputation in their niche and charge premium prices.
Another potential benefit for Internet-based businesses is access to distribution channels. Manufacturers or distributors that can reach potential outlets for their products via the Internet may be encouraged to enter markets that were previously closed to them. Such access is not guaranteed, however.
s Discussion Question 39: What are some examples of industries where there have been a lot of new entrants because of the Internet? Have these new entrants been successful? How have incumbent firms reacted?
2. The Bargaining Power of Buyers
The Internet may increase buyer power by providing consumers with more information to make buying decisions and lowering switching costs. But, by giving buyers new ways to access sellers, the Internet may also suppress the power of traditional buyer channels that have concentrated buying power in the hands of a few. In this section, we address two types of buyers: end users and buyer channel intermediaries.End users are the final customers in a distribution channel. Internet sales activity that is labeled “B2C” is concerned with end users. Because a large amount of consumer information is available on the Internet, end users can easily shop for quality merchandise and bargain for price concessions. Switching costs are also potentially lower because the cost of switching may involve only a few clicks of the mouse to find and view a competing product or service online.
Buyer channel intermediaries are the wholesalers and distributors who serve as “middlemen” between manufacturers and end users. In some industries buyer channels are dominated by powerful players. The Internet, however, makes it easier and less expensive for businesses to reach customers directly. Thus, the Internet may increase the power of incumbent firms relative to these traditional buyer channels.
s Discussion Question 40: What are some other ways that end users can increase their buying power by using the Internet?
STRATEGY SPOTLIGHT 2.7 addresses the role of the Internet in shaking up the legal services industry.
s Discussion Question 41: What are some examples of other companies that have used the Internet to enhance their buying power?
3. The Bargaining Power of Suppliers
The Internet has streamlined and quickened the process of acquiring supplies. But the extent to which the Internet is a benefit or a detriment to suppliers may depend on where the supplier is positioned along the supply chain.Suppliers provide products or services to other businesses. The term “B2B” is used to refer to businesses that supply or sell to other businesses. On the one hand, the Internet makes it possible for suppliers to access more customers at a relatively lower cost per customer. On the other hand, because buyers can comparatively shop more easily and negotiate prices faster, suppliers may not be able to hold on to them. This is especially damaging to supply chain intermediaries, such as product distributors, who may not be able to stop suppliers from directly accessing other potential business customers.
s Discussion Question 42: What can supply chain intermediaries do to strengthen their position, that is, make it worthwhile for their customers in the supply chain to continue using their services?
Discussion Question 43: What are some examples of companies that have abandoned their traditional method of reaching customers and are using the Internet to reach customers directly?
Teaching Note: Case 2 – Edward Marshall Boehm, Inc.
Case Objectives
- To provide an introduction to the conceptual framework of strategic management.
- To introduce students to the process of problem identification and potential solution analysis that will be used in case discussions throughout the semester.
| Chapter Use | Key Concepts |
| 1: Strategy Concept | Leadership for strategic management; sustainable competitive advantage; vision, mission, strategic objectives |
| 2: External Environment | Industry competition five forces; general environmental factors |
| 3: Internal Analysis | Value-chain analysis; resource-based view of the firm; VRIN |
| 4: Intellectual Assets | Intellectual and human capital |
| 5: Business Level Strategy | Competitive strategy; generic strategies |
| 6: Corporate-Level Strategy | Diversification; synergy |
| 8: Entrepreneurial Strategies | Opportunity recognition |
| 9: Strategic Control | Informational vs. behavioral control |
| 10: Organizational Design | Organizational structure; functional structure |
| 11: Strategic Leadership | Leadership; learning organization |
| 12: Managing Innovation | Innovation; scope of innovation |
Case Synopsis
Edward Marshall Boehm, Inc. is a small, high-quality porcelain art objects company that has been very successful, particularly at producing images of vanishing species of birds. These pieces are complex sculptures selling from $100 to over $20,000, and are sought by some sophisticated collectors. The company is run by Mr. and Mrs. Boehm (pronounced “beam”): he is the artist and master of the complex hard paste porcelain manufacturing process; she is in charge of the marketing and financial aspects of the business. At the end of the case, demand for the artistic creations is growing, and many of the company’s past policies no longer seemed appropriate. The Boehms wanted to position the company for the long run. Their stated goals for the company were “to make the world aware of Mr. Boehm’s artistic talent, to help world wildlife causes by creating appreciation and protection for threatened species, and to build a continuing business that could make them comfortably wealthy, perhaps millionaires.” How should the Boehms proceed?Teaching Plan
It’s possible to ask students to read this short case in class during the 2nd or 3rd class meeting, after they’ve had a chance to read and discuss Chapter 1. This case can be used to demonstrate how all the components of strategic management are necessary in order to achieve a sustainable competitive advantage. The Edward Marshall Boehm story contains short examples of almost all the major concepts contained in the textbook, so the instructor can use the case with Figure 1.3 to show how strategic analysis, formulation, and implementation are linked. Either use the case PowerPoint slides or ask the discussion questions directly. As students respond, either write answers on the board or refer to the PowerPoint slide answers. As you begin the discussion, it might be interesting to students to view the Boehm website at http://www.boehmporcelain.com/ .Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign, and also which additional readings or exercises to include to augment each discussion. Refer back to the Case Objectives Table to identify any additional readings and/or exercises so they can be assigned in advance.- What should the strategy of Edward Marshall Boehm be?
