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Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer : Ebow Spio

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Page 1: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Ashesi University

COURSE TITLE : COMPETITIVE STRATEGY1ST SEMESTER : 2011/2012

MODULE 2: Strategic Analysis: Industry and Competitor AnalysesLecturer : Ebow Spio

Page 2: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Learning Objectives• Appreciate the role of Environmental Scanning,

Monitoring, Competitive Intelligence and Forecasting • Explain what an Industry is and identify the different

types of industry• Understand the industry’s Dominant Economic Features• Understand how forces in the competitive environment

can affect profitability and how a firm can improve its competitive position by increasing its power vis-à-vis these forces (Porter’s Five Forces Model of Industry Competition)

• Understand Factors Driving Industry Change

Page 3: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Learning Objectives

• Explain the Concept of Market Positions and Strategic Groups within Industries

• Understanding Key Factors for Future Competitive Success and Attractiveness

• Outline a Framework for Competitor Analysis

Page 4: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

The Strategy Management Process

Page 5: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Fig. 3.1: From Thinking Strategically about theCompany’s Situation to Choosing a Strategy

Page 6: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Diagnosing a company’s situation has two facets

– Assessing the company’s external ormacro-environment

• Industry and competitive conditions

• Forces acting to reshape this environment

– Assessing the company’s internal ormicro-environment

• Market position and competitiveness

• Competencies, capabilities, resource strengthsand weaknesses, and competitiveness

Understanding the Factors that Determine a Company’s Situation

Page 7: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Thinking Strategically about aCompany’s Macro-environment

• A company’s macro-environment includes all relevant factors and influences outside its boundaries

• Diagnosing a company’s external situation involves assessing strategically important factors that have a bearing on the decisions a company makes about its– Direction– Objectives– Strategy– Business model

• Requires that company managers scanthe external environment to– Identify potentially important external developments– Assess their impact and influence– Adapt a company’s direction and strategy as needed

Page 8: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Fig. 3.2: The Components of a Company’s Macro-environment

Page 9: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Thinking Strategically about aCompany’s Macro-environment

Porter Described Competitive Strategy as Primarily a Function of Industry Sector

• “The essence of formulating competive strategy is relating a company to its environment. Although the relevant environment is very broad, encompassing social as well as economic forces, the key aspect of the firm’s environment is the industry or industries in which it competes.” Competitive Strategy, 1980

Page 10: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Defining Industry boundaries• A group of firms that are producing products that are

substitutes for each other e.g. the mobile telecommunication

• Identify firms whose products do the same thing in the same way (e.g. air conditioners)

• Firms compete with each other through changes in price and value

• Technological similarity is needed to separate an industry from substitutes e.g. air conditioners vrs electric fans

• Market interdependence means that a change in the value or price of one firm’s product affects demand for the product of a competitor

Page 11: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Types of Industry Monopoly This where only one firm serves the market e.g.

Electricity Company of Ghana• Monopolists tend to produce less and charge more • They make as much money as the customers and

suppliers let them and given the substitute products available

• The returns to a monopoly serve as the benchmark for the highest profits possible in an industry

Page 12: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Types of Industry Perfect Competition • It is composed of a large number of independent firms that

produce or sell very similar products • Each firm is too small to affect the price of the product as

market is quite large as compared to average firm• There is perfect mobility of resources so firms can enter or

leave the industry in the long run without much difficulty• Firms in the industry are “price takers” and can sell amount

of their products at the prevailing market price. • Additional industry volume will drive the market price down

such that no firm makes a profit in the long run.

Page 13: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Types of Industry Oligopoly • Is a small group of firms that compete with each other and

dominate rivalry in an industry• The aggressive action of one firm affects the returns of the

others • Competition is concentrated ( i.e. sales of the top firms

expressed as percentage of total sales of the industry)• Level of concentration is based on 2 factors 1. The ratio of market size to the minimum setup costs

necessary to compete2. Level of sunk cost investment made by incumbent companies

in activities such as advertising, research and development etc.

