COMPETITIVE STRATEGY

- Dolly Dhamodiwala

UNDERSTANDING COMPETITION IN MY

INDUSTRY• What is driving Competition in my

Industry?• What Actions are Competitors likely to

take?• What is the best way to respond?• How will my Industry evolve?• How can my firm be best positioned to

compete in the long run?

FRAMEWORK FOR ANALYZING THE STRUCTURE

OF INDUSTRY• What are the Competitive Forces acting on

an Industry?• What are the Implications of these Forces?• What are the techniques for Analyzing

Competitors and their Moves?

WHEEL OF COMPETITIVE STRATEGY

Product Line

Finance &Control

R & D

Purchasing

Labor

Mfging

Distribution

Sales

Marketing

Target Markets

GOALS

Competitive Strategy is a combination of the Ends (Goals) for which the firm is striving and the Means (Policies) by which is it seeking to get there

GOALS form the hub of the wheelThe objectives of the firm- profitability, growth in sales, market share, social responsiveness, etc.

The SPOKES of the wheel are the policies which radiate from and reflect the goals

WHEEL OF COMPETITIVE STRATEGY

FACTORS DETERMINING COMPETITIVE STRATEGY

COMPETITIVE STRATEGY

STRENGTHS&

WEAKNESSES

PERSONAL VALUES

BROADERSOCIETAL

EXPECTATIONS

OPPORTUNITIES&

THREATS

Factors

Internal

to the

Company

Factors

External

to the

Company

Internal Factors– Company’s Strengths & Weaknesses

• Its Assets & Skills relative to Competitors• Financial Resources• Technological Posture• Brand Identification

– Personal Values of the Organization• Motivation & Needs of Key Executives and

other Personnel

FACTORS DETERMINING COMPETITIVE STRATEGY

External Factors– Industry Opportunities & Threats

• Competitive Environment• Its Risks and Potential Rewards

– Societal Expectations• Impact of Government Policies• Impact of Social Concerns

FACTORS DETERMINING COMPETITIVE STRATEGY

UNDERSTANDING 5 FORCES DRIVING INDUSTRY

COMPETITION• Essence of formulating a Competitive

Strategy is relating a company to its environment

• The environment for a company is the industry in which it operates

• Competition in industry depends on 5 basic forces

• Collective strength of these forces determines the profit potential in the industry

• Profit is determined by long term return on invested capital

• Effective competitive strategy involves finding an ideal position in the industry where the company can best defend against these forces or influence them in its favor

UNDERSTANDING 5 FORCES DRIVING INDUSTRY

COMPETITION

INDUSTRY COMPETITORS

Rivalry among existing firms

SUPPLIERS

POTENTIALENTRANTS

SUBSTITUES

BUYERS

Threat of new entrants

Bargaining power

of buyers

Bargaining power

of suppliers

Threat of new substitute products & services

All 5 forces jointly determine the intensity of industry competition

Assessing these forces helps in: • Understanding strengths & weaknesses of

the company• Identifying areas where strategic changes

yield greatest payoff• Highlighting areas where industry trends

promise to hold greatest significance as opportunities or threats

• Considering areas for diversification

UNDERSTANDING 5 FORCES DRIVING INDUSTRY

COMPETITION

Threat of new entrants depends on :• Economies of Scale• Product Differentiation• Capital Requirements• Switching Costs• Access to Distribution Channels• Cost Disadvantages independent of

Scale• Government Policy• Expected Retaliation• Entry deterring Price

THREAT OF NEW ENTRANTS

Intensity of rivalry among existing competitors depends on:

• Numerous or few equally balanced competitors

• Slow industrial growth• High fixed or storage costs• Lack of product differentiation• Over capacity• Diverse competitors• High strategic stakes• High exit barriers

RIVALRY AMONG EXISTING COMPETITORS

• Substitutes limit the potential returns of an industry in terms of profits

• Substitutes limit the ability of the company to charge higher prices

• It is crucial to identify substitute products that can perform same or similar functions

THREAT OF NEW SUBSTITUTES

Bargaining Power of Buyers depends on :

• Large volumes of purchases relative to sellers’ sales

• Products purchased represent a substantial proportion of the buyers’ overall purchasing costs

• Products purchased are standard or undifferentiated

• Switching costs are low• Buyers’ profits are low

BARGAINING POWER OF BUYERS

• Buyers pose a credible threat of backward integration

• Products purchased are not critically important to the quality of the final products

• Buyers are knowledgeable about demand, market price & supply costs

• Retailers can influence the purchasers• Government policies are in favor of buyers

BARGAINING POWER OF BUYERS

A supplier group is powerful if:

• It is dominated by a few companies• Competition from substitutes is marginal• The buyer groups are not critical customers

of suppliers• Inputs supplied are critical to the buyers• Suppliers’ products are differentiated and

have high switching costs• Suppliers pose threats of forward

integration• Government policies favor suppliers

BARGAINING POWER OF SUPPLIERS

EFFECTIVE COMPETITIVE STRATEGY

Competitive strategy must place the firm in a defendable position against all the five forcesThis entails:

Positioning the firm in the best defense or most favorable position i.e. matching company’s strengths and weaknesses to the structure of the industry

Influencing the balance of forces through strategic moves – altering the forces through innovative marketing and production techniques

Anticipating shifts in the factors affecting the forces and responding to them - responding effectively to changes in growth rates, vertical integration, maturity of markets, etc.

GENERIC COMPETITIVE STRATEGIES

Creating a defendable position in the industry means coping effectively with the five competitive forcesThree approaches to successful competitive strategy ;Overall cost leadership – Low cost relative to competitorsProduct differentiation – through innovative technologies, design or brand imageFocus – Serving a particular target market, geographical location or product line more effectively than competitors