Discussion Thread: External Environment, Power / Weakness, and Decision Models
BUSI770
Dr. Jennifer Mize
Dahlia Thomas
School of Business, Liberty University
Nov 12, 2023
Author Note
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to .
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Introduction
To assess the external landscape of a corporation, top-level executives must pose several
crucial inquiries. These seven questions revolve around comprehending the pertinent constituents
within the macroenvironment and gauging the intensity of competitive forces at play.
Additionally, leaders must analyze and predict how industry-altering dynamics will impact their
respective sectors. Furthermore, they should ascertain where rival companies stand in positioning
and anticipate their future strategic maneuvers with utmost precision. Moreover, identifying key
success factors specific to an industry becomes instrumental in this evaluative process. Lastly,
determining whether said industry exhibits promising prospects for lucrative profits remains
paramount (Thompson et al., 2018). This assignment will review the process of using these
questions. The Key sources of power and weakness, my decision model, and how it aids or
hinders this process.
Process: Evaluating the External Environment
The acronym PESTEL, which encompasses political factors, economic conditions,
sociocultural forces, technological factors, environmental factors, and legal/regulatory forces
(Gamble et al., 2021), holds significant relevance in the global economy. Each of these macro-
environmental elements possesses the capability to sway the direction of this intricate system. In
a fiercely competitive landscape where local businesses can be instantaneously influenced by
rivals, new entrants, buyers, suppliers, or substitute products; it becomes imperative for these
entities to remain vigilant regarding the implications brought forth by such causes. Li and
Zhang's research (2021) highlights how numerous potential platforms have ventured into new
business domains to challenge incumbent platforms. A prime example is Uber's introduction of
its Uber Eats service in 2016 as a direct competitor against Grubhub - America's leading take-out
company.
The proliferation of the Uber brand name has proven to be a catalyst for the rapid growth
of its subsidiary, Uber Eats. This unforeseen surge in revenue and popularity has left industry
experts astounded. It can be argued that an established brand serves as a gateway in such
circumstances. However, given that Uber is already a globally recognized brand, it presents an
unparalleled market opportunity for the new entrant, endowing them with a substantial advantage
over their competitors when it comes to expanding their business operations.
As highlighted by Gamble et al. (2021), the emergence of new players within an industry
exerts additional competitive pressure on existing firms since they are compelled to fiercely vie
for market share and subsequently augment their production capacity.
Key Source of Power or Weakness
The foundation of an organization's influence often stems from the perceived notion of
substantial profitability. While economists may employ this criterion to assess companies, it is
merely one facet of a larger equation. The individuals who embarked on constructing the Tower
of Babel believed that their creation would surpass their reliance on God solely due to their
abundance of wealth and knowledge. Their sense of power and security was partially derived
from the grandeur and opulence exhibited by their city (Keller & Alsdorf., 2016). According to
Rumelt (2011), there exists a prevalent fallacy among strategy experts in which they equate
competitive advantage with high profitability. It is crucial to recognize that both business
strategies' competitive edge and financial prosperity are subject to dynamic fluctuations as
external variables impact overall success within an industry. Possessing a competitive advantage
over rivals does indeed contribute significantly towards establishing oneself as a frontrunner in
any given market segment for sustained periods. A formidable source empowering new entrants
into markets lies within brand recognition, an area where Uber Eats holds sway over its
competitors. Gamble et al.'s research findings (2021) suggest that buyers tend to exhibit stronger
loyalty towards established brands; consequently, newcomers encounter less resistance when
entering such marketplace arenas.
Conversely, emerging players often encounter obstacles when venturing into unfamiliar
markets. These fresh participants face a myriad of hurdles imposed by established competitors
who strive to safeguard their existing market dominance (Aghaie et al., 2022). Consequently,
new entrants must be prepared to confront these challenges head-on and cannot afford the luxury
of adopting a passive "wait-and-see" approach toward incumbents' reactions. This dynamic gives
rise to a diminished threat of entry within industries where incumbent firms are inclined to
counteract newcomers through aggressive price reductions and strategic maneuvers aimed at
rendering entry financially unviable (Gamble et al., 2021).
Current Decision Model or Others Being Considered
The gap-in-the-market model serves as a decision-making tool that offers valuable
analytical insights to individuals seeking to venture into a new market. In line with the assertions
made by Krogerus and Tschäppeler (2017), every aspiring business aims to identify and seize an
untapped opportunity within the market. The underlying concept of this model revolves around
generating a viable idea, while its graphical representation in the form of data is provided
through the gap model. This framework enables businesses to assess various aspects such as
location, pricing, and popularity of their target market.
The primary objective is identifying existing gaps or deficiencies within the current
marketplace landscape and determining how an entrepreneurial entity can fulfill these unmet
needs effectively. Key Success Factors (KSFs) play a pivotal role in shaping industry
participants' ability to thrive amidst competition (Gamble et al., 2021). Consequently,
comprehending how different types of KSFs impact newcomers' prosperity becomes crucial for
these organizations. These factors encompass diverse elements including technology adoption,
manufacturing capabilities, distribution channels, and marketing strategies among others.
