CORPORATE STRATEGY

SLIDE SET 4

2022-2023
 Further Topics in Industry and
Competitive Analysis
OUTLINE
▪ Objectives
▪ The limits of industry analysis
o Does Industry Matter?
o Hypercompetition
o Winner-Take-All Industries
▪ Beyond the Five-Forces
o Complements
o Ecosystems
o Business Models
▪ Competitive Interaction
o Game Theory
o Competitor Analysis
▪ Segmentation and strategic groups
Copyright © 2019 John Wiley & Sons, Inc.
FURTHER TOPICS IN INDUSTRY AND COMPETITIVE ANALYSIS

Objectives
▪ To recognize the limits of the Porter five forces
framework, and extend the framework to include the role
of complements as well as substitutes

▪ To acknowledge competition as a dynamic process, to

appreciate the insights that game theory offers into the
dynamics of rivalry, and to use competitor analysis to
predict competitive moves by rivals

▪ To segment an industry into its constituent markets,

appraise the relative attractiveness of different segments
and apply strategic group analysis to classify firms
according to their strategic types
 THE LIMITS OF INDUSTRY ANALYSIS

Does Industry Matter?

Copyright © 2019 John Wiley & Sons, Inc.

 LIMITS OF INDUSTRY ANALYSIS

Competition as a Dynamic Process:

Hypercompetition
Porter framework assumes:
(a) industry structure drives competitive behavior
(b) Industry structure is (fairly) stable.

But, competition also changes industry structure:

• Schumpeterian Competition: A “perennial gale of creative destruction”
–market leaders overthrown by innovation
• Hypercompetition: “intense and rapid competitive moves….
continuously creating new competitive advantages and destroying
existing competitive advantages”

Implication: --Within 5-forces framework:

INDUSTRY STRUCTURE COMPETITION
--Under dynamic competition:
COMPETITIVE STRATEGY INDUSTRY STRUCTURE

Copyright © 2019 John Wiley & Sons, Inc.

LIMITS OF INDUSTRY ANALYSIS

Hypercompetition
Industries are said to enter a state of hypercompetition
state when competitive advantages can only be sustained
for very short periods.
Firms in these industries continually seek new sources of
competitive advantage.

A firm’s chief strategic goal should be to disrupt the existing

sources of advantages including its own.
A firm that relies solely on its existing source of
advantages will be displaced by more innovative rivals.
Firms should be able to create shocks on their own rather
than waiting for them to occur.
 LIMITS OF INDUSTRY ANALYSIS

Winner-Take-All Industries

▪ In some industries, the notion of “industry attractiveness” is

meaningless because one firm takes all the industry’s profits
and other firms earn little or no profit

▪ These “winner-take-all” industries tend to be those with

extreme scale economies (e.g. search engines) or network
externalities (online auction sites, social networks)

Copyright © 2019 John Wiley & Sons, Inc.

 BEYOND THE 5-FORCES

Five Forces or Six?

Introducing Complements
The suppliers of
complements create
SUPPLIERS value for the industry
and can exercise
Bargaining power of suppliers bargaining power

INDUSTRY
COMPETITORS COMPLEMENTS

POTENTIAL Threat of
ENTRANTS Threat of
new entrants SUBSTITUTES
Rivalry among
existing firms substitutes

Bargaining power of buyers

BUYERS
© 2019 Robert M. Grant,
www.contemporarystrategyanalysis.com
BEYOND THE 5-FORCES

Business Ecosystems:
Managing Value Migration
▪ A business ecosystem is the “community of organizations,
institutions, and individuals that impact the enterprise”

▪ Change within a business ecosystem causes value to

migrate between firms and groups of firms

▪ A firm can influence value migration within a business

ecosystem in order to increase its share of value within the
system. E.g. by becoming a “guardian of quality”, becoming
irreplaceable, exploiting changing customer needs, or
reconfiguring the value chain.
BEYOND THE 5-FORCES

Using Business Models to Manage the Ecosystem

▪ A business model is a simplified description of a business that specifies
the core logic for creating value

