Strategic Management

Market Dynamics

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-1
 ETOP
Environmental Threat and Opportunity Profile
Factor Impact Importance Opportunity Threat
Regulatory 3 8 24
Competitive -2 7 -14
External Alliance 7 6 42
Internal Alliance -6 5 -30
Entrepreneurial 4 5 20
Info Highway 5 4 20
Financial 7 4 28
Social 2 3 6

In this ETOP factors are tailored and ordered as to their importance

Regulatory - tremendous opportunity to push for deregulation, led by STPI.
They have had their lesson and learned well
Competitive - AT&T, Sprint
External Alliance - solid, mutually reinforcing, long-term
Internal Alliance - source of friction and reduction of ability to react
Entrepreneurial - Stentor now much more entrepreneurial (all three elements)
Info Highway - mergers and acquisition for cable, cellular, infotainment
Financial - ability to increase leverage through debt
Social - universal access concept, downsizing, leanness all socially acceptable
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-2
ETOP: Pros and Cons

Pros Cons
• Help to determine the key • It doesn’t show the
factors of threats and interactions between factors
opportunities • It can’t reflect the dynamic
• Good tool to qualify the factors environment
related to company’s strategy • It’s a subjective analysis tool
• Can consider many factors for
each special case

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-3
 Porter Competitive Analysis
5 Forces Model of Competition

FIRMS
FIRMSIN
INOTHER
OTHER
INDUSTRIES OFFERING
INDUSTRIES OFFERING
SUBSTITUTE
SUBSTITUTEPRODUCTS
PRODUCTS

RIVALRY
RIVALRY
SUPPLIERS AMONG
AMONG BUYERS
SUPPLIERS COMPETING BUYERS
COMPETING
SELLERS
SELLERS

POTENTIAL
POTENTIAL
NEW
NEWENTRANTS
ENTRANTS

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-4
 Porter Analysis
Substitutes
Substitutes

Suppliers
Suppliers Market Customers
Customers
Market

New
NewEntrants
Entrants

Horizontal Forces ÍÎ mature markets

Vertical Forces ÍÎ growth markets
Vertical and Horizontal ÍÎ competitive and changing markets

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-5
Porter Competitive Analysis - Wal-Mart

Discount
DiscountRetailing
Retailing

New Entrants

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-6
 Porter: NTI
Sat.
Sat.Tech.
Tech.

Telephone or
Multimedia cost?
Suppliers AT&T Baby
Suppliers AT&T
NTI BabyBells
Bells
NTI

Siemens Low cost producer

Siemens
NEC
NEC Financial strength

Growth market
Price focus of customers - close to maturity
Strategic Factors: Flexibility, enhancement, uniqueness (product/service
combination), combine with GVA, new Porter needed?

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-7
Porter’s Five Forces: Pros and Cons

Pros Cons
• It’s a good tool to identify the clear • It often produces the same
competitive environment and the recommendations for similar
relationship for the five market forces organizations
• It is an useful analysis model for the • It assumes relatively static
new entrants and the existing market structures.
competitor inside the market • It provides a good framework
• It helps the company design for analysis but does not really
competitive strategies and make right consider issues around
decisions implementing changes to
• It surfaces the inverse relationship reposition for strategic
between profit margin or returns and advantage.
the intensity of competition • It can’t show how a company
• It provides useful inputs for performing performed relative to its
other analysis competitors

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-8
 Porter Competitive Analysis - Wal-Mart

Potential rate of growth in industry

Ease of entry of new firms into industry
Intensity of competition among firms
Degree of product suitability
Degree of dependency on compl. Or supporting prod & srvcs
Degree of bargaining power buyers and customers possess
Degree of bargaining power suppliers and vendors possess
Degree of technological sophistication in industry
Rate of innovation in industry
General level of management capability
0 1 2 3 4 5 6 7 8

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-9
 Competitive Environment Analysis

1. Potential rate of growth of industry (in real terms)

0-3% ___ 3-6% ___ 6-9 % ___ 9-12% ___ 12-15% ___ 15-18% ___ 18-21% ___ >21% ___

2. Ease of entry of new firms into industry

No barriers- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Virtually impossible to enter

3.Intensity of competition among firms

Extemely competitive- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Almost no competition