- Is there a certain sequence of actions that would be best to take when developing these strategies?
- What roles do goals, and specific policies, rules and limits to decision-making, play in establishing strategy?
Discussion Questions and Responses
Referencing Chapter 1: Introduction and Analyzing Goals and Objectives
- What should the strategy of Edward Marshall Boehm be?
· strategy directs the organization toward overall goals and objectives;
· includes multiple stakeholders in decision making;
· incorporates both short-term and long-term perspectives;
· recognizes trade-offs between efficiency and effectiveness.
Strategic management involves
- Analysis of strategic goals (vision, mission, strategic objectives), and of the internal and external environment;
- Decisions about what industries to compete in, and how to compete in those industries; and
- Actions to allocate necessary resources and design the organization to bring intended strategies to reality.
Leaders face a large number of complex challenges. Leaders must be proactive, anticipate change and continually refine changes to their strategies. This requires a certain level of “ambidextrous behavior”, where leaders are alert to opportunities beyond the confines of their own jobs, and are also cooperative and seek out opportunities to combine their efforts with others. Leaders must make strategic management both a process and a way of thinking throughout the organization.
See Chapter 1, Exhibit 06: The primary role of the organizational leader is to articulate vision, mission and strategic objectives. Leaders must communicate their initial vision of the organization’s purpose: what was the original goal that evokes a powerful and compelling mental image of a shared future, one that would be massively inspiring, overarching, and long-term, that represented a destination that is driven by and evokes passion? How well did Mr. Boehm seem to do this? It appears from the case that his passion, his love, was for nature and wildlife causes, especially trying to preserve the images of vanishing species of birds. This passion appeared to inspire his designers and artists to do their very best work.
A mission encompasses both the purpose of the company as well as the basis for competition and competitive advantages. Organizations must respond to multiple constituencies if they are to survive and prosper, and the mission provides a means of communicating to diverse organizational stakeholders. The mission of Edward Marshall Boehm is clearly stated. The Boehms were interested in: (1) having Mr. Boehm’s art recognized and honored in the art world, (2) supporting nature and wildlife causes in a significant way, (3) and being very wealthy as a result of their company’s success. This tells both their employees and their customers what the company stands for, and the kind of product that the company will produce: high-end quality pieces depicting various wildlife, especially birds.
Anticipating that things might change, the leader must establish strategic objectives to operationalize the mission statement. That is, objectives help to operationalize the mission statement with specific yardsticks, and provide guidance on how the organization can fulfill or move toward the “higher goals” in the goal hierarchy—the mission and vision.
At least one of the objectives established in the case was to further develop the techniques of high quality porcelain manufacturing. This objective has implications for how to acquire both tangible and intangible resources, how to monitor and control performance, how to analyze opportunities, manage innovation, and create an effective structure to handle growth. It requires doing an analysis of the external environment, both relative to general factors that might affect how the product is positioned in the market, and also who the company is competing against for that market. It requires also doing an assessment of internal resources and capabilities for production of the high quality products.
- Is there a certain sequence of actions that would be best to take when developing these strategies?
The basic question strategic management tries to answer is: How can we create competitive advantages in the marketplace that are not only unique and valuable but also difficult for competitors to copy or substitute? The Boehms must assess how functional areas and activities “fit together” to achieve goals and objectives, and whether past policies are still appropriate.
Here is where the other chapters in the book are applicable. See Exhibit 1.3.
Referencing Chapter 2: Analyzing the External Environment -
See the segments of the external competitive environment that include competitors, customers, and suppliers. Porter’s five forces model allows strategists to anticipate where the industry might be most vulnerable. See Exhibit 2.4. If the Boehms are considered to be in the business of selling collectible art objects, there is not a lot of competition, nor many threats from suppliers, customers, or new entrants into the industry. At this time, with the company being over 60 years old, it appears the collectible market is still strong, with resale of Boehm limited editions going for over $500 on eBay.