▪ Business models are useful for developing strategies that can exploit the
opportunities available in complex business ecosystems

▪ The Business Model Canvas is a graphical tool for designing business

models:

Infrastructure Offer Customer

Activities Segments
Partners Value Relationships
Proposition
Resources Channels

THE BUSINESS
Financial viability MODEL CANVAS
Costs Profit Revenues
COMPETITIVE INTERACTION

The Contribution of Game Theory

to Competitive Analysis
1. Frames strategic decisions as interactions between competitors
2. Predicts outcomes of competitive situations involving a few,
evenly-matched players
3. Provides key insights into the nature and determinants of interactions
among competitors. E.g.:
a)Competition and Cooperation—Game theory can show conditions
where cooperation more advantageous than competition
b)Deterrence—changing the payoffs in the game in order to deter
a competitor from certain actions
c)Commitment—irrevocable deployments of resources that
give creditability to threats
d)Signaling—communication to influence a competitor's decision

Problems of game theory:

• Able to explain past competitive behavior—weak in predicting future behavior.
• Lack of an integrated general theory— Many different models; outcomes highly
sensitive to small changes in assumptions

© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com

COMPETITIVE INTERACTION

A Framework for Competitor Analysis

OBJECTIVES
What are competitor’s current goals?
Is performance meeting there goals?
How are its goals likely to change?
PREDICTIONS
STRATEGY
How is the firm competing? • What strategy changes
will the competitor
ASSUMPTIONS initiate?
What assumptions does the competitor
hold about the industry and itself?
• How will the competitor
respond to our strategic
RESOURCES & CAPABILITIES
initiatives?
What are the competitors’ key
strengths and weaknesses?
 SEGMENTATION AND STRATEGIC GROUPS

Segmentation Analysis: The Principal Stages

Identify segmentation variables

1. Identify key variables Reduce to 2 or 3 variables
and categories Identify discrete categories for
each variable

2. Construct a segmentation matrix

3. Analyze segment attractiveness

4. Identify KSFs in each segment Potential for economies

of scope across segments
5. Analyze benefits of Similarity of KSFs
broad vs. narrow scope Differentiation benefits of
segment focus
SEGMENTATION AND STRATEGIC GROUPS

Customer and Product Characteristics

as Segmentation Variables •Size
•Technical
Industrial buyers sophistication
•OEM/replacement

Characteristics •Demographics
of the Buyers Household buyers •Lifestyle
•Purchase occasion

•Size
Distribution channel
•Distributor/broker
Opportunities for •Exclusive/
Differentiation Geographical nonexclusive
location •General/specialist

• Size
• Price
• Features
Characteristics •Technology/design
of the Product • Inputs used (e.g. raw materials)
• Performance characteristics
•Pre-sales/after-sales services
 SEGMENTATION AND STRATEGIC GROUPS

Segmenting the World Automobile Market

R E G I O N S
North Latin W. E. East South Pacific Africa/Mid
America America Europe Europe Asia Asia -dle East

Luxury cars
Large/midsize sedans
P Compact family cars
R
Mini cars
O
D Sports cars
U SUVs
C Multi-purpose vehicles
T
Pickup trucks
S
Hybrid cars
Electric cars

Copyright © 2019 John Wiley & Sons, Inc.

 SEGMENTATION AND STRATEGIC GROUPS

Vertical Segmentation & Industry

Profit Pools: The US Auto Sector
25

20

Leasing Service & repair

15 Warranty
Aftermarket
Gasoline parts Auto
10 Auto Auto
manufacturing loans rental
Auto
New car insurance
dealers
5 Used car dealers

0
0 Share of industry revenue (%) 100

Copyright © 2019 John Wiley & Sons, Inc.

 SEGMENTATION AND STRATEGIC GROUPS

Vertical Segmentation & Industry

Profit Pools: Electric Vehicles
Power
management
25
Power Charging
generation points
20
EBIT
/Sales Servicing
15 & repair Value added services
(%) (e.g. entertainment,
Financing
navigation,
10 information)

5
Batteries Distri-
Vehicle production bution
0

Revenue

Copyright © 2019 John Wiley & Sons, Inc.

