Diane M. Sullivan (2008)

New Venture Creation and an Industry Structures

&

Competitor Analysis

Industry StructuresIndustry Structures

An industry’s structure indicates the stage of an industry its life cycleAn industry’s structure indicates the stage of an industry its life cycle

Suggests types of firms that will likely be successful in the industrySuggests types of firms that will likely be successful in the industry

Helps us determine if the window of opportunity is open for new entrantsHelps us determine if the window of opportunity is open for new entrants

Suggests strategic moves that new entrants or existing firms can take to capitalize Suggests strategic moves that new entrants or existing firms can take to capitalize on opportunities created as a result of industry characteristicson opportunities created as a result of industry characteristics

5 general structures an industry can take (these are not mutually exclusive):5 general structures an industry can take (these are not mutually exclusive):

1.1. EmergingEmerging

2.2. FragmentedFragmented

3.3. MatureMature

4.4. DecliningDeclining

5.5. GlobalGlobal

Industry Structures: EmergingIndustry Structures: Emerging Indicated by: Newly created or re-created industries

Primary causes: technological innovations, changes in demand, the emergence of new customer needs, etc.

Examples: microprocessors, digital music, cell phones, biotechnology

Entrepreneurial opportunities present in emerging industries:

Gain a first-mover advantages via:

Technology leadership: can create the technology standard (e.g., Microsoft), gain low-cost position due to economies of scale (Wal-Mart), obtain patent protection

Caution: second-mover advantages may occur where imitators can duplicate the first movers’ patents—research shows imitators can do this for 65% of the cost of the first-mover

Strategically valuable assets (e.g., required resources to compete in industry): access to raw materials (e.g., mining industries), favorable geographic locations (Wal-Mart in medium-sized cities before competition), valuable product market positions (breakfast manufacturers; luxury vehicles)

Create customer switching costs: create a cost for customers to change to another firm’s offerings (e.g., software, pharmaceuticals, even some grocery stores)

Industry Structures: FragmentedIndustry Structures: Fragmented Indicated by:

A large number of small to SME firms in the industry

No one has dominant market share

No one creates a dominant technology

Primary causes: few barriers to entry, no economies of scale, may need close local control over enterprises to ensure quality

Examples: service industries like retailing, commercial printing, dry cleaning, local movie houses

Entrepreneurial opportunities present in fragmented industries:

Consolidation: firms can consolidate (e.g., purchase firms) the industry to move create a smaller number of larger firms

Examples: Blockbuster consolidated the video rental industry

Service Corporation International (SCI) in the funeral industry (found new economies of scale)

Midas has consolidated muffler repair shops

Industry Structures: MatureIndustry Structures: Mature Indicated by:

Slowing industry growth

Development of repeat customers

Slowing of production capacity

Slowdown in new product/service introductions

Increased international competition

Overall reduction in profitability of firms in industry

Primary causes: technology diffusion, reduction in innovation rate

Examples: fast food; motor oil, large discount retailers; laundry detergents, kitchen appliances

Entrepreneurial opportunities present in mature industries:

Product refinement: focus on extending/improving current products and technologies (e.g., additives to motor oil, more concentrated laundry detergents; front-loading washing machines; Silk Soymilk)

Investment in service quality: increase customer service quality (e.g., restaurant industry and the casual dining segment—Applebee's; Chili's—versus fast-food service)

Process Innovations: activities used to design, product and sell products/services (e.g., US automobile industry; Dell and supply-chain management in PC industry)

Industry Structures: DecliningIndustry Structures: DecliningIndicated by: An industry that has experienced an absolute

decline in unit sales over a sustained period of time.

Examples: Traditional video rental industry; US defense industry after the Cold War in the 1980s

Entrepreneurial opportunities present in declining industries:

Market Leadership: wait out shakeout period; facilitate shakeout by purchasing competitors’ product lines, then try to gain majority of market share (e.g., Martin Marietta in defense industry acquiring GE’s aerospace business—then merged with Lockheed to become Lockheed Martin)

Market Niche: reduce scope of operations and focus on narrow segments in industry (e.g., Polaroid with instant photography)

Cost Reduction: reduce operating costs to remain competitive

Harvest or Divestment: withdrawal from industry after industry decline pattern is established so no additional costs incurred (e.g., can sell product lines to competitors)

Industry Structures: GlobalIndustry Structures: GlobalIndicated by: industry experiencing significant international sales

Examples: athletic shoes; internet auctions; fast food

Entrepreneurial opportunities present in global industries:

Pursue Multidomestic Strategy: customize product/service offerings per each market’s specific needs/wants (fast food; eBay)

Pursue Global Strategy: approach each market with the same offerings (e.g., Nike)

Determine which strategy appropriate by similarity of consumers’ tastes across markets

Industry Structures: Assignment RequirementsIndustry Structures: Assignment Requirements

Determine the structure of the industry within which your firm will compete

Discuss if your firm capitalizes on opportunities present within that type of industry Describe how and/or if your firm capitalizes on the opportunities that are

presented as a consequence of the structure of the industry If your firm does not, discuss if can you modify your approach to launching

the venture so that you can more likely capitalize on the opportunity(ies) presented?

