Industry and Competitive Analysis

Contents:
1.Introduction
2.Methods of Analyzing Industry and Competitive analysis
3.Factors affecting Economic Character of Industries
4.Dominant Economic Features of Industry
5.Five Forces Model of Competition
6.Common factors influencing the tempo of cross company rivalry
7.The concept of driving forces
8.The most common driving forces
9.Meaning of Key Success Factors (KSF)
10.Common key success factors of the Industry.
 Introduction:
For effective strategic management system, industry and its
competitiveness should be analyzed. The analysis of present
position of industries can help to know the strengths and
weaknesses of the organization. If the present strength and
weakness position is properly known to the company, industry
can undertake the strategic decision. Similarly, the company
should also know its external opportunities and threats which
can also help it to decide whether it is the right time to craft
and implement the strategies. Industries competitive position
should also be analyzed for the sake of survival of the
company. If industries competitive ability is satisfactory,
company can take any strategy for its survival and can cope
with the competition. On the other hand, if industries
competitive ability is not up to the mark, company can’t take
any ambitious strategy.
Methods of Analyzing Industry and Competitive
Analysis:
Industry and competitive analysis uses a tool kit of concepts
and techniques to get a clear fix on key industry traits, the
intensity of competition, the drivers of industry change, the
market positions and strategies of rival companies, the keys of
competitive success and the industry’s profit outlook. Industry
and competitive analysis aims at developing insightful answers
to seven issues.

1. Dominant economic features of Industries

2.Nature and strength of competitive forces
3.Reasons for changing the industries competitive structure and
environment
4.Components of strengths and weaknesses of companies
5.Future strategic moves of rival companies
6.Key success factors for competition
7.Nature of industry attractiveness
Factors Affecting Economic Character of
Industries:
There are some factors affecting the economic character of
industries. These factors can either strengthen or hamper the
economic character of industries, which are mentioned below
:

1.Overall size and market growth rate

2.The nature of technological change
3.The geographic location of the market
4.The number of existing and potential buyers
5.Number and size of present and futures sellers
6.Nature of differentiation of rival products
7.The extends to which cost are affected by economies of scale
8.Nature of distribution channels used to reach the customers
9.Costs of distribution of goods and services
10.Availability of fund giving agencies
11.Economic and industrial policies of the country

If these factors behave positively, economic character of

industries may be appreciable well, otherwise industries
economic position and performance may be affected to a
significant level.
Industry's Dominant Economic Features:

The word industry is "a group of firms whose products have

so many of the same attribute that they compete for the
same buyers". The features to consider in profiling an
industry's economy features are fairly slandered:
1. Every industry’s market size should be bigger
2. There is scope of competitive rivalry
3. There is market growth rate and position in the business
life
4. There are a number of rivals and their relative size
5. The number of buyers and their relative size
6. Whether and to what extent industry rivals have integrated
backward or forward
7. The types of distribution channels used to access
consumers.
8. The pace of technology change in both production
process, innovation and new product introduction.
9. Whether the products and services of rival firms are
highly differentiated, weakly differentiated or essentially
identical.
10. Whether companies can realize economies of scale in
purchasing, manufacturing, transportation, marketing or
advertising.
11. Whether key industry participants are clustered in a
particular location.
12. Whether certain industry activities are characterized by
strong learning experience effects such that unit cost
decline as cumulative output grows.
13. Whether high rates of capacity utilization are crucial to
achieving low cost production efficiency.
14. Capital requirements and the case of entry and exit.
15. Whether industry profitability is above / below par.
Five Forces Model of Competition
For measuring the nature of competition and the
strength of other competitive process a model has
been proposed by Michel H. Porter of the Herbert
Business School (USA). It is known as Five Forces
Model of Competition. This model has the following five
forces:

1. The rivalry among competition, sellers in the

industry.
2.The potential entry of new competitors.
3.The market attempts of companies in other
industries to win customers over to their own
substitute.
4.The competitive pressures stemming from
supplier-seller collaboration and bargaining.
5.The competitive pressures stemming from
seller-buyer collaboration and bargaining.
 Common Factors Influencing the Tempo
of Cross Company Rivalry
The several common factors are seemed to
influence the tempo of cross company rivalry of
the industry as follows:
1.Rivalry intensifies as the number of
competitor’s increases and as competitors
become more equal in size and capability.
2.Rivalry is usually stronger when demand for
the product is growing slowly.
3.Rivalry is more intense when industry
conditions tempt competitors to use price cut
or other competitive weapons to boost unit
volume.
4.Rivalry is stronger when customer's costs to
switch brands are low.
5. Rivalry is stronger when one or more competitors are
dissatisfied with their market position and lunch moves
to bolster their standing at the expense of rivals.
6. Rivalry increases in production to the size of the payoff
from a successful strategic move.
7. Rivalry increases in tends to be more vigorous when it
costs more to get out of a business then to stay in and
compete.
8. Rivalry become more volatile and unpredictable, the
more diverse competitors are in terms of their vision,
strategic intents, objectives, strategies, resources and
countries of origin.
9. Rivalry increases when strong companies outside the
industry acquire weak firms in the industry and lunch
aggressive, well funded, moves to transform their
newly acquired competitors into major market
contender.
The Concept of Driving Forces:
Industry conditions may change because
important forces are driving industry
participants (competitors, customers, or
supplier) to alter their actions; the driving
forces in an industry are the major underlying
causes of changing industry and competitive
conditions. The most dominant forces are
called driving forces because they have the
biggest influence on what kinds of changes will
take place in the industry's structure and
competitive environment. "Driving forces"
analysis has two steps: identifying what the
driving forces are, and assessing the impact
they will have on the industry.
 The Most Common Driving Forces
Many events can affect an industry powerfully enough to
qualify as driving forces. Some are unique and specific to a
particular industry situation, but most common drivers of
change fall into the following categories:

■ The internet and the new e‑commerce opportunity and

threats it breeds in the industry.

■ Increasing globalization of the industry.

■ Changes in the long‑term industry growth rate.

■ Change in who buys the product and how they use it.

■ Product innovation.
■ Technology change.
■ Marketing innovation.

■ Entry or exit of major firms.

■ Diffusion of technical know- how across more companies and

more countries.

■ Change in cost and efficiency.

■ Growing buyer preferences for differentiated products instead

of a commodity product.

■ Regulatory influences and government policy changes.

■ Changing societal concerns, attitudes and lifestyles.

■ Reductions in uncertainty and business risk.

Definition of Key Success Factors
(KSFS)
Key success factors are those things that most
affect industry members' ability to prosper in
the marketplace‑the particular strategy
elements, product attributes, resources,
competencies, competitive capabilities, and
business outcomes that spell the difference
between profit and loss and, ultimately,
between competitive success and failure. KSFs
by their nature are so important that all firms
in the industry must pay close attention to
them ‑ they are the prerequisites for industry
success and put another way, KSFs are the
rules that shape whether a company will be
financially and competitively successful.
Common Types of Key Success Factors

Technology ‑ related KSFs:

1.Scientific research expertise.
2.Technical capability to make innovative improvements in
production process.
3.Product innovation capability.
4.Expertise in a given technology.
5.Capability to use the internet for all kinds of e‑commerce
activities.

Manufacturing ‑ related KSFs:

I .Low ‑ cost production efficiency.
2.Quality of manufacture.
3.High utilization of fixed assets.
4.Low ‑ cost plant locations.
5.Access to adequate supplies of skilled labor.
6.High labor productivity.
7.Low ‑ cost product design and engineering.
8.Ability to manufacture or assemble products that are
customized to buyer specification.

Skills ‑ related KSFs

I . Superior workforce talent,
2.Quality control know‑how.
3.Design expertise.
4.Expertise in a particular technology.
5.An ability to develop innovative products and product
improvement.
6.An ability to get newly conceived products past the R&D
phase and out into the market very quickly.
Marketing ‑ related KSFs
1. A well trained, effective sales force.
2. Courteous customer service.
3. Accurate filling of buyer orders.
4. Breadth of product line and product selection.
5. Merchandising skills.
6. Attractive styling or packaging.
7. Customer guarantees and warranties.
8. Clever advertising.
 Purpose and Contribution of Industry and
Competitive Analysis
■ Success in today’s highly dynamic markets requires a through
understanding of the industry and its competitors. In recent years,
industry and competitive analyses have become important
organizational activities that help managers collect analyze and
interpret data about their industry and their competitors to achieve
several purposes:

■ 1. Identifying and selecting the company’s

competitive arena by defining its industry and
served markets

■ 2. Identifying business opportunities

 Purpose and Contribution of Industry and
Competitive Analysis

3. Providing a benchmark for evaluating the company relative

to the competition
4. Shortening the company’s response time to competitor’s
moves
5. Encouraging organizational development through
communication
6. Helping the company to gain a competitive advantage
7. Promoting learning from the competition
8. Aiding the development of the strategy and its successful
implementation
 The Process of Industry and
Competitive Analysis

Industry analysis is a complex task, which entails

several related activities that include:

1.Defining and choosing the boundaries of the industry and the

company’s served market.
2.Understanding the structure of the industry.
3.Analyzing the forces of the competition.
4.Conducting strategic group analysis.
5.Determining key success factors.
6.Performing competitive intelligence.
7.Interpreting competitive signals.
8.Identifying opportunities
Understanding the industry’s
life cycle
Upon completion of the process of determining industry
boundaries managers need to examine the nature of
competition in the industry. This requires an
understanding of the industry life cycle. Industries come
into existence because of technological, social, and
economic changes. Technological advances have been
influential in creating the aircraft manufacturing,
telecommunication, multimedia, PC computer, and
software and semiconductor industries. However
technological forces alone would not have made these
industries a reality. Changes in life styles and values
have also played a major role in this regard.
Understanding the industry’s life
cycle
Understanding the industry’s
life cycle
Industries change over time. These transitions mirror changes in
society as well as in companies’ innovations and strategic moves.
From its humble beginnings nearly two decades ago, the cable TV
industry has now become a major established industry. As cable TV
penetrated more homes, programs proliferated in order to meet a
wide range of consumer tastes and needs. Cultural, educational,
movie, home shopping and home improvement channels have been
added. With the high-technology superhighway, cable TV companies
have entered into joint ventures to produce their own programs and
movies.
Managers need to understand the changes that occur in the industry
over time. These changes affect the intensity and bases of
competitions. The concept of the industry life cycle is a useful tool
for conducting this analysis. Accordingly, an industry progresses
along fairly predictable stages (phases): emergence, growth,
maturity and decline. These phases resemble the familiar product
life cycle. Of course, the industry life cycle is only a framework that
depicts the general pattern of industry evolution.
 Understanding the industry’s
life cycle
1.Emerging stage: At this stage, industry boundaries are
vague. This is the case today in the multimedia industry. To
some cases, this industry means integrating computers, printed
text, audio and video. Other companies see other possibilities in
integrating additional technologies.

In the emerging phase of the industry life cycle, companies

offers products that show little standardization because the
technology is not well developed. These companies also face
major challenges because the channels of distribution are not
well-established and potential customers and their buying
habits are not well known. There is also a great deal of
uncertainty about the number of companies in the industry.
Data about competitors and their strategies are scarce.
2.Growth stage: This is perhaps the most exciting phase of the
industry life cycle. Companies that survive the emerging phase look
forward to building their name recognition, acquiring market share and
achieving profitability. Companies achieve these goals as industry sales
expand, thus allowing companies to benefit from product differentiation
and aggressive marketing. With a technologically dominant design in
place, companies can now standardize their operations and achieve
economies of scale. Companies aspire to achieve efficiency in their
internal operations as they continue to achieve growth. Strategy in
action 3-3 presents an overview of the cellular telephone industry one
of today’s fastest growing industries.
Understanding the industry’s
life cycle
3.Shakeout stage: Following a period of growth, an industry may experience a
massive shakeout. In recent years airlines, banks, biotechnology, computer disk
producers, movie theaters, PCs, trucking companies and videogame production
have experienced massive shakeout.
4.Maturity stage: As the industry approaches maturity, new factors come into
play. The most notable is that technology reaches its upper limit, signaling its
wide diffusion in the industry. The technology and products becomes fairly
standardized. Thus companies rely more heavily on modifying their existing
products. Success in a mature industry depends on aggressive marketing,
advertising and promotional activities
5.Decline stage: As demand for industry products continues to decline, the
industry enters a new phase of its evolution. Executives are force to reassess
the causes and speed of this decline. They need to determine whether decline is
irreversible or not. Radical shifts in customer demand or demographics are
sometimes irreversible and often cause the demise of the industry. Executives
should warning signal of a major upheaval that will cause a permanent decline.
Guided by the results of analysis of declining conditions, executives should
assess exit barriers. These barriers may include irreversible investments,
specialized assets, and many standing commitments.
 Analyzing the structure of the
industry
This structure influences a company’s strategy, which in turn, determines
its success or failure. Industry structure refers to the competitive profile of
the industry. Some industries are highly competitive, while others are not.
Understanding variations in industry structures requires attention to four
major factors:
■ Barriers to entry and exit.
■ Level of product differentiation.
■ Level of concentration.
■ Economies of scale and scope.
Though these four factors are presented separately for clarity in the
following paragraphs, in reality they jointly affect the industry of
competition in an industry.
Barriers to entry and exit: Understanding the structure of an industry
requires an examination of the nature and extent of barriers to entry and
exit. Entry barriers reduce new companies’ ability to participate in an
industry.
Entry barriers can be tangible or intangible. Tangible
barriers include capital requirements, access to
technological know-how, access to distribution channels,
and the extent of governmental control of the industry.
New companies, whether startups or companies from other
industries, must work hard to overcome these barriers.
Intangible barriers include the reputation of existing
companies and brands, customer loyalty to current
producers and cost of customer switching. Together
tangible and intangible barriers protect the positions of
existing companies by discouraging new comers from
entering the industry.
 Analyzing the structure of the
industry
■ Product differentiation: Companies use technology
and marketing to differentiate their products from those
offered by the competition. Early in the formative years
of an industry, companies rely on technology to make
their products unique. One reason for this tendency is
the absence of a widely used standard. A standard
(usually called the dominant design) develops based on
market acceptance of a particular product configuration
or because of a legal mandate. In the early years of the
PC industry, IBM and Apple vied for the industry’s
technological leadership. Their products attempted to
essentially the same thing, but using different
technologies. The product differed in their memory, data
processing logic and layout.
1. Concentration: The level of industry concentration can
profoundly affect the intensify of competition.
Concentration refers to the extent to which the leading
companies dominate industry sales. It is usually measured
as a ratio that reflects the sales of the leading companies
to the industry’s overall sales. The concentration ratio (CR)
reflects the dominance of the top 4,8,12, or 20 leading
companies. The concentration ratio of the top four
companies (CR4) is widely used to indicate an industry’s
concentration. The CR4 equals the sales of the four
companies divided by the total sales of the industry.
Analyzing the structure of
the industry
2. Economies of scale and scope: The intensity of competition in
an industry also depends on the extent of economies of scale and
how companies use them. These economies of scale result from the
savings companies achieve from producing large quantities.

