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Industry & Competitive Analysis - Lecture 3

Industry & Competitive Analysis - Lecture 3

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Lecture: 3
Industry & Competitive Analysis
Crafting strategy needs solid analysis of a company\u2019s\u2019 external & internal situation. Two most
important situational considerations are :
Industry and competitive conditions
Company\u2019s own competitive capabilities, resources, strengths, weaknesses, and market

Industry & competitive analysis refers to assessing the most strategically relevant aspects of a single business company\u2019s macro environment. Accurate diagnosis of the company\u2019s situation is a necessary managerial preparation for deciding on a sound long term direction, setting appropriate objectives and crafting a winning strategy.

Strategic thinking & analysis to lead good strategic thinking
Ist step:Method of Industry and Competitive analysis:
2nd step: Companys\u2019 own situation:
3rd step : What strategic options does the company realistically have?
4th step: What is the best strategy?
Ist step: Method of Industry and Competitive analysis:
1. Overview of industry\u2019s dominating economic feature.
2.Discovering the main sources of competitive pressure & strengths of the competitive forces.
3.Identifying the driving forces (causes of changes in the industry\u2019s competitive structure and
business environment).
4.Studying the market position of the rival companies (strongest or weakest position)
5. Monitoring competitor\u2019s strategic moves.
6.Identifying the industry\u2019s key success factors.
7. Assessing the industry\u2019s overall attractiveness and profitability prospects.
The collective answers to these questions build understanding of a firm\u2019s surrounding environment
and form the basis for matching strategy to changing industry conditions and competitive forces.
2nd Step: Companys\u2019 own situation:
1.How well is the company\u2019s present strategy working?

2. What are the company\u2019s resource strengths and weakness and its opportunities and threats?
3. Is the company\u2019s cost competitive with rivals?
4. How strong is the company\u2019s competitive position?
5. What strategic issues need to be addressed?

3rd step:
1. What strategic options does the company realistically have?
2.Is it locked into improving the present strategy or is there any room to make major strategy
4th Step: What is the best strategy?

1. Does it have good fit with the company\u2019s situation?
2. Will it help build a competitive advantage?
3. Will it help improve company performance?

Details of the Steps for Industry & Competitive Analysis.
\u25ba Dominant Economic Characteristics of Industry:
Market size
Competitive rivalry (local, national, international, global)
Market growth & position in the business
Number of rivals & relative size and strength
Number of buyers and size
Backward & forward integration of the rivals.
Distribution channels.
Pace of technological change
Highly differentiated or weakly differentiated products.
10.Economies of scales in purchasing, manufacturing, transportation, marketing etc.
11. Placement of industries in a particular situation.
12.Capacity utilization rate.
13.Capital requirement and entry / exit barriers
14. Industry profitability
\u25ba How strong are each of the competitive forces:
Five forces model of competition by Michael E Porter

1. The rivalry among competiting sellers in the industry
2. The potential entry of new competitors
3. Attempts to win customers for substituted products by companies
4. Competitive pressure generated from supplier-seller collaboration & bargaining.
5. Competitive pressure generated from seller-buyer collaboration & bargaining.

(See Text book page: 81)
Five Forces Model of Competition (In details)
1. Rivalry among competing seller
Rivalry increases:
As the number of competitors increase & becomes more equal in size.
When demand of the product is growing slowly
When there is price cut or other weapons to boost sales volume
When customers cost to switch brand is low.
When payoff is positive from a successful strategy
When cost is more to get out of business than to stay in business.
When unrealted diversification move by a company appears to be very strong to takeover
lead in that particular industry.
2. Potential entry of new competitors:
A barrier to entry prevails whenever it is hard for a newcomer to break into the market. There are
several types of entry barrier as follows:
Economics of scale
Cost and resource disadvantages independent of size
Learning and experience curve effects
Inability to match the technology & specialized know-how of existing firms
Brand preference & customer loyalty
Capital requirement
Access to distribution channels
Regulatory policies
Tariffs and international trade restrictions
3. Competitive pressure from the substituted products
(Ex: The sugar industry competes with companies producing artificial sweeteners.)
Depend on three factors:
Whether attractively priced substitutes are available.
When substitutes are viewed as having satisfactory performance.
Whether buyers can switch to substitutes easily.
4. Competitive pressure generated from supplier-seller collaboration & bargaining.
Depends on:
How supplier bargaining power can create competitive forces
How collaborative partnerships between sellers and suppliers can create competitive forces.
5. Competitive pressure generated from seller-buyer collaboration & bargaining.
Depends on :
How buyers\u2019 bargaining power can create competitive pressures.
How collaborative partnerships between sellers and buyers can create competitive pressure.
Strategic Implications of the Five Competitive Force Model:
The model is a powerful tool for competitive insight of the strategy makers.
The stronger the collective impact of competitive forces, the lower the combined profitability
of participant firms.
When forces are not collectively strong, the industry is \u201cfavourable\u201d or \u201cattractive\u201d for
earning superior profit.
Startegies should be crafted that shield the firm as much as possible from competitive forces.
\u25ba Identifying the driving Forces:
Other than life-cycle stage of an industry, the following are the \u201cdriving forces\u201d to bring changes in
the industry:
The internet & e-commerce opportunities
Increasing the globalization of the industry
Changes in the long-term industry growth rate
Changes in who buys the product & how they use it

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