Regarding the general external environment, Boehm must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to get its product to market and sustain sales. The sociocultural and demographic forces seem to be the most important ones for Boehm to consider.
Referencing Chapter 3: Analyzing the Internal Environment -
See the concept of the resource-based view of the firm, and the three key types of resources: tangible resources, intangible resources, and organizational capabilities. A firm’s strengths and capabilities – no matter how unique or impressive – do NOT necessarily lead to a competitive advantage. The resource-based view of the firm takes the perspective that firms’ competitive advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute. Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm sustain a competitive advantage. See Exhibits 3.5 and 3.6. Without these unique resources, the firm can only attain competitive parity. RBV goes beyond a SWOT analysis to integrate internal and external perspectives in a broader competitive context. RBV can reveal how core competencies embedded in a firm can help it exploit new product and market opportunities.
It’s possible that Boehm has all these attributes, based on the valuable, rare, and unique porcelain process Edward Boehm developed, and on the art design capabilities that are difficult for a competitor to find a substitute for.
In addition, Boehm must assess the relationships between the elements in its value chain. Remember, value-chain analysis is a strategic analysis of an organization that uses value-creating activities. Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price a firm’s product commands, and the quantity it can sell. A firm is profitable when the value it receives exceeds the total costs involved in creating its product or service. Creating value for buyers that exceeds the costs of production (i.e. margin) is a key concept used in analyzing a firm’s competitive position.
Every activity should add value. Take a look at Exhibit 3.1 to see the value chain activities. It makes sense for Boehm to focus attention on technology development of the porcelain process, manufacturing operations, and marketing and sales. Here is where Boehm can add value.
Referencing Chapter 4: Assessing Intellectual Capital -
See the concepts of intellectual capital and human capital, both of which are intangible assets that a company such as Boehm needs to have in order to compete successfully. Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation, employee loyalty and commitment, customer relationships, company values, brand names, and the experience and skills of employees. How do companies create value in a knowledge–intensive economy? The general answer is to attract and leverage human capital (intangible assets) effectively through mechanisms that create products and services of value over time.
Human capital involves the individual capabilities, knowledge, skills, and experience of the company’s employees and managers. This knowledge is relevant to the task at hand, as well as the capacity to add to this reservoir of knowledge, skills, and experience through learning.
Since the creation of fine porcelain figures is very labor intensive, and requires significant skill and training, Boehm’s relationships with employees is critical to long-term success.
Referencing Chapter 5: Formulating Business-Level Strategies -
See the types of competitive strategies, including the three generic strategies that are used to overcome the five forces and achieve a competitive advantage:
- Overall cost leadership
- Low-cost-position relative to a firm’s peers
- Manage relationships throughout the entire value chain
- Differentiation
- Create products and/or services that are unique and valued
- Non-price attributes for which customers will pay a premium
- Focus strategy
- Narrow product lines, buyer segments, or targeted geographic markets
- Attain advantages either through differentiation or cost leadership
Given Boehm’s goals, low-cost leadership is not an option. It’s more likely that a focused differentiated strategy would work best.
Referencing Chapter 6: Formulating Corporate-Level Strategies -
See the concept of diversification. Diversification is the process of firms expanding their operations by entering new businesses. Diversification initiatives – whether through mergers and acquisitions, strategic alliances and joint ventures, or internal development – must be justified by the creation of value for shareholders. But this is not always the case. Firms typically pay high premiums when they acquire a target firm. So why should companies even bother with diversification initiatives? The answer is synergy, which means “working together”, and synergistic effects should be multiplicative – one plus one should equal more than two.
If Boehm wants to grow, this might be an option. Some possibilities include:
- Mergers and acquisitions
- Strategic alliances
- Joint ventures
- Internal development
Referencing Chapter 8: Entrepreneurial Strategy & Competitive Dynamics -
See the concept of opportunity recognition, the process of discovering and evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited. Changes in the external environment can lead to new business creation, but the discovery of these new ideas is not enough. They then need to be evaluated to find out if they’re strong enough to become new ventures.
Entrepreneurs must go through a process of identifying, selecting, and developing potential opportunities.
See Exhibit 8.1 and the opportunity analysis framework: the relationship between an entrepreneur, the firm’s resources, and the opportunities available in the firm’s environment. Edward and especially Helen Boehm seemed very aware of the possibilities here. At the time of Boehm’s founding there were few fine porcelain manufacturers in the U.S. (NOT IN THE CASE: Over sixty years later, Boehm is the last American porcelain company left making collectible items. See current news, especially “Keeping American Porcelain in the States” by John Christopher Fine, February 7, 2013 at
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