EXTERNAL ANALYSIS (INDUSTRY AND COMPETITION

)
Payne (3)
“Analysis is the critical starting point of strategic thinking.”
Kenichi Ohmae
1

Environmental Analysis Levels
EXTERNAL

or

Macro Level
Economic

MACROENVIRONMENT
Demographic

Industry Level Firm
Connect Connect

Suppliers Global Customers Technological

Competitors Social

and competitive conditions (opportunities and threats)
INTERNAL Its

Industry

Substitutes Political/Legal

or MICROENVIRONMENT competencies, capabilities, resources, and competitiveness (strengths and weaknesses) 2

Macro Environment (1)
q

Socio-cultural segment
     

Women in the workplace Workforce diversity Attitudes about quality of worklife Concerns about environment Shifts in work and career preferences Shifts in product and service preferences

q

Political/Legal Segment
    

Antitrust laws Taxation laws Deregulation philosophies Labor training laws Educational philosophies and policies
3

Macro Environment (2)
q

Economic segment
      

Inflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product Product innovations Applications of knowledge Focus of private and government-supported R&D expenditures New communication technologies

q

Technological Segment
   

4

Macro Environment (3) q Global Segment     Important political events Critical global markets Newly industrialize countries Different cultural and institutional attributes q Demographic      Population size Age structure Geographic distribution Ethnic mix Income distribution 5 .

Impact of General Environmental Trends on Various Industries Segment/Trends/Events Demographic Aging population Rising affluence Brokerage services Fast foods Upscale pets and supplies Sociocultural More women in the workforce Greater concern for health & fitness Political/legal Tort reform ADA (Americans with Disabilities Act) Technological Genetic engineering Pollution/global warming Economic Interest Rate Increases Clothing Baking Products (staples) Home exercise equipment Meat products Legal Services Auto Manufacturing Retail Manufacturers of elevators. escalators & ramps Pharmaceutical Publishing Engineering Services Petroleum Residential construction Most common grocery products Industry Health Care Baby products Positive  Neutral Negative                   Global Increasing Global Trade Emergence of China as an economic power Shipping Personal service Soft drinks Defense     6 .

Five Forces Model of Competition Substitute Products (of firms in other industries) Threat of Substitutes Bargaining Power of Suppliers Suppliers of Key Inputs Rivalry Intensity Among Competing Sellers Bargaining Power of Buyers Buyers Threat of New Entrants Potential New Entrants 7 .

strong. or weak 8 .Analyzing the Five Competitive Forces: How to Do It q Assess strength of each competitive force (Strong? Moderate? Weak? )      Rivalry among competitors Substitute products Potential entry Bargaining power of suppliers Bargaining power of buyers q q Explain how each force acts to create competitive pressure Decide whether overall competition is brutal. fierce. normal/moderate.

Rivalry Among Competing Sellers q q Usually the most powerful of the five forces Check which weapons of competitive rivalry are most actively used by rivals in jockeying for position         Price Quality Performance features offered Customer service Warranties/guarantees Advertising/promotions Dealer networks Product innovation 9 .

more equal in size and capability Slow market growth Industry conditions tempt some firms to go on the offensive to boost volume and market share Customers have low costs in switching brands One or more firms initiates moves to bolster their standing at expense of rivals A successful strategic move carries a big payoff Costs more to get out of business than to stay in Firms have diverse strategies.What Causes Rivalry to Be Stronger? q q q q q q q q Lots of firms. and countries of origin 10 . corporate priorities. resources.

Competitive Force of Threat of New Entry q Seriousness of threat depends primarily on:   Barriers to entry Reaction of existing firms to entry q Barriers exist when:   Newcomers confront obstacles Economic factors put potential entrant at a disadvantage relative to incumbent firms 11 .

tariffs.Common Barriers to Entry q q q q q q q q Economies of scale Inability to gain access to specialized technology Existence of learning/experience curve effects Strong brand preferences and customer loyalty Capital requirements and/or other specialized resource requirements Cost disadvantages independent of size Access to distribution channels Regulatory policies. trade restrictions 12 .

How to Tell Whether Substitute Products Are a Strong Force q q Sales of substitutes are growing rapidly Producers of substitutes are planning to add new capacity Substitutes’ profits are up Readily available Attractively priced Believed to have comparable or better performance features Customer switching costs are low 13 q The competitive threat of substitutes is stronger when they are:     .

