Running head: ROTHAERMEL EXERCISE 1
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Rothaermel Exercise 1
Brittany Alston
Liberty University
BUSI 690
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Target stakeholders (DQ 1.1)
A firm is said to have competitive advantage when they have “achieved superior
performance relative to other competitors in the same industry or industry average” (Rothaermel,
2017). In the analysis stage a firm must focus on how to assess and measure competitive
advantage. They must also determine the relationship between competitive advantage and firm
performance. They must use both internal and external data to assess their competitive
advantage. Target’s stakeholders will provide a manager with insight to what they desire to see
change and/ or remain the same. In the formulation stage a firm must determine how to compete
and where to compete (Rothaermel, 2017). Target can gather information from its stakeholders
via surveys placed on receipts as well as through postal mail and email. Social media and a
mobile application can also aid in the gathering of information from stakeholders. A way
increase participation in their surveys, they can offer a coupon or discount to each participant
after the completion of the survey. During the implementation stage, a firm must determine what
actions they are going to take. Stakeholders may affect the implementation stage because
“satisfied stakeholders are more cooperative” (Rothaermel, 2017). They are more willing to
provide information to aid Target in lowering costs and increasing their value (Rothaermel,
2017). Some stakeholder may be given a promotion, while others may be terminated or face
other detrimental losses, such as severing of the business relationship.
BP Improvements (DQ 1.2)
BP must be sure that current and potential stakeholders have some level of trust in them.
To ensure that trust is there, they must be completely transparent and communicate effectively
with its stakeholders. If any situations that could negatively affect their reputation any further
arise, they should take it head on and release a statement ahead of any negative press. BP must
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be able to admit their wrong doings and have a strategy in place to reverse the problem. they
must instill that trust in their stakeholders. They have to show to change and have an open mind
when it comes to receiving aid from others.
Firm Effects vs. Industry Effects (DQ 1.3)
Industry effects attribute a firm’s performance to the industry that they compete in. firm
effects attribute a firm’s performance on a manager’s actions (Rothaermel, 2017). The statement
that firm effects are more important than industry effects means that a manager’s actions are
more detrimental or beneficial to a firm’s performance than external factors. Managers take
actions that they believe will have a positive impact on a firm, which may not always be the case.
This may not be true in firms where there is minimal variety in business and strategies. Managers
will be limited in the actions that they are able to take.
Scenario Planning (DQ 2.4)
An industry that is undergoing intense competition is the telecommunications industry.
The major companies in the industry are AT&T, Verizon, Sprint, and T-Mobile. They all compete
to provide customers with the best services at the lowest possible cost without compromising
profits. There are many smaller companies, such as, Straight Talk, Boost Mobile, and Net10, just
to name a few, that have recently emerged and are taking the business of many customers of the
major companies in the industry.
Scenario planning takes place when top management formulates different what-if
scenarios to anticipate plausible futures in order to derive strategic responses (Rothaermel,
2017). Scenario planning is used by first identifying possible future scenarios, then developing
different strategic plans to address them. Finally, they should carry out the dominant strategic
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plan (Rothaermel, 2017). The ultimate goal in any industry is customer satisfaction and profits.
With that being said, scenario planning will benefit all industries the same. The continued
competition within an industry customer satisfaction and profits will increase for the industry
whether it does for the individual company or not. Scenario planning will have companies within
an industry constantly planning how to beat out the competition, which benefits the industry as a
whole.
External Environment (DQ 3.1)
The external environment of an organization should be studied and understood because
those factors effect the operations. Demand can be shifted to place an organization in an
unfavorable position if the factors are not understood. When there is a better understanding of
these factors, organizations are able to mitigate threats and leverage opportunities (Rothaermel,
2017). The PESTEL model allows for the scanning, monitoring, and evaluation of important
external factors. Managers must be aware of all changes to the external environment in order to
continue to gain and sustain their competitive advantage.
Five Forces (DQ 3.2)
Using the five forces model, managers are able to analyze all players and gain a deeper
understanding of an industry’s profit potential. The basis for how a firm should position itself to
gain and sustain a competitive advantage is provided by the five forces model. The stronger the
five forces, the lower the industry’s profit potential, which makes it less attractive to competitors.
And in reverse, the weaker the five forces, the greater the industry’s profit potential, which
makes it more attractive (Rothaermel, 2017).
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The five forces include threat to entry, power of suppliers, power of buyers, threat of
substitutes, and rivalry among existing competitors. Threat of entry if the threat that potential
competitors will enter an industry. When an industry is more profitable, it is more attractive to
new competitors. However, there are barriers of entry that must be considered by new
competitors. The power of suppliers concerns the pressures industry suppliers can exert on profit
potential of an industry. Powerful suppliers capture part of the economic value created by an
industry, which reduces the profit potential. They can demand higher prices for their inputs or
reduce the quality, which will cause production costs to increase. The power of buyers concerns
the pressures industry customers can put on the producer’s margins. Powerful buyers capture part
of the economic value created. A firm’s revenue is reduced when buyers obtain price discounts.
Production costs are increased when higher quality and more service are demanded. “Threat of
substitutes is the idea that products and services available from the outside given industry will
come close to meeting the needs of current customers”. The price an industry’s competitors can
charge is limited when threat of substitutes is high, which reduces profit potential. Rivalry
among existing competitors is when companies within the same industry intensely compete for
market share and profitability (Rothaermel, 2017).
Internal Resources, Capabilities, and Activities (DQ 4.1)
The internal resources, capabilities, and activities of firms are important to study because
core competencies, which are demonstrated in the company’s activities, are developed through
the interplay of resources and capabilities. Core competencies are critical to gaining and
sustaining competitive advantage (Rothaermel, 2017). This may result in superior firm
performance. Resource reinforce core competencies and capabilities allow managers to
orchestrate their core competencies. Core competencies are leveraged for competitive advantage
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when strategic choices are expressed in a set of specific firm activities. The insights that can be
gained are a greater understanding of a firm’s strengths and weaknesses.
McDonald’s Value Chain Analysis (DQ 4.2.a)
McDonald’s primary activities are its operations, distribution, services, marketing and
sales, and logistics. Their support activities are human resources, information systems,
accounting and finance, research and development, and policies and procedures. The activity that
add the most value for the customers is distribution simply because they can get the products and
services that are provided. McDonald’s contain costs through research and development.
McDonald’s Past vs. Present (DQ 4.2.b)
McDonald’s new priorities did require changes to its traditional value chain analysis
because they had to focus on more aspects than just what they are known for.
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References
Rothaermel, F. T. (2017). Strategic management concepts (Custom 3rd ed.) New York, NY:
McGraw-Hill.