Page 14: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Strategic Analysis

• The Strategically Relevant Components of a Company’s External Environment

• Thinking Strategically About a Company’s Industry and Competitive Environment– Question 1: What Are the Industry’s Dominant Economic Features?– Question 2: What Kinds of Competitive Forces Are Industry Members

Facing, and How Strong Is Each Force?– Question 3: What Factors Are Driving Industry Change and What Impacts

Will They Have?– Question 4: What Market Positions Do Rivals Occupy—Who Is Strongly

Positioned and Who Is Not?– Question 5: What Strategic Moves Are Rivals Likely to Make Next?– Question 6: What Are the Key Factors for Future Competitive Success?– Question 7: Does the Outlook for the Industry Present an Attractive

Opportunity?

Page 15: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Key Questions Regarding the Industry and Competitive Environment

What are the industry’s dominant economic traits?

How strong are competitive forces?

What forces are driving change in the industry?

What market positions do rivals occupy? What moves will they make next?

What are the key factors for competitive success?

How attractive is the industry from a profit perspective?

Page 16: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Market size and growth rate• Number of rivals• Scope of competitive rivalry• Buyer needs and requirements• Degree of product differentiation• Product innovation• Supply/demand conditions• Pace of technological change• Vertical integration• Economies of scale• Learning and experience curve effects

Question 1: What are the Industry’sDominant Economic Traits?

Page 17: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer
Page 18: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Learning/Experience Effects

• Learning/experience effects exist when a company’s unit costs decline as its cumulative production volume increases because of

– Accumulating production know-how

– Growing mastery of the technology

• The bigger the learning or experience curve effect, the bigger the cost advantage of the firm with the largest cumulative production volume

Page 19: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Question 2: What Kinds of CompetitiveForces Are Industry Members Facing?

• Objectives are to identify

– Main sources of competitive forces

– Strength of these forces

• Key analytical tool

– Five Forces Modelof Competition

Page 20: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Fig. 3.3: The Five Forces Model of Competition

Page 21: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Analyzing the Five Competitive Forces: How to Do It

Step 1: Identify the specific competitivepressures associated with each ofthe five forces

Step 2: Evaluate the strength of eachcompetitive force -- fierce, strong,moderate to normal, or weak?

Step 3: Determine whether the collectivestrength of the five competitive forcesis conducive to earning attractive profits

Page 22: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Usually the strongest of the five forces

• Key factor in determining strength of rivalry

– How aggressively are rivals using various weapons of competition to improve their market positions and performance?

• Competitive rivalry is a combativecontest involving

– Offensive actions

– Defensive countermoves

Competitive Pressures Among Rival Sellers

Page 23: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Fig. 3.4: Weapons for Competing and Factors Affecting Strength of Rivalry

Fig. 3.4: Weapons for Competing and Factors Affecting Strength of Rivalry

Page 24: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Competitors are active in making fresh moves to improve market standing and business performance

• Slow market growth• Number of rivals increases and rivals are of

equal size and competitive capability• Buyer costs to switch brands are low• Industry conditions tempt rivals to use price cuts or other competitive

weapons to boost volume e.g. perishable or seasonal• A successful strategic move carries a big payoff• Diversity of rivals increases in terms of visions, objectives, strategies,

resources, and countries of origin• Outsiders acquire weak firms in the industry and use their resources

to transform new firms into major market contenders

What Causes Rivalry to be Stronger?

Page 25: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Industry rivals move only infrequently or in a non-aggressive manner to draw sales from rivals

• Rapid market growth

• Products of rivals are stronglydifferentiated and customer loyalty is high

• Buyer costs to switch brands are high

• There are fewer than 5 rivals or there are numerous rivals so any one firm’s actions has minimal impact on rivals’ business

What Causes Rivalry to be Weaker?

Page 26: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Seriousness of threat depends on

– Size of pool of entry candidatesand available resources

– Barriers to entry

– Reaction of existing firms

• Evaluating threat of entry involves assessing

– How formidable entry barriers are for each type of potential entrant and

– Attractiveness of growth and profit prospects

Competitive PressuresAssociated With Potential Entry

Page 27: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Fig. 3.5: Factors Affecting Threat of Entry

Page 28: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Sizable economies of scale

• Cost and resource disadvantages independent of size

• Brand preferences and customer loyalty

• Capital requirements and/or otherspecialized resource requirements

• Access to distribution channels

• Regulatory policies

• Tariffs and international trade restrictions

• Ability of industry incumbents to launch vigorous initiatives to block a newcomer’s entry

Common Barriers to Entry

Page 29: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• There’s a sizable pool of entry candidates

• Entry barriers are low

• Industry growth is rapid and profit potential is high

• Incumbents are unwilling or unable to contest a newcomer’s entry efforts

• When existing industry members have a strong incentive to expand into new geographic areas or new product segments where they currently do not have a market presence

When Is the Threat of Entry Stronger?

