7/22/2014

1
Agenda:
EconomicIndicators
Strategy Analysis
1Slide#
IndustryAnalysis
CompetitiveStrategyAnalysis
CorporateStrategyAnalysis
CompanyAnalysis.
TheImportanceofStrategyAnalysis
Strategydrivestheactionsofanorganization.
Studyingafirmsstrategyprovides:
2Slide#
Anunderstandingofwhatdrivesrisks,
profitability,andcompetitiveadvantages
Abasisforfutureperformancetobeforecasted
Anideaofhowtomeasurethesuccessofafirms
actions
EconomicIndicators: canhaveoneofthree
relationshipstotheeconomy
7/22/2014
2
ThreeTimingTypesofEconomicIndicators
LeadingIndicator:Changebeforetheeconomychangee.g.
StockMarketReturns.
LaggingIndicator:doesnotchangedirectionuntilafew
quarters after the economy does E g Unemployment rate quartersaftertheeconomydoes.E.g.Unemploymentrate.
CoincidentIndicator:changeapproxthesametimeandinthe
samedirectionasthewholeeconomy.E.g.GDP,personal
income,industrialproductionandretailsalesetc.
TotalOutput,Income,andSpending:
Unemployment:
Employment:
ProductionandBusinessActivity:
ProducersPrices,ConsumersPricesandMinimum ,
SupportPrice
Money,CreditandSecurityMarket:
GovernmentFinance:
InternationalTrade
IndustryAnalysis
Characteristics
PastRecord
PresentState
FutureProspectus
7/22/2014
3
TheImportanceofIndustryLevel
Analysis
Afirmsstrategyisheavilyinfluencedbythe
industryitbelongsto.
Understandingtheenvironmentandcompetitive
forces within an industry helps with evaluating forceswithinanindustryhelpswithevaluating
thequalityofaparticularfirmsstrategy.
Portercreatedausefulframeworktoevaluate
thecompetitiveforcesatworkinanindustry,as
seeninFigure21.
Industry
Structure
and and
Profitability
CompetitiveForce1:
RivalryAmongExistingFirms
Higherdegreesofcompetitionamongfirms:
Pushpricestowardsthemarginalcostofproduction.
7/22/2014
4
CompetitiveForce1:
RivalryAmongExistingFirms
Higherdegreesofcompetitionamongfirms:
Pushpricestowardsthemarginalcostofproduction.
TelecomandAirlineIndustry
Makenonpricedimensionsofproductsorservicesmore
important important.
CompetitiveForce1:
RivalryAmongExistingFirms
Higherdegreesofcompetitionamongfirms:
Pushpricestowardsthemarginalcostofproduction.
TelecomandAirlineIndustry
Makenonpricedimensionsofproductsorservicesmore
important.
ElectronicGoods
Determinantsoftheintensityofcompetitionamongfirms:
Industrygrowthrate.
Concentrationandbalanceofcompetitors.
SettingofRules ColaCos
RivalryAmongExistingFirms,
continued
Determinantsoftheintensityofcompetition
amongfirms:
Degreeofdifferentiationinproductsandservices
and switching costs. andswitchingcosts.
Scale/Learningeconomiesandratiooffixedto
variablecosts.
Excesscapacityandexitbarriers.
7/22/2014
5
CompetitiveForce2:
ThreatofNewEntrants
Theeasewithwhichanewfirmcanenteran
industrywillaffecttheprofitabilityofother
firmswithintheindustry.
Factorsaffectingthebarrierstoentryare:
Economiesofscale:
CompetitiveForce2:
ThreatofNewEntrants
Theeasewithwhichanewfirmcanenteran
industrywillaffecttheprofitabilityofother
firmswithintheindustry.
Factorsaffectingthebarrierstoentryare:
Economiesofscale:
e.g.jetenginemakers viz.GE,Pratt&Whitney,Rolls
Royce
Firstmoveradvantage
CompetitiveForce2:
ThreatofNewEntrants
Theeasewithwhichanewfirmcanenteran
industrywillaffecttheprofitabilityofother
firmswithintheindustry.
Factorsaffectingthebarrierstoentryare:
Economiesofscale
Firstmoveradvantage e.g.Microsoftascomparedto
AppleInc.,OracleCorporation,GoogleInc.
Relationshipswithsuppliersandcustomers
7/22/2014
6
CompetitiveForce2:
ThreatofNewEntrants
Theeasewithwhichanewfirmcanenteran
industrywillaffecttheprofitabilityofotherfirms
withintheindustry.
Factorsaffectingthebarrierstoentryare:
Economiesofscale
Firstmoveradvantage
Relationshipswithsuppliersandcustomers
Auditing&InvestmentBankingandAdvertising
Legalbarriers
CompetitiveForce2:
ThreatofNewEntrants
Theeasewithwhichanewfirmcanenteran
industrywillaffecttheprofitabilityofotherfirms
withintheindustry.