If the venture cannot be modified to capitalize on these opportunities, discuss if it is not timely to enter this market?

Competitor AnalysisCompetitor Analysis

Involves a detailed analysis of a firm’s competition and Involves a detailed analysis of a firm’s competition and is conducted tois conducted to

Understand the positions of major competitorsUnderstand the positions of major competitors

Understand opportunities for a competitive advantageUnderstand opportunities for a competitive advantage

Identify trouble-spots for the new ventureIdentify trouble-spots for the new venture

3 Main Steps:3 Main Steps:

1.1. Identify competitorsIdentify competitors

2.2. Collect competitive intelligenceCollect competitive intelligence

3.3. Complete and interpret a Competitive Analysis Grid (CAD)Complete and interpret a Competitive Analysis Grid (CAD)

Step 1: Identifying CompetitorsStep 1: Identifying Competitors

Determine who the competition isDetermine who the competition is

Requires understanding what “business” your are in (e.g., Requires understanding what “business” your are in (e.g., problems/needs your business fulfills for customers)problems/needs your business fulfills for customers)

Example 1: 1-800-flowers is in the flower Example 1: 1-800-flowers is in the flower and and gift businessgift business

Question: What business is eBay in?Question: What business is eBay in?

Types of Competitors:Types of Competitors:

Direct CompetitorsDirect Competitors: firms that offer identical offerings: firms that offer identical offerings

Indirect CompetitorsIndirect Competitors: firms that offer substitutes: firms that offer substitutes

Future CompetitorsFuture Competitors: firms positioned to enter the industry: firms positioned to enter the industry

Step 2: Competitive IntelligenceStep 2: Competitive Intelligence

Competitive intelligence (CI) is information gathered Competitive intelligence (CI) is information gathered about competitorsabout competitors

Sources of CI must be reliableSources of CI must be reliable Annual reports for publically traded companies on company Annual reports for publically traded companies on company

websites and on the SEC website (www.sec.gov)websites and on the SEC website (www.sec.gov) ConferencesConferences Industry-related booksIndustry-related books Customers informationCustomers information Purchasing competitors offeringsPurchasing competitors offerings Competitors’ websitesCompetitors’ websites

Step 3: Competitive Analysis Grid (CAD)Step 3: Competitive Analysis Grid (CAD) Firm Name

Key Success Factors

Pitchmeasure (new venture under study)

Nike Adidas Rawlings

Baseball Technological Sophistication

Technologically Advanced Baseball

N/A N/A Quality Baseballs

Brand-nameRecognition

Not Existent High High High

Compatibility ofProducts with

Popular Technology Platforms

Compatible with Laptops, PDA’s, PCs

N/A N/A N/A

Nature/Efficiency of Logistical Distribution

FedEx will DistributeProducts

Efficient GlobalDistribution

Efficient GlobalDistribution

Efficient GlobalDistribution

Number of Distribution Channels Accessed

Few All All Most

Quality ofProducts

High High High High

Price High Varies Varies Low

Marketing Support Low Marketing BudgetHighly Funded

Marketing EffortsHighly Funded

Marketing EffortsModerately FundedMarketing Efforts

Quality ofCustomer Service

High Moderate/High Moderate/High Moderate/High

• N/A = that company does not offer/address this component.• Green cells = areas where Pitchmeasure has an advantage—could be a source of a competitive advantage. • Red cells = areas where Pitchmeasure has a disadvantage.• Cells not highlighted = areas where Pitchmeasure at a competitive parity.

Competitor Analysis: Assignment RequirementsCompetitor Analysis: Assignment Requirements

Identify and discuss the main direct and indirect Identify and discuss the main direct and indirect competitors for your firmcompetitors for your firm

Describe their main characteristics (e.g., size, offerings, Describe their main characteristics (e.g., size, offerings, position in the industry, notable characteristics, etc.)position in the industry, notable characteristics, etc.)

Construct a CAD to assess your firm relative to Construct a CAD to assess your firm relative to competitorscompetitors

Discuss firm attributes that are especially favorableDiscuss firm attributes that are especially favorable

Discuss the implications of thisDiscuss the implications of this

Discuss firm attributes that are particularly problematicDiscuss firm attributes that are particularly problematic

Discuss the implications of thisDiscuss the implications of this