DPM vs. Glass vs. Metal 14 . DC  Plastic vs.Competitive Force of Substitute Products Concept Substitutes matter when customers are attracted to the products or services of firms in other industries Examples  Eyeglasses vs. Contact Lens  MD vs.

is crucial to production process.Competitive Force of Suppliers q Suppliers are a strong competitive force when:       Item makes up large portion of product costs. and/or significantly affects product quality It is costly for buyers to switch suppliers They have good reputations and growing demand They can supply a component cheaper than industry members can make it themselves They do not have to contend with substitutes Buying firms are not important customers Suppliers are a stronger force the more they can exercise power over:  Prices charged  Quality/performance of items supplied  Amounts and delivery times 15 .

Competitive Force of Buyers q Buyers are a strong competitive force when:        They are large and purchase a sizable percentage of industry’s product They buy in volume quantities They can integrate backward Industry’s product is standardized Their costs in switching to substitutes or other brands are low They can purchase from several sellers Product purchased does not save buyer money Buyers are a stronger competitive force the more they have leverage to bargain over:  Price or Quality or Service  Other terms and conditions of sale 16 .

Strategic Implications of the Five Forces q Competitive environment is unattractive when:     Rivalry is strong Entry barriers are low Competition from substitutes is strong Suppliers and customers have considerable bargaining power Rivalry is moderate Entry barriers are high Good substitutes do not exist Suppliers and customers are in a weak bargaining position q Competitive environment is ideal when:     Objective is to craft a strategy that will: Insulate firm from competitive forces  Influence competitive pressures in ways that favor firm  Build a sustainable competitive advantage 17  .

Stakeholder Analysis Stakeholder A Focal Firm Stakeholder B Stakeholder C 18 .

groups. interface and external. and other organizations who have an interest in the actions of an organization and who have the ability to influence it q Stakeholders may be categorized as internal.   Stakeholders are individuals and groups who can affect and are affected by a firm’s strategic outcomes and who have enforceable claims on its performance Stakeholders include individuals.Who are Stakeholders? q Identifying stakeholders is one way of sizing up the internal and external constituents that influence the firm. 19 .

Building Stakeholder Relationships q q q q Managing down  Relationships with subordinates Managing up  Relationships with bosses and corporate staff Managing out  Relationships with customers and suppliers Managing across  Relationships with peers 20 .

Stakeholder Analysis 21 .

Examples of Stakeholder Groups xInternal stakeholders – Management – Professionals – Support Personnel xInterface stakeholders – Shareholders – Board of Directors – Medical Staff xExternal stakeholders – Suppliers – Competitors – Government Agencies –Patients 22 .

Relationships with Stakeholders q q q Organizations have dependency relationships with stakeholders Firms are not equally dependent on all stakeholders and not every stakeholder has the same level of influence An effective organization strategy requires consensus from a plurality of key stakeholders about what it should be doing and how these things should be done 23 .

we MUST be especially good at ___________? 24 .Key Success Factors q KSFs or CSFs are competitive elements that most affect every strategic group member’s ability to prosper in the marketplace:     Specific strategy elements Product attributes Resources or Competencies Competitive capabilities Profit and loss Competitive success or failure q KSFs spell difference between:   Ask: For our organization to be successful.

Key Success Factors KSF 1 Optimize Performance KSF 3 KSF 2 A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor! 25 .

5 really major determinants of financial and competitive success in a strategic group. (Recall our discussion on developing objectives?) 26 .what resources and competitive capabilities does it need?  What does it take for sellers/providers to achieve a sustainable competitive advantage? KSFs consist of the 3 .Identifying Key Success Factors q q Answers to three questions pinpoint KSFs  On what basis do customers choose between competing brands or offerings of sellers?  What must a seller/provider do to be competitively successful -.

Attractive related styling. Ability to respond quickly to shifting market conditions. Patent protection Technologyrelated 27 . High labor productivity. courteous employees. Customer guarantees. Design expertise. More experience & managerial know-how Favorable image/reputation with buyers. Low distribution related costs. Superior ability to employ Internet to conduct capability business. High use of fixed assets. Courteous customer service. Clever advertising Superior workforce talent. Fast delivery Fast.Strong network of wholesale distributors/dealers. Skills-related Expertise in a particular technology. Overall low-cost. Capability to use Internet to conduct various business activities Manufacturing Low-cost production efficiency. Expertise in a given technology. Pleasant. Ability to develop innovative products. Flexibility to make a range of products Distribution. Quality of manufacture. Quality control know-how. Access to financial capital. Low-cost plant locations. accurate technical assistance. Merchandising skills. Ability to get new products to market quickly Organizational Superior information systems. Accurate Marketingfilling of orders. Convenient Other types locations. Low-cost -related product design. Breadth of product line. Having company-owned retail outlets. Gaining ample space on retailer shelves. Product innovation capability.Common Types of Key Success Factors Scientific research expertise.

