Chapter 2 Worksheet

Chapter 3 Worksheet

The concepts in this worksheet correspond directly with the text. If you do not understand the concept or need to refresh your memory, please refer to the text.

The purpose of the external analysis is to identify opportunities and threats for the industry you are analyzing. Do not focus on the company under analysis. Focus on the industry in which the company competes. Make sure your analysis of the facts leads to a logical determination of specific opportunities and threats associated with the criterion you are analyzing. Consider each criterion from a strategic perspective. Use the scientific method (data, analysis of the data (cause and effect logic) that leads to conclusions (opportunities or threats). State the specific nature of the opportunity or threat to strengthen your analysis and help you with your subsequent SWOT analysis.

Follow the quality of writing tips (e.g. expressions, word to avoid) listed on the back side of the memo grading rubric.

Refer to the examples of prior case analyses provided on the web site to assist you with understanding the desired quality of analysis and statement of opportunities and threats.

Question 1: What are the strategically relevant factors in the macro-environment (PESTEL analysis)

Criteria

Facts

Analysis

Conclusions

The economy at large

(Address the economic conditions during the timeframe of the case.)

Legislative, regulatory and political environments

Socio-cultural factors

(Factors include societal values, attitudes, cultural factors and lifestyles. Population demographics analysis relies on developing various categories of the population and analyzing their impact on the industry. Typical categories include gender, age, education level, geographic location, income, life stage, household size, occupation, and race. In addition to population demographics, this type of categorization includes geographic segmentation (region, city or country size, density), benefit segmentation (comfort, convenience, durability, health, luxury, safety, status), and volume segmentation (usage, loyalty status). Marketing is the usual company source for these types of analysis.)

Technological forces

(Technological forces include the type and pace of change.)

Environment forces

(Includes ecological and environmental forces such as weather, climate, climate change, availability of water, the impact on food production.)

2. What is competition like and how strong are the competitive forces?

Criteria

Facts

Analysis

Conclusions

RIVALRY

Under this heading you are supposed to address how the criterion affects the rivalry between the competitors. When rivalry increases, it generally is a threat to the industry. When the rivalry decreases, it generally is an opportunity for the industry.

How many competitors are there in this industry?

What is the relative size (market share based on their percentage of industry sales) of each competitor?

What is the industry concentration ratio (C4)?

Top 4 companys sales Industry sales

What is the product or service demand growth rate? (Use the industrys total sales over multiple years to determine the industry growth rate. Use the rivals sales over multiple years to determine individual growth rate.)

Are rivals using price cuts or other competitive weapons (Refer to table 3.2) to boost unit volume?

Are the customer's switching costs low?

Are rivals launching moves to change their market share or industry position at the expense of other industry participants?

What are the payoffs for strategic moves?

Does it cost more to exit the industry than to continue participation?

How consistent are rivals strategic visions, strategic intents, objectives, strategies, resources and origins?

The greater the consistency, the more likely there is increased rivalry.

Are strong new entrants acquiring weaker rivals and launching well-funded, aggressive moves?

THREAT OF ENTRY

Under the heading of new entrants, your analysis should lead you to conclude that new entrants are likely or unlikely to challenge the existing firms in the industry. Therefore, new entrants are likely (threat) or unlikely (opportunity) to pose an opportunity or threat to the existing firms in the industry.

What economies of scale exist in each of the following areas:

Production

Purchasing

Inbound and outbound logistics

Advertising

Financing

Customer service

Raw materials

R&D

Other steps in the value chain?

(Please note that synergies across the value chains of related diversified corporations also constitute economies of scale.)

Cost and resource disadvantages independent of economies of scale

What are the learning curve and experience effects to enter the industry?

Inability to match the technology and specialized know-how of firms already in the industry. How accessible is the industry's technology?

Brand preferences and customer loyalty

How strong are the network effects in customer demand? (e.g. compatibility with other users hardware and software)

What are the capital requirements to enter?

What other resource requirements are necessary to enter?

Ability to build a network of distributors or retailers and securing adequate shelf space

What regulatory policies apply?

What tariffs and trade restrictions apply?

Ability or inclination of the industrys incumbents to launch vigorous initiatives

SUBSTITUTES

Under the heading of substitutes, your analysis should lead you to conclude that substitutes are likely or unlikely to challenge the existing products the industry produces. Therefore, substitutes are likely (threat) or unlikely (opportunity) to pose an opportunity or threat to the existing firms in the industry.

What is the availability of attractively priced substitutes?

Do buyers view the substitutes as being comparable or better in terms of quality?

Do buyers view the substitutes as being comparable or better in terms of performance?

Do buyers view the substitutes as being comparable or better in terms of _______ (You fill in the attribute or attributes that are specific to the product or service.)?

Can buyers easily switch to the substitutes?

SUPPLIERS

Please note, this section applies to the companies that supply the industry under analysis.

Is the item or service a commodity available on the open market from many suppliers who are capable of filling the order?

Are there only a few large suppliers to the industry?

Is it difficult or costly to switch from one supplier to another or to switch to attractively priced substitutes?

Are needed inputs in short supply?

Do certain suppliers provide a differentiated input that enhances the performance or quality of the industrys products?

Do certain suppliers provide equipment or services that deliver valuable cost saving efficiencies to industry members in operating their production processes?

Do suppliers provide an item that accounts for a sizable fraction of the costs of the industrys products?