Page 30: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• There’s only a small pool of entry candidates

• Entry barriers are high

• Existing competitors are struggling to earn good profits

• Industry’s outlook is risky

• Industry growth is slow or stagnant

• Industry members will strongly contestefforts of new entrants to gain a market foothold

When Is the Threat of Entry Weaker?

Page 31: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Competitive Pressures from Substitute Products

Substitutes matter when customers are attracted to the products of firms in other industries

Concept

Sugar vs. artificial sweeteners Eyeglasses and contact lens

vs. laser surgery Newspapers vs. TV vs. Internet

Examples

Page 32: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

How to Tell Whether SubstituteProducts Are a Strong Force

• Whether substitutes are readilyavailable and attractively priced

• Whether buyers view substitutesas being comparable or better

• How much it costs end usersto switch to substitutes

Page 33: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Fig. 3.6: Factors Affecting Competition From Substitute Products

Page 34: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• There are many good substitutes readily available

• Substitutes are attractively priced

• The higher the quality and performance of substitutes

• The lower the end user’s switching costs

• End users grow more comfortable with using substitutes

When Is the CompetitionFrom Substitutes Stronger?

Page 35: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Whether supplier-seller relationships represent aweak or strong competitive force depends on

– Whether suppliers can exercisesufficient bargaining leverage toinfluence terms of supply in their favor

– Nature and extent of supplier-sellercollaboration in the industry

Competitive Pressures From Suppliers and Supplier-Seller Collaboration

Page 36: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Fig. 3.7: Factors Affecting Bargaining Power of Suppliers

Page 37: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Industry members incur high costs in switching their purchases to alternative suppliers

• Needed inputs are in short supply

• Supplier provides a differentiated inputthat enhances the quality of performanceof sellers’ products or is a valuable partof sellers’ production process

• There are only a few suppliers of a specific input

• Some suppliers threaten to integrate forward

When Is the BargainingPower of Suppliers Stronger?

Page 38: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Item being supplied is a commodity

• Seller switching costs to alternative suppliers are low

• Good substitutes exist or new ones emerge

• Surge in availability of supplies occurs

• Industry members account for a bigfraction of suppliers’ total sales

• Industry members threaten to integrate backward

• Seller collaboration with selected suppliers provides attractive win-win opportunities

When Is the Bargaining Power of Suppliers Weaker?

Page 39: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Sellers are forging strategic partnershipswith select suppliers to

– Reduce inventory and logistics costs

– Speed availability of next-generationcomponents

– Enhance quality of parts being supplied

– Squeeze out cost savings for both parties

• Competitive advantage potential may accrue to sellers doing the best job of managing supply-chain relationships

Competitive Pressures: Collaboration Between Sellers and Suppliers

Page 40: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Whether seller-buyer relationships represent aweak or strong competitive force depends on

– Whether buyers have sufficient bargainingleverage to influence terms of sale in their favor

– Extent and competitive importance ofseller-buyer strategic partnershipsin the industry

Competitive Pressures From Buyersand Seller-Buyer Collaboration

Page 41: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Fig. 3.8: Factors Affecting Bargaining Power of Buyers

Page 42: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Buyer switching costs to competing brands or substitutes are low• Buyers are large and can demand concessions• Large-volume purchases by buyers are important to sellers• Buyer demand is weak or declining• Only a few buyers exists• Identity of buyer adds prestige

to seller’s list of customers• Quantity and quality of information

available to buyers improves• Buyers have ability to postpone purchases until later• Buyers threaten to integrate backward

When Is the BargainingPower of Buyers Stronger?

Page 43: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Buyers purchase item infrequently or in small quantities

• Buyer switching costs to competing brands are high

• Surge in buyer demand creates a “sellers’ market”

• Seller’s brand reputation is important to buyer

• A specific seller’s product delivers qualityor performance that is very important to buyer

• Buyer collaboration with selected sellers provides attractive win-win opportunities

When Is the BargainingPower of Buyers Weaker?