which is a component of price. experience.Example: KSFs for the Refractive Eye Surgery Industry q High numbers of procedures. and service. Low rate of complications and high rate of success (20/20) Positive word-of-mouth and reputation q q 28 .

to keep manufacturing costs low Strong network of wholesale distributors -.to induce beer drinkers to buy a particular brand q q 29 .to gain access to retail outlets Clever advertising -.Example: KSFs for Beer Industry q Utilization of brewing capacity -.

Strategic Group Mapping q q One technique for revealing the different competitive positions of industry rivals is strategic group mapping A strategic group consists of those rivals with similar competitive approaches in an industry 30 .

Strategic Group Mapping q Firms in same strategic group have two or more competitive characteristics in common .        Sell in same price/quality range Cover same geographic areas Be vertically integrated to same degree Have comparable product line breadth Emphasize same types of distribution channels Offer buyers similar services Use identical technological approaches 31 . . .

A Framework of Competitor Analysis High Market Commonality Low KEY The shaded area represents degree of market commonality between two firms Resource endowment A Resource endowment B 32 II I III IV Low Resource Similarity High .

Market Commonality q Market Commonality is concerned with   the number of markets with which a firm and a competitor are jointly involved the degree of importance of the individual markets to each competitor q Most industries’ markets are somewhat related in terms of   technologies core competencies Firms competing in several markets 33 q Multi-market competition  .

Resource Similarity q Resource similarity  the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount q Firms with similar types and amounts of resources are likely to   have similar strengths and weaknesses use similar broad strategies q Assessing resource similarity can be difficult if critical resources are intangible rather than tangible 34 .

Procedure: Constructing a Strategic Group Map STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Draw circles around each group. making circles proportional to size of group’s respective share of total industry sales 35 .

Example: Strategic Group Map of Retail Jewelry Industry High Price / Quality / Image Small Independent Guild Jewelers National.“Fine Jewelry” Stores Prestige Departmentalized Retailers Upscale Department Stores Medium National Jewelry Chains Chains Local Jewelers Credit Jewelers Catalog Showrooms Off-Price Retailers Discounters Low Outlet Mall Retailers Specialty Jewelers Full-line Jewelers Limited-category Retailers Broad-category Retailers 36 Product Line / Merchandise Mix . & Local Guild . Regional.

Guidelines: Strategic Group Maps q q q q q Variables selected as axes should not be highly correlated Variables chosen as axes should expose big differences in how rivals compete Variables do not have to be either quantitative or continuous Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group If more than two good competitive variables can be used. several maps can be drawn 37 .

”) 38 q q .. the stronger the competitive rivalry among member firms tends to be (“Organizations most like yours are the most dangerous.(i.e. Profit potential of different strategic groups varies due to strengths and weaknesses in each group’s market position. The closer strategic groups are on map. Implications of the Strategic Groups Concept) q Interpreting Strategic Group Maps Driving forces and competitive pressures often favor some strategic groups and hurt others – such recognition may be the key to developing a competitive advantage. Important niches may be identified that are not currently being filled by competitors.

Within or Between Strategic Groups High Price / Quality / Image Medium Low Specialty Full-line Providers Limited-category Retailers Broad-category Retailers 39 Product Line / Merchandise Mix .

The World Automobile Industry High Ferrari Lamborghini Porsche Mercedes* BMW Price Hyundai Kia Low Low Toyota Ford General Motors Chrysler* Honda Nissan High Breadth of Product Line 40 .

5 1.5 2.0 Exxon -Mobil Chevron Pemex Petronas INTEGRATED Royal Dutch Texaco Lukoil PetroChina INTERNATIONAL -Shell Gp.0 10 20 30 40 50 60 70 80 NATIONALLY-FOCUSED DOWNSTREAM COMPANIES Geographical Scope 41 . REGIONALLY FOCUSED DOWNSTREAM Vertical Balance 1.Strategic Groups Within the World Petroleum Industry Strategic Groups Within the World Petroleum Industry INTERNATIONAL UPSTREAM Premier Apache COMPANIES Oil Kuwait Petroleum PDVSA NATIONAL Iran PRODUCTION COMPANIES NOC Statoil Dana Petroleum INTEGRATED DOMESTIC OIL COMPANIES INTEGRATED OIL MAJORS INTERNATIONAL UPSTREAM. Conoco Phillips Indian Oil Phillips MAJORS Petrobras ENI Elf-Fina-Total ENI Nippon Repsol YPF INTERNATIONAL Repsol DOWNSTREAM Valero Neste OIL COMPANIES Ashland Sunoco BP-Amoco 0 0 0.