4. Degree of product substitutability

Many substitutes available- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -No substitutes

5. Degree of dependency on complementary or supporting products and services

Highly dependent-___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Virtually independent

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-10
 Competitive Environment Analysis

6. Degree of bargaining power buyers and customers possess

Buyers dictate terms- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Selling firms dictate terms

7. Degree of bargaining power suppliers and vendors possess

Suppliers dictate terms- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Buying firms dictate terms

8. Degree of technological sophistication in industry

High-level technology- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Very low-level technology

9. Rate of innovation in industry

Rapid innovation- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Almost no innovation

10. General levels of management capability

Many very capable managers- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Very few capable
managers

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-11
 Competitive Sustainability Analysis

Class Product

Class 1 - Slow Cycle Resources Marlboro’s

KSF: nurturing of protected market,
defending and building the brand
Class 2 - Standard Cycle Resources Lesser Brands
KSF: Economies of Scale
Market share/control
Building product loyalty
introducing new products to attack leader’s brand
Class 3 - Fast Cycle Resources Financial Products
KSF: market timing and intelligence

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-12
 Strategic Map - Industry

High
Price Club
Diversification

Wal-Mart

K-Mart

Sears
Low
Low High
Competitive Capability

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-13
 Strategic Map - Industry
AECL - CANDU

High Westinghouse
$288M General Electric
Siemens $4,303M
Diversification

$1,792M

Framatome ABB
$984M $590M
AECL

Low
Low High
Competitive Capability

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-14
 Porter’s Diamond
Determinants of National Advantage
Firm, Strategy,
Structure, and
Rivalry

Factor Demand
Conditions Conditions

Related and
Wal-Mart Supporting
Industries

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-15
 Industry Value Chain

PC Industry
Intel PC Makers Microsoft
Chips Hardware Software

Value captured by each player

•value captured by neighbours influence competitive
dynamics of PC makers
•Intel & Microsoft capture high % of value
•PC makers are squeezed and are forced to compete on
volume because of low margins
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-16
 Economies of ‘S’
• Scale (inputs,throughput, outputs)
• Scope (production, technology, marketing, channels, core,
competencies/capabilities)
• Strength (relative market share, branding power, shelf power)
• Structure (market/product linkages,decision flow, value chain
management)
• Speed (response time to market, product cycle time rate of
technology absorption)
• Strategy (optimal/minimal changes, Strategic design criteria)
• Synergy (association with clusters, joint ventures, strategic
alliances, coopetition)
• Span (ability to focus on business: functional similarity,
geographic dispersion, functional complexity,
need for direction, need for coordination, planning
demands, managerial help)
• Sales (learning curve, experience curve)
• State (organizational / product / production lifecycle)
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-17
 Economies of ‘S’
Market Phase

Economy (input based, budgets)

Organization Effectiveness Administration

(output based) Mgr
Entrepreneur Efficiency (throughput based)

Market Push (cost leader)

Mature
Market Pull
Market Phase (focus) Competitive

Intro Market Test (differentiation)

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-18
 Key Success Factors - Giant Tiger

Niche market: Good value for $

Distribution channel cross docking
Good financial position
Flexible experienced buyers
Main street locations
Franchisee relationship

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-19
 Key Success Factors - Cross Keys
Key Success Factors Measures
Corporate credibility: Trade show recognition, speaking
invites, # of RFP’s
Technological reputation: Quality/reliability/performance
Market Share: Revenue growth, # RFP’s
Company morale: Turnover, employee interaction
Recruiting effectiveness: Average # of ongoing vacancies, #
of qualified applicants per vacancy
Productivity: Revenue per employee
Sales effectiveness: Contracts signed per # RFP’s
answered
Marketing effectiveness: Sales team approval, # of leads
Growth management: Turnover, recruiting, productivity,
employee morale

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-20
Critical Success Factors - Maclaren Industries

•Quality of product and service

•Ability to compete based on price in weak
markets
•Ability to meet the customer’s recycled content
requirement

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-21
 Key Success Factors - Mitel

zDynamic product base

ƒInnovation
ƒAddress segmentation
zExcellent service
zDistribution
ƒBe on the short list of suppliers for major customers
ƒEach segment with appropriate channels
zEconomic value

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-22