Strategic Management

3/13: Analyzing Industries

October 6, 2021
Agenda

Introduction

Case Study

Strategy in Action

Slide 2
© Sebastian Raisch
Overview: Strategic Analysis and Competitive Strategy

Industry Analysis Firm Analysis

Analyzing Strategy Analyzing
Industries Firms

Competitive Strategy
• Cost Leadership
• Differentiation
• Hybrid Strategies

Slide 3
© Sebastian Raisch
Industry Attractiveness

“When a management with a reputation

for brilliance tackles a business with a
reputation for bad economics, it is usually
the reputation of the business that
remains intact.”
Warren Buffet

Slide 4
© Sebastian Raisch
Industry Attractiveness
Some industries are more profitable than others!

Average Return on Equity, 2010-2020

Slide 5
Source: Analysis of US companies, based on Bloomberg data © Sebastian Raisch
Example: The PC Industry
Business System for the PC Industry

Design Components Assembly Distribution Service

PC Producers in 2020*
Global Market Share
Lenovo 19%
Apple 16%
HP 15%
Dell 11%
Others 39%

Source: IDC, 2020 Slide 6

*Figures include computer and tablet shipments © Sebastian Raisch
Example: The PC Industry

The PC industry faces substantial changes . . .

Global PC Shipments
in Million units

v Demand for traditional

375 CAGR
-2.5%
PCs has declined
steadily since 2010;
300 CAGR
+16.1% expectations for 2023
225 predict further decline
2010
150 2020 v Tablets shipments
2023E were growing rapidly
75
since 2010, but are
0 expected to shrink
Desktops & Laptops Tablets towards 2023

Source: IDC; CAGR = Compounded Annual Growth Rate Slide 7

© Sebastian Raisch
Example: The PC Industry
In terms of revenue growth, the PC industry looks . . .

Global PC market value

$ billion

2003-2010 2011-2018 2019-2023E

200 CAGR +5.4% 200 CAGR -2.4% 225 CAGR +1.8%
CAGR +8.0%
150 150 (2020 to 23E)
150
100 100

50 50 75

0 0
0
2011
2012
2013
2014
2015
2016
2017
2018
2003
2004
2005
2006
2007
2008
2009
2010

2019 2021E 2023E

Attractive! Unattractive? Attractive again?

Slide 8
Source: Marketline © Sebastian Raisch
Example: The PC Industry
If we analyze revenue growth in greater detail, the PC industry looks . . .

Volume Price
Shipping in million Average selling price in $
525
CAGR -6.3% CAGR +1.1%
450 675
600
375 525
300 450
375
225
300
150 225
75 150
75
0 0
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020

REALLY BAD? … OR REALLY GOOD?

Slide 9
Sources: IDC, Statista © Sebastian Raisch
Example: The PC Industry

Am I attractive
or not?

In order to determine the

attractiveness of an industry, it
is necessary to analyze the
foundations of the competitive
situation.

Slide 10
© Sebastian Raisch
Industry Analysis: The Five Forces of Competition

Potential entrants

Threat of entry

Bargaining power
of clients

Competitive Buyers /
Suppliers
rivalry Distributors

Bargaining power
of suppliers

Threat of substitutes

Substitutes

Slide 11
Source: Porter (1982) © Sebastian Raisch
“Porterhouse” @HBS

Slide 12
© Sebastian Raisch
(1/5) Bargaining Power of Buyers

The bargaining power of buyers is high if:

• High concentration of buyers

• High dispersion of producers
• Supply represents an important part of overall customer costs
• The cost of switching between producers is low
• Buyers pose a credible threat if they were to integrate backward
into the producers' business

Focal Firms Buyers /

Suppliers
(“Producers”) Distributors

Slide 13
© Sebastian Raisch
(2/5) Bargaining Power of Suppliers

The bargaining power of suppliers is high if:

• High concentration of suppliers

• Producers are numerous and dispersed
• Switching costs are high
• Threat of forward integration
• Differentiation of suppliers through strong brands

