Industrial Organization (I/O) Model

568 Words3 Pages
Industrial Organization (I/O) Model of above average returns is the Industry in which a firm competes has a stronger influence on the firm’s performance than the choices managers make inside the organizations. It is thought to be the main choice for industries to be successful. (Hoskisson, 2009) The properties included are economies of scale, barriers to market entry, diversification, product differentiation, and degree of concentration of firms in the industry. There are four assumptions for Industrial Organization Model; 1. External environment which imposes pressures and constraints that determine strategies for above average returns. 2. Firms competing in the industry control similar strategies relevant to resources. 3. Resources that are used to implement the strategies are mobile by all companies. 4. Organization decision makers are rational and committed to acting in the best interest for maximizing the return. Companies which are offering similar products or service the I/O model is thought to be the best for the companies since it challenges them to figure what industry and its needs to be competing in the selected market for the highest profit potential in return. In doing so the company needs to apply the five forces model when using the I/O method. It is a competition tool used to help the company find the industry that is most attractive and will bring the above average return. Companies need to be able to learn and adapt to the industry to gain for growth and live up to the highest potential of return. These companies need to study the external environment, especially the industry environment, the general & competitive Environments. They need to locate an attractive industry which structural characteristics suggest above average returns. The five forces are Suppliers, Buyers, Competitive rivalry among companies in the same field, product
Open Document