Page 44: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Partnerships are an increasingly important competitive element in business-to-business relationships

• Collaboration may result inmutual benefits regarding– Just-in-time deliveries– Order processing– Electronic invoice payments– Data sharing

• Competitive advantage potential may accrue to sellers doing the best job of managing seller-buyer partnerships

Competitive Pressures: Collaboration

Between Sellers and Buyers

Page 45: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Competitive environment is unattractive fromthe standpoint of earning good profits when

– Rivalry is vigorous

– Entry barriers are lowand entry is likely

– Competition from substitutes is strong

– Suppliers and customers haveconsiderable bargaining power

Strategic Implications ofthe Five Competitive Forces

Page 46: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Competitive environment is ideal froma profit-making standpoint when

– Rivalry is moderate

– Entry barriers are highand no firm is likely to enter

– Good substitutesdo not exist

– Suppliers and customers arein a weak bargaining position

Strategic Implications of the Five Competitive Forces

Page 47: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Objective is to craft a strategy to

– Insulate firm fromcompetitive pressures

– Initiate actions to producesustainable competitive advantage

– Allow firm to be the industry’s “mover and shaker” with the “most powerful” strategy that defines thebusiness model for the industry

Coping With the Five Competitive Forces

Page 48: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Question 3: What Factors Are Driving Industry Change and What Impacts Will They Have?

• Industries change because forcesare driving industry participantsto alter their actions

• Driving forces are themajor underlying causesof changing industry andcompetitive conditions

• Where do driving forces originate?– Outer ring of macroenvironment– Inner ring of macroenvironment

Page 49: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

STEP 1: Identify forces likely to exert greatest influence over next 1 - 3 years

– Usually no more than 3 - 4 factorsqualify as real drivers of change

STEP 2: Assess impact– Are the driving forces acting to cause market demand

for product to increase or decrease?– Are the driving forces acting to make competition more

or less intense?– Will the driving forces lead to higher or lower industry

profitability? STEP 3: Determine what strategy changes are needed to

prepare for impacts of driving forces

Analyzing Driving Forces: Three Key Steps

Page 50: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Emerging new Internet capabilities and applications

• Increasing globalization of industry

• Changes in long-term industry growth rate

• Changes in who buys the product and how they use it

• Product innovation

• Technological change/process innovation

• Marketing innovation

Common Types of Driving Forces

Page 51: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Entry or exit of major firms

• Diffusion of technical knowledge

• Changes in cost and efficiency

• Consumer preferences shift from standardized to differentiated products (or vice versa)

• Changes in degree of uncertainty and risk

• Regulatory policies / government legislation

• Changing societal concerns, attitudes, and lifestyles

Common Types of Driving Forces (con’t)

Page 52: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer
Page 53: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Question 4: What Market PositionsDo Rivals Occupy?

• One technique to revealdifferent competitive positionsof industry rivals isstrategic group mapping

• A strategic group is acluster of firms in an industrywith similar competitiveapproaches and market positions

Page 54: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Firms in same strategic group have two or more competitive characteristics in common

– Have comparable product line breadth

– Sell in same price/quality range

– Emphasize same distribution channels

– Use same product attributes to appealto similar types of buyers

– Use identical technological approaches

– Offer buyers similar services

– Cover same geographic areas

Strategic Group Mapping

Page 55: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another

STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics

STEP 3: Assign firms that fall in about the same strategy space to same strategic group

STEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales

Procedure for Constructing a Strategic Group Map

Page 56: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Example: Strategic Group Map of Selected Retail Chains

Page 57: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Variables selected as axes should not be highly correlated• Variables chosen as axes should expose big differences in

how rivals compete• Variables do not have to be either quantitative or

continuous• Drawing sizes of circles proportional to combined sales of

firms in each strategic group allows map to reflect relative sizes of each strategic group

• If more than two good competitive variables can be used, several maps can be drawn

Guidelines: Strategic Group Maps

Page 58: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Interpreting Strategic Group Maps

• The closer strategic groups are on the map, the stronger the cross-group competitive rivalry tends to be

• Not all positions on the map are equally attractive

– Driving forces and competitive pressures oftenfavor some strategic groups and hurt others

– Profit potential of different strategicgroups varies due to strengths andweaknesses in each group’s market position

Page 59: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• A firm’s best strategic moves are affected by

– Current strategies of competitors

– Future actions of competitors

• Profiling key rivals involves gatheringcompetitive intelligence about

– Current strategies

– Most recent actions and public announcements

– Resource strengths and weaknesses

– Efforts being made to improve their situation

– Thinking and leadership styles of top executives

Question 5: What Strategic Moves AreRivals Likely to Make Next?