Focal Firms Buyers /

Suppliers
(“Producers”) Distributors

Slide 14
© Sebastian Raisch
(3/5) Threat of Substitutes

The threat of substitutes can appear in many forms:

• Substitution of one product by another

Potential entrants
• Indirect substitution

• Generic substitution

• Abandoning Focal Firms

(“Products”)

Substitutes

Slide 15
© Sebastian Raisch
(4/5) Threat of New Entrants

• Economies of scale Potential entrants

Financial • Capital intensity
barriers
• Switching costs / Network effects

Commercial • Access to distribution networks

barriers Focal Firms
• Reputation

Barriers based on • Proprietary technology

resources and • Scarce resources
capabilities • Experience Substitutes

Slide 16
© Sebastian Raisch
(5/5) Competitive Rivalry

Competitive rivalry is influenced by: Potential entrants

• The equilibrium of forces

• The growth rate of the market

• The existence of global clients Focal Firms

• High fixed costs

• The existence of exit barriers

Substitutes
• The possibility of differentiation

Slide 17
© Sebastian Raisch
Agenda

Introduction

Case Study

Strategy in Action

Slide 18
© Sebastian Raisch
Case Study: The PC Industry

Am I attractive
or not?

In order to determine the

attractiveness of an industry, it
is necessary to analyze the
foundations of the competitive
situation.

Slide 19
© Sebastian Raisch
Case Study: The Five Forces of Competition

Potential entrants

Threat of entry

Bargaining power
of clients
Competitive Buyers /
Suppliers
rivalry Distributors

Bargaining power
of suppliers

Threat of substitutes

Substitutes

Slide 20
Source: Porter (1982) © Sebastian Raisch
(1/5) Bargaining Power of Buyers: Example PC

Client Power:

Potential
entrants

Competitive
Suppliers Clients
intensity

Substitutes

Slide 21
© Sebastian Raisch
(2/5) Bargaining Power of Suppliers: Example PC

Supplier Power:

Potential
entrants

Competitive
Suppliers Clients
intensity

Substitutes

Slide 22
© Sebastian Raisch
(3/5) Threat of Substitutes: Example PC

Threat of Substitutes:

Potential
entrants

Competitive
Suppliers Clients
intensity

Substitutes

Slide 23
© Sebastian Raisch
(4/5) Threat of New Entrants: Example PC

Threat of New Entrants:

Potential
entrants

Competitive
Suppliers Clients
intensity

Substitutes

Slide 24
© Sebastian Raisch
(5/5) Competitive Rivalry: Example PC

Competitive Rivalry:

Potential
entrants

Competitive
Suppliers Clients
rivalry

Substitutes

Slide 25
© Sebastian Raisch
Agenda

Introduction

Case Study

Strategy in Action

Slide 26
© Sebastian Raisch
Strategy in Action I: Group Assignment
Industry Analysis

v The first part of the Strategy in Action program contains an

industry analysis (five forces) and a firm analysis (value chain)

v You will start today with the industry analysis: Please apply the five
forces framework to analyze your industry segment

v Attention: The five forces analysis is done at the segment level

v We will interrupt the group work sometimes to facilitate experience

sharing between the groups (common challenges; best solutions)

v We are available for your questions!

Slide 27
© Sebastian Raisch
Strategy in Action I: The Five Forces Analysis

Potential entrants

Threat of entry

Bargaining power
of clients
Competitive Buyers /
Suppliers
rivalry Distributors

Bargaining power
of suppliers

Threat of substitutes

Substitutes

Slide 28
Source: Porter (1982) © Sebastian Raisch
Strategy in Action I: Group Assignments
Next Steps

v Please continue to work on your industry analysis outside class

v Next week, we talk about firm analysis, and you will start
analyzing two selected firms from your segment based on the
value chain framework

v Your final presentation (covering the results from both analyses)

has to be ready by Session 8 (November 17, 2021)

Slide 29
© Sebastian Raisch