By thoroughly understanding each category's influence on new entrants' success
prospects, organizations can make informed decisions regarding resource allocation and strategic
planning. Such comprehensive analysis ensures that emerging ventures are equipped with the
relevant tools necessary for establishing themselves within a competitive market.
Conclusion
In the pursuit of creating value and gaining a competitive edge, it is imperative for
companies to avoid myopic thinking and refrain from practicing favoritism in favorable
circumstances. Moreover, organizations should broaden their horizons by considering external
factors that could potentially have a detrimental impact on their business or even be leveraged as
an opportunity to add value. It is recommended that these companies identify the competitive
forces prevalent in the macro-environment and not allow potential new entrants to dictate their
immediate actions. Instead, they should employ strategic models such as the gap model and Key
Success Factors (KSFs) to strengthen their market position. Lastly, businesses must comprehend
the evaluation process required for utilizing these tools effectively so as not to be replaced by
other incumbents in the industry.
References
Aghaie, S., Kamran-Disfani, O., Javadinia, A., Farhang, M., & Bhattarai, A. (2022). Incumbent
defense strategies and new entrants market exit: The moderating role of relational market-based
assets. European Journal of Marketing, 56(5), 1556-1583. https://doi.org/10.1108/EJM-02-2021-
0087
Gamble, J., Peteraf, M., & Thompson, A. (2021), Essentials of Strategic Management,
McGrawHill Course Content Delivery (7th ed.) New York, NY.
Keller, T., Alsdorf, K. L. (2016). Every Good Endeavor: Connecting Your Work to God's Work.
Penguin Books, an imprint of Penguin Random House.
Krogerus, M., & Tschäppeler, R. (2017), The Decision Book: 50 models for strategic thinking.,
W.W. Norton & Co. (Revised ed.), New York, NY.
Li, J., & Zhang, Y. (2021). More market awareness, more profit? Competitive environments,
business expansions, and two‐sided markets. Managerial and Decision Economics, 42(2), 249-
267.https://doi.org/10.1002/mde.3231
Rumelt, R. (2011), Good strategy/bad strategy: The difference and why it matters., Crown
Business, New York, NY.
Appendix
Annotated Bibliography
Aghaie, S., Kamran-Disfani, O., Javadinia, A., Farhang, M., & Bhattarai, A. (2022). Incumbent
defense strategies and new entrants market exit: The moderating role of relational
market-based assets. European Journal of Marketing, 56(5), 1556-1583.
https://doi.org/10.1108/EJM-02-2021-0087
The main objective of this study is to present comprehensive insights into the impact of
new market entrants on incumbent firms and the counterstrategies employed to safeguard
their market share. The research primarily focuses on two key variables: price-cutting
strategies and expansion capabilities within the market. Moreover, it delves into how
businesses strive to expand their market presence while contending with competitors in
the same industry.
Furthermore, the article sheds light on how defensive tactics utilized by incumbents
against new entrants can have reciprocal effects. Strategies like price reduction and
capacity augmentation not only involve risks for newcomers but also pose potential
threats to established players. Considering both theoretical perspectives and practical
implications, it becomes crucial to assess the efficacy of defensive measures aimed at
driving out new entrants from incumbents' markets since implementing such strategies
entails substantial costs and allocation of limited resources.
The advantage of this article lies in its examination of the role that one particular force
model, specifically new entrants, plays in influencing both sides and their respective
outcomes. Moreover, it offers insights into devising strategies aimed at deterring or
safeguarding incumbents against these new market players. Conversely, certain
limitations can be identified within the study's scope: namely, the scarcity of information
regarding an incumbent's ability to repel or mitigate the impact of new entrants on their
market share; as well as the potential significance attributed to the force exerted by these
newcomers upon entering said market.
Li, J., & Zhang, Y. (2021). More market awareness, more profit? Competitive environments,
business expansions, and two‐sided markets. Managerial and Decision Economics, 42(2),
249-267. https://doi.org/10.1002/mde.3231
The concept of a two-sided market entails leveraging an organization's well-known brand
to introduce a new product within their existing framework. This strategy has been
successfully employed by companies such as Amazon and Airbnb, among others.
Notably, the article highlights Uber's implementation of this approach in its competition
with Grubhub, a third-party food delivery service. By launching Uber Eats, Uber
effectively tapped into another segment of the market it sought to enter.
According to Li and Zhang (2021), the nature of this phenomenon is not fully
comprehended due to its unique characteristics. Unlike other firms that must thoroughly
understand external environmental factors impacting their target markets before entering
them, Uber Eats enjoyed an advantageous position. It already had access to an established
clientele and consumer base through its parent unit without having to bear the costs
associated with venturing into completely novel territories or operating as a new entrant
from scratch.
This inherent advantage likely contributed significantly to Uber Eats' exponential growth
despite receiving some lukewarm reviews from economists regarding this strategic move.
Moreover, the scholarly paper explores in a similar vein how the decision-making process
and magnitude of market awareness can exert an influence on both potential entrant
platforms and established incumbent platforms (Li & Zhang, 2021). However, it is worth
noting that this article has certain limitations as it fails to delve into the subsequent
dynamics once these new players enter the market and become integrated within its
ecosystem. Specifically, there is a dearth of discussion regarding their impact on
incumbents and what strategic measures need to be undertaken in order to sustain or
enhance one's share in the marketplace.
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