Competitor Analysis and Strength Assessment q Successful strategists take great pains in scouting competitors      Understanding their strategies Watching their actions Evaluating their vulnerability to driving forces and competitive pressures Sizing up their resource strengths and weaknesses and their capabilities Trying to anticipate rivals’ next moves 42 .

Predicting Strategic Moves of Rivals q A firm’s own best strategic moves are affected by:   Current strategies of competitors Actions competitors are likely to take next q Predicting rivals’ next moves involves:  Analyzing their current competitive positions  Examining public pronouncements about what it will take to be successful in industry  Gathering information from grapevine about current activities and potential changes  Studying past actions and leadership  Determining who has flexibility to make major strategic changes and who is locked into pursuing same basic strategy 43 .

Categorizing the Objectives and Strategies of Competitors Competitive Scope • Local Strategic Intent • Be dominant leader • Overtake industry leader • Be among industry leaders • Move to top 10 • Move up a notch in rankings • Maintain current position • Just survive Market Share Objective • Aggressive expansion via acquisition & internal growth Competitive Position •Getting stronger. losing ground Strategic Posture •Mostly offensive •Mostly defensive •Combination of offensive & defensive •Aggressive risk-taker •Conservative follower Competitive Strategy •Striving for low-cost leadership •Mostly focusing on a market niche •Pursuing differentiation based on – Quality – Service – Technology superiority – Breadth of product line – Image & reputation – More value for the money – Other attributes 44 • Regional • National • Expansion via internal growth • Expansion via acquisition • Hold on to present share •Give up present share to achieve shortterm profits • Multi-country • Global •Retrenching to a position that can be defended . on the move •Wellentrenched •Stuck in the middle of the pack •Going after a different position •Struggling.

Determine whether the firm enjoys a competitive advantage or suffers from competitive disadvantage 45 .10 (1 = weak. Rate firm and key rivals on each factor using rating scale of 1 . 10 = strong) 3. Sum individual ratings to get overall measure of competitive strength for each rival 5. Decide whether to use a weighted or unweighted rating system 4. List industry key success factors and other relevant measures of competitive strength 2.Assessing a Company’s Competitive Strength versus Key Rivals 1.

8 8 2 10 9 9 5 5 5 61 Rival 1 5 7 10 1 4 4 10 10 7 58 Rival 2 10 10 4 7 10 10 7 3 10 71 Rival 3 1 1 5 3 5 5 3 1 1 25 Rival 4 6 6 1 8 1 1 1 4 4 32 46 Rating Scale: 1 = Very weak.Unweighted Competitive Strength Assessment KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Technological skills Dealer network/distribution New product innovation Financial resources Relative cost position Customer service capability Overall strength rating ABC Co. 10 = Very strong .

90 47 ABC Co.25 5/0.25 3/0.05 0.50 Rival 3 1/0.80 2/0.50 10/0.50 7/0.50 9/0.10 0.60 6/0. 10 = Very strong .10 2.10 1/0.50 3/0.00 4/0.10 5/0.20 7.70 10/1.05 4/0.20 10/1.00 2.20 8.40 1/0.05 1/0.00 10/1.60 1/0.30 1/0.15 5/0.05 1/0.45 5/0.45 9/0.35 10/0.00 6.05 Rival 2 10/1.05 10/1.70 3/1.50 5/1.00 10/3.10 0.40 7/0.10 0.15 Rival 4 6/0.50 7/1.20 4/0.40 4/1.15 1.35 1/0.00 1/0. 8/0.10 8/0.50 7/0.35 0.20 10/0.75 5/0.05 0.10 4/1.75 Rival 1 5/0.A Weighted Competitive Strength Assessment KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Technological skills Dealer network/distribution New product innovation Financial resources Relative cost position Customer service capability Sum of weights Overall strength rating Weight 0.10 0.60 Rating Scale: 1 = Very weak.80 8/0.05 0.

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