Strategic Management

Market Dynamics

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

3-1

ETOP
Environmental Threat and Opportunity Profile
Factor Regulatory Competitive External Alliance Internal Alliance Entrepreneurial Info Highway Financial Social Impact 3 -2 7 -6 4 5 7 2 Importance 8 7 6 5 5 4 4 3 Opportunity 24 42 -30 20 20 28 6 Threat -14

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
Help to determine the key factors of threats and opportunities Good tool to qualify the factors related to companys strategy Can consider many factors for each special case

Cons
It doesnt show the interactions between factors It cant reflect the dynamic environment Its a subjective analysis tool

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

3-3

Porter Competitive Analysis 5 Forces Model of Competition

FIRMS IN OTHER FIRMS IN OTHER INDUSTRIES OFFERING INDUSTRIES OFFERING SUBSTITUTE PRODUCTS SUBSTITUTE PRODUCTS

SUPPLIERS SUPPLIERS

RIVALRY RIVALRY AMONG AMONG COMPETING COMPETING SELLERS SELLERS

BUYERS BUYERS

POTENTIAL POTENTIAL NEW ENTRANTS NEW ENTRANTS

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

3-4

Porter Analysis
Substitutes Substitutes

Suppliers Suppliers

Market Market

Customers Customers

New Entrants New Entrants

Horizontal Forces mature markets Vertical Forces growth markets Vertical and Horizontal competitive and changing markets
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-5

Porter Competitive Analysis - Wal-Mart

Discount Retailing Discount Retailing

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

New Entrants

3-6

Porter: NTI
Sat. Tech. Sat. Tech.

Telephone or Multimedia cost?

Suppliers Suppliers AT&T AT&T NTI NTI Baby Bells Baby Bells

Siemens Siemens NEC NEC

Low cost producer 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

Porters Five Forces: Pros and Cons

Pros
Its a good tool to identify the clear competitive environment and the relationship for the five market forces It is an useful analysis model for the new entrants and the existing competitor inside the market It helps the company design competitive strategies and make right decisions It surfaces the inverse relationship between profit margin or returns and the intensity of competition It provides useful inputs for performing other analysis

Cons
It often produces the same recommendations for similar organizations It assumes relatively static market structures. It provides a good framework for analysis but does not really consider issues around implementing changes to reposition for strategic advantage. It cant show how a company performed relative to its 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
Class 1 - Slow Cycle Resources KSF: nurturing of protected market, defending and building the brand Class 2 - Standard Cycle Resources KSF: Economies of Scale Market share/control Building product loyalty Lesser Brands

Product
Marlboros

introducing new products to attack leaders brand Class 3 - Fast Cycle Resources KSF: market timing and intelligence Financial Products

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 Competitive Capability High

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

3-13

Strategic Map - Industry

AECL - CANDU

High Diversification

Westinghouse
$288M

Siemens
$1,792M

General Electric $4,303M

Framatome ABB $984M $590M

AECL

Low Low Competitive Capability High

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

3-14

Porters Diamond Determinants of National Advantage

Firm, Strategy, Structure, and Rivalry

Factor Conditions

Demand Conditions

Wal-Mart

Related and Supporting Industries

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

Industry Value Chain

PC Industry Intel Chips PC Makers Hardware Microsoft 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 Scope Strength Structure Speed Strategy Synergy Span (inputs,throughput, outputs) (production, technology, marketing, channels, core, competencies/capabilities) (relative market share, branding power, shelf power) (market/product linkages,decision flow, value chain management) (response time to market, product cycle time rate of technology absorption) (optimal/minimal changes, Strategic design criteria) (association with clusters, joint ventures, strategic alliances, coopetition) (ability to focus on business: functional similarity, geographic dispersion, functional complexity, need for direction, need for coordination, planning demands, managerial help) (learning curve, experience curve) (organizational / product / production lifecycle)
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-17

Sales State

Economies of S
Market Phase Economy (input based, budgets) Organization Effectiveness (output based) Entrepreneur Mgr Administration Efficiency (throughput based)

Market Push (cost leader) Market Pull Competitive (focus) Intro Mature

Market Phase

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 Corporate credibility: Technological reputation: Market Share: Company morale: Recruiting effectiveness: Productivity: Sales effectiveness: Marketing effectiveness: Growth management: Measures Trade show recognition, speaking invites, # of RFPs Quality/reliability/performance Revenue growth, # RFPs Turnover, employee interaction Average # of ongoing vacancies, # of qualified applicants per vacancy Revenue per employee Contracts signed per # RFPs answered Sales team approval, # of leads Turnover, recruiting, productivity, employee morale
3-20

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

Critical Success Factors - Maclaren Industries

Quality of product and service Ability to compete based on price in weak markets Ability to meet the customers recycled content requirement

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

3-21

Key Success Factors - Mitel

Dynamic product base

Innovation Address segmentation

Excellent service Distribution

Be on the short list of suppliers for major customers Each segment with appropriate channels

Economic value

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

3-22