 SEGMENTATION AND STRATEGIC GROUPS

Segmentation and Key Success

Factors: The U.S. Bicycle Market
SEGMENT KEY SUCCESS FACTORS

Low price bicycles sold primarily • Low-costs of components and assembly.

through department and discount • Supply contract with major retailer.
stores, mainly under the retailer’s Leading competitors: Assemblers in Taiwan & China
own brand (e.g. Sears’ “Free Spirit”); + a few U.S manufacturers, e.g. Murray Ohio, Huffy

• Cost efficiency through scale and low wage costs

Medium-priced bicycles sold mainly • Reputation for quality
under manufacturer’s brand and • Good dealer relations
distributed through specialist cycle * International marketing & distribution.
stores Leading competitors: Giant, Peugeot, Fuji

• Quality components and assembly

• Innovation in technology and design
High-priced bicycles for enthusiasts.
• Reputation (including success in racing)
• Strong dealer relations.

Children’s bicycles /tricycles) sold Similar to low-price bicycle segment.

through discount stores, & toy stores)

Copyright © 2019 John Wiley & Sons, Inc.

 SEGMENTATION AND STRATEGIC GROUPS

Strategic Group Analysis

A strategic group is a group of firms in an industry

that follow the same or similar strategies

Identifying strategic groups:

• Identify principal strategic variables which
distinguish firms.
• Position each firm in relation to these
variables.
• Identify clusters.

Copyright © 2019 John Wiley & Sons, Inc.

 SEGMENTATION AND STRATEGIC GROUPS

Strategic Groups within the World

Automobile Industry
Broad GLOBAL, BROAD-LINE
PRODUCERS
e.g., GM, Ford, Toyota,
Honda, VW, Renault-Nissan,
Stellantis

NATIONAL PRODUCERS OF ,
PRODUCT INTERMEDIATE RANGE OF
GLOBAL PRODUCERS OF A
MODELS
RANGE LIMITED RANGE OF
e.g. Tofas (Turkey), Proton MODELS e.g., BMW,
(Malaysia), Tata Motors (India), Fuji/Subaru, Isuzu, Suzuki,
Chery (China) , Avtovaz
(Russia)

NATIONALLY- FOCUSED, PERFORMANCE

SPECIALIST PRODUCERS e.g., CAR PRODUCERS
Bristol (UK), BDY (China), Premier e.g., Ferrari (Italy),
Narrow (India), Classic Roadsters (US), Aston Martin (UK),
Morgan (UK), Tesla, Fisker (US)

National GEOGRAPHICAL SCOPE Global

Copyright © 2019 John Wiley & Sons, Inc.
 SEGMENTATION AND STRATEGIC GROUPS

Strategic Groups within the World

Petroleum Industry
Upstream INTERNATIONAL
NATIONAL
PRODUCTION EXPLORATION & PRODUCTION
COMPANIES COMPANIES
e.g. Saudi Aramco, Kuwait e.g. Conoco, Apache, Occidental,
Petroleum, Qatar Marathon Oil
Vertical
Petroleum,
Balance
INTEGRATED SUPER MAJORS
Integrated INTEGRATED
INTERNATIONAL e.g. ExxonMobil, Shell,
NATIONAL OIL COMPANIES
e.g. Petrobras, PDVSA, CNPC,
MAJORS BP, Chevron, Total,
Indian Oil, Pemex e.g. Eni, Repsol,
PetroCanada
DOMESTIC-FOCUSED
DOWWNSTREAM
COMPANIES
Down e.g. Valero, Nippon Oil,
stream Neste

National Global
Geographical Scope

Copyright © 2019 John Wiley & Sons, Inc.

 FURTHER TOPICS IN INDUSTRY AND COMPETITIVE ANALYSIS

Summary
▪ Conventional industry analysis is limited to the extent that