Factorsaffectingthebarrierstoentryare:
Economiesofscale
Firstmoveradvantage
Relationshipswithsuppliersandcustomers
Legalbarriers
BroadcastingServices,TelecommunicationServices
CompetitiveForce3:
ThreatofSubstituteProducts
Thedegreetowhichsubstituteproductsor
servicesexistaffectstheindustrysbargaining
powerwithsuppliersandcustomers,and
ultimatelyprofitability.
Thedegreetowhichsubstitutesexistdepends
upontherelativepriceandperformanceof
competingproductsorservices,andthe
willingnessofcustomerstoacceptsubstitutes.
7/22/2014
7
CompetitiveForce4:
BargainingPowerofBuyers
Buyerbargainingpowercanexertdownward
pressureonprices.
h ff hi b i i Factorsthatcanaffectthisbargainingpower
are:
Buyerpricesensitivitytoproductorservice
Relativebargainingpowerofbuyers
CompetitiveForce4:
BargainingPowerofBuyers
Buyerbargainingpowercanexertdownward
pressureonprices.
h ff hi b i i Factorsthatcanaffectthisbargainingpower
are:
Buyerpricesensitivitytoproductorservice
Relativebargainingpowerofbuyers
CarManufacturers
CompetitiveForce5:
BargainingPowerofSuppliers
Amirrorimageofthebargainingpowerof
buyers.
S li h b i i h th Suppliershavebargainingpowerwhenthereare
fewsubstitutesand/orfewsuppliersrelativeto
thenumberofcustomersdemandingaproductor
service.
7/22/2014
8
CompetitiveForce5:
BargainingPowerofSuppliers
Amirrorimageofthebargainingpowerof
buyers.
Suppliers have bargaining power when there are Suppliershavebargainingpowerwhenthereare
fewsubstitutesand/orfewsuppliersrelativeto
thenumberofcustomersdemandingaproductor
service.
e.g.Colacompaniesascomparedtobottlers.
Whilemetalcanproducersdonotverypowerfulas
comparedtocolacompanies.
ApplyingIndustryAnalysistothe
PersonalComputerIndustry
Despitethesalesvolumeandubiquityofthe
product,profitabilityintheindustrywaslow.
C titi f Competitiveforces
Bargainingpowerofsuppliersandbuyers
CompetitiveStrategyAnalysis
Individualfirmsmustchooseappropriate
strategiestosucceedwithintheirindustry
segment.
Two basic competitive strategies are: Twobasiccompetitivestrategiesare:
Costleadership
Product/servicedifferentiation
Figure22convenientlysummarizesaspectsof
costleadershipanddifferentiation.
7/22/2014
9
Strategies
forCreating
Competitive p
Advantage
AchievingandSustaining
CompetitiveAdvantage
Choiceofstrategyisanimportantfirststepfora
firm.Thelikelihoodofachievingandsustaining
competitiveadvantagemustbeevaluated.
Factorstoevaluateinclude:
Resourcesandcapabilitiestoimplementstrategies.
Whetherthefirmsactivities,infrastructure,andother
operatingelementsconsistentwithitscompetitive
strategy.
ApplyingCompetitiveStrategyAnalysis
totheDellComputerCorporation
IBM,HPandCompaq
HowwasDellsgrowthinincomeandmarket
shareachievedandsustained?
Lowcostcompetitivestrategy
Distributionchannel
Masscustomization
Outsourcingservice
Cashmanagement
InvestmentinR&D
7/22/2014
10
CorporateStrategyAnalysis
Companieswithmultiplebusinesssegments
requireananalysishowtheseparate
segmentsaremanagedwithinthecorporate
governancestructure.
Factors to analyze include: Factorstoanalyzeinclude:
Transactioncosts
Specificbenefitstooperatingunderonecorporate
umbrella
ThecaseofJAL.
CompanyAnalysis
Companysperformancevisvisothersimilar
companies
Companysperformanceincomparisonto
earlier years earlieryears
IssuestobeexaminedinCompanyAnalysis
TheManagement
FamilyManagement
ProfessionalManagement
IntegrityofManagement
PastrecordofManagement
H Hi hl i h d b i i h HowHighlyisthemanagementratedbyitspeersinthe
sameindustry?
Howthemanagementfaresinadversity?
Thedepthofknowledgeofthemanagement
Themanagementmustbeopen,innovativeandmust
alsohavestrategy
Nonprofessionalised Management
7/22/2014
11
IssuestobeexaminedinCompanyAnalysis
TheCompany
TheAnnualReport
CashFlow
Ratios
ConcludingComments
Theindustryanalysisapproachhasnotable
strengthsandsomelimitations.
Portersfiveforcesframeworkisvaluablein
evaluating the strategy and actions of firms evaluatingthestrategyandactionsoffirms
withinanindustry.