Page 60: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Sizing up strategies and competitive strengths and weaknesses of rivals involves assessing

– Which rival has the best strategy? Whichrivals appear to have weak strategies?

– Which firms are poised to gainmarket share, and which onesseen destined to lose ground?

– Which rivals are likely to rank among the industry leaders five years from now? Do any up-and-coming rivals have strategies and the resources to overtake the current industry leader?

Competitor Analysis

Page 61: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Which rivals need to increase their unit sales and market share? What strategies are rivals most likely to pursue?

• Which rivals have a strong incentive, along with resources, to make major strategic changes?

• Which rivals are good candidates to be acquired? Which rivals have the resources to acquire others?

• Which rivals are likely to enter new geographic markets?

• Which rivals are likely to expand their product offerings and enter new product segments?

Things to Consider inPredicting Moves of Rivals

Page 62: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

For Discussion: Your Opinion

Why does a company need to bother with studying competitors and trying to predict what moves rivals will make next? Why can’t it just choose whatever strategy it wants or make whatever moves in the marketplace it wishes without first worrying about what rivals are going to do?

Page 63: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• KSFs are those competitive factors most affecting every industry member’s ability to prosper

• KSFs concern– Specific strategy elements– Product attributes– Resources– Competencies– Competitive capabilities

that a company needs to be competitively successful• KSFs are attributes that spell the difference between

– Profit and loss– Competitive success or failure

Question 6: What Are the KeyFactors for Competitive Success?

Page 64: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Pinpointing KSFs involves determining

– On what basis do customers choosebetween competing brands of sellers?

– What resources and competitive capabilities does a seller need to have to be competitively successful?

– What does it take for sellers to achieve a sustainable competitive advantage?

• KSFs consist of the major determinants for success

– Rarely are there more than 5 - 6 factors that are truly key to the future financial and competitive success of industry members

Identifying Industry Key Success Factors

Page 65: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer
Page 66: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Full utilization of brewing capacity –to keep manufacturing costs low

• Strong network of wholesale distributors –to gain access to retail outlets

• Clever advertising –to induce beer drinkers tobuy a particular brand

Example: KSFs for Beer Industry

Page 67: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Example: KSFs for Apparel Manufacturing Industry

• Appealing designs andcolor combinations –

to create buyer appeal

• Low-cost manufacturingefficiency – to keep selling

prices competitive

Page 68: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Involves assessing whether the industryand competitive environment is attractiveor unattractive for earning good profits

• Under certain circumstances, a firm uniquelywell-situated in an otherwise unattractive industry can still earn unusually good profits

– Attractiveness is relative, not absolute

– Conclusions about attractiveness have to be drawn from the perspective of a particular company

Question 7: Does the Outlook for the Industry Present an Attractive Opportunity?

Page 69: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

• Industry’s market size and growth potential• Whether competitive forces are conducive to rising/falling

industry profitability• Whether industry profitability will be favorably or unfavorably

impacted by driving forces• Degree of risk and uncertainty in industry’s future• Severity of problems facing industry• Firm’s competitive position in industry vis-à-vis rivals• Firm’s potential to capitalize on

vulnerabilities of weaker rivals• Whether firm has sufficient resources to

defend against unattractive industry factors

Factors to Consider inAssessing Industry Attractiveness

Page 70: Ashesi University COURSE TITLE : COMPETITIVE STRATEGY 1 ST SEMESTER : 2011/2012 MODULE 2: Strategic Analysis: Industry and Competitor Analyses Lecturer

Core Concept: AssessingIndustry Attractiveness

The degree to which an industry is

attractive or unattractive is not the

same for all industry participants

or potential entrants.

The opportunities an industry

presents depend partly on a

company’s ability to capture them.