3. Understanding the Forces of Competition:

Managers should be careful in drawing conclusions from the analysis
of industry structure. This analysis is best suited for explaining
historical trends in the industry. Managers can gain insight into
competitive dynamics by using Porter’s five forces of competition. In
many ways this approach presents a refinement and extension of
the industry structure framework, discussed above. However, it
offers a richer view of the competition by capitalizing on the
interrelationships of five powerful and dynamic forces, as illustrated
in fig 3-5. It includes five forces like potential entry, the power of
buyers, and the power of suppliers, substitutes and rivalry among
existing competitors.
4. Performing strategic group analysis:
Understanding the industry structure, the dynamics of
competition and the KSF sets the stage for conducting
strategic group analysis. The purpose is to identify
clusters (or groups) of companies in an industry that
pursue similar competitive strategies. Companies in the
same group have much in common in terms of their
competitive approach but may still differ in other ways.
 Analyzing the structure of the
industry
6. Conducting competitive intelligence (CI):
Conducting an effective industry and competitive analysis requires collecting
data about the company’s major rivals. Some data are readily available in
secondary sources but must be organized, studied and analyzed to infer
competitor’s plans and strategies. Competitive intelligence (CI) requires
gathering, analyzing and interpreting data about the company’s key rivals.
This demands attention to several factors: data sources, time financial
requirements and managerial skills. Some companies have created
competitive intelligence units that perform these activities.
7. Interpreting competitive signals:
Companies intentionally or unintentionally reveal a great deal about
themselves to their rivals. These revelations convey important messages
about ongoing or intended moves, including:
Informing rivals of changes in the company’s direction to avoid costly
relation.
Testing the company’s assumptions about the competition. By observing the
companies that respond to its signals and how they respond, managers can
gain insights into competitor’s ways of thinking.
Warning competitors. In this case, signaling is a precursor to a
counter-attack.
Bluffing to buy more time for the sender or confuse the competition.
Analyzing the structure of the
industry
Guidelines for effective competitive analysis
* Identify key competitors, even if they have different
organizational types than your company.
* Identify substitutes, both domestic and foreign,
whether traditional or nontraditional.
* Use both formal and informal means of collecting
information about your competition. Informal sources of
data, while costly, are sometimes more revealing and
informative than official information.
* Develop knowledge of the national and
organizational cultures. This knowledge is important in
gaining access to vital information and to accurately
interpreting data about the competition. Without this
knowledge, key cues are likely to be missed.
* Give special attention to the network (group) of
companies to which the competitors may belong. In
Korea and Japan, for example, this network profoundly
impacts the competitive behavior of individual
companies. Not only do they determine access to
markets and resources but they also ensure coordination
of strategic moves.
* As with domestic competitive analysis, pay attention
to the competitor’s unique attributes. This means that
you should delve deeply into their operations, culture
and organization.
 Analyzing the structure of the
industry
8. Identifying opportunities and threats:
Industry and competitive analysis and
environmental scanning are useful in defining the
company’s opportunities and threats. Opportunities
are favorable conditions in the company’s external
environment, industry or competitive dynamics.
Threats are unfavorable trends in the environment,
industry or competition.
 Conclusion

Industry and competitive analyses are needed to identify

the company’s opportunities and threats, develop
strategic alternatives and select an effective strategy.
Industry and competitive analyses complement external
environmental analyses, scanning, and forecasting
activities, discussed in pervious chapter. Still, to develop
an effective strategy, managers need to appraise their
company and its operations to delineate its strengths
and weaknesses
 Thank You

For Attending

This Session