Are the industry members major customers of suppliers?

Does an outside supplier provide a cost advantage over vertical integration?

Does an outside supplier provide other advantages over vertical integration?

What types of working relationships exist? Start by listing the types of working relationships that exist. Then, focus on the strategic importance of relationships with suppliers in this industry. Are these relationships of strategic value for the competitors in the industry? If so, why and how do the relationships impact the competitive structure and environment of the industry?

BUYERS

Please note, this section applies to the companies that purchase goods or services from the industry under analysis. Buyers include any purchaser downstream from the industry.

What is the cost to the buyer of switching to a competitor or a substitute?

How many buyers are there in this industry?

What is the relative size (based on the amount they purchase) of each buyer?

What is the buyer's knowledge level?

Can the buyers threaten the industry with backward integration?

Are the industry's products discretionary purchases?

3.

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Crafting and Executing Strategy: The Quest for Competitive Advantage, McGraw-Hill. NY. 19th Edition

Chapter 3 Worksheet

3. What factors (and how are they) causing the industry's competitive structure and business environment to change?

Criteria

Facts

Analysis

Conclusions

Long term industry growth rate

Increasing globalization of the industry

Emerging internet and new e-commerce capabilities and applications

Who buys the product and how do they use it

Product innovation

Technological change

Manufacturing process innovation

Product and Marketing innovation

Entry of major firms

Exit of major firms

Diffusion of technical know-how across companies and countries

Changes in cost and efficiency

Reductions in uncertainty and business risk

Regulatory and government policy changes

Societal concerns, attitudes and lifestyle changes

4. What market positions do industry rivals occupy and which companies are in the strongest/weakest positions?

High

PriceMedium

Low

narrowbroad

market scope

Develop additional strategic group maps using additional criteria such as quality, image, value added, resources available, or competitive advantages. Price, quality and image are not the only factors that you can use for developing strategic group maps to determine which companies are in the strongest and weakest positions. You will probably find that some companies are stronger on some dimensions while weaker on others.

Determine the opportunities and threats arising from the application of this tool (pages 89-90). Do the industry driving forces and competitive pressures favor some strategic groups and hurt others? Does the profit potential of different strategic groups vary due to the strengths and weaknesses in each group's market position?

5. What strategic moves are rivals likely to make next?

List the competitors

What are the competitors current strategies? Which is the best suited for the driving forces? Which strategies are weak or flawed?

What are the competitors current objectives? What is the extent to which each rival is meeting its objectives?

What are the competitors capabilities (current and in development)? How well do these capabilities enable them to perform in the market, pursue opportunities and defend against threats?

What key assumptions underlie each competitors strategy about itself, its rivals, market forces and macro-environmental forces?

6. What are the key factors for competitive success (in this industry)?

How does each competitor fare on each success factor? To use this tool, start by determining which of the KSFs apply. Then provide your justification for choosing these KSFs. Generally, there are less than ten (10) KSFs applicable to an industry. Then assess each of the industry competitor's capabilities for the KSF. Please note there is space provided for three competitors. You should add the number of columns necessary to evaluate all of the competitors in an industry. You should also add industry specific KSFs when they apply.

Competitor

Competitor

Competitor

You can provide your justification for selecting the KSFs underneath the KSF.

What is their capability for this factor?

Analysis and conclusions

What is their capability for this factor?

Analysis and conclusions

What is their capability for this factor?

Analysis and conclusions

Technology related KSFs

Scientific research and expertise

Technical capability to make innovative improvements in production processes

Product innovation quality

Expertise in a given technology

Internet expertise

Manufacturing (production of the product or service) related KSFs

Low-cost production efficiency

Manufacturing quality

High fixed asset utilization

Low cost plant locations

Access to adequate supplies of skilled labor

High labor productivity

Low cost product (service) design and engineering

Manufacturing flexibility

Distribution related KSFs

(Note: This applies to inbound and outbound logistics.)

Network strength

Electronic (Internet) tracking

Ample space on retailer's shelves

Company owned retail outlets

Low distribution costs

Speed of distribution

Marketing related KSFs

Fast, accurate technical service

Customer service

Accurate buyer order filling

Breadth of product line and selection

Merchandising skills

Attractive styling/packaging

Guarantees and warranties

Advertising

Skills related KSFs

Workforce talent

Quality control know-how

Design expertise

Expertise in a particular technology

Ability to develop innovative products and product improvements

Speed of getting new products to market

Organizational capability KSFs

Superior information systems

Ability to respond quickly to shifting market conditions

Use of the Internet and Enterprise Information systems

Overall experience

Managerial know-how

Other KSFs

Image and reputation

Overall low cost

Convenient retail locations

Pleasant employees in all customer contact positions

Access to financial capital

Patent protection

Others?

7. Is this industry attractive and what are its prospects for above-average profitability?

Criteria

Facts

Analysis

Conclusions

How is the company impacted by the macro-environment?

Does competition permit adequate profit potential?

Will the prevailing driving forces positively or negatively impact profit potential?

What are the future uncertainties and risks for this industry?

How severe are the problems (e.g. regulatory, environmental, buyer demand, capacity, increased competition) the industry faces?

What is the company's relative competitive potential in this industry?

What is the company's ability to capitalize on its competitor's weaknesses?

Can the company defend against or is it insulated from the factors that make this industry unattractive?

How well do the company's capabilities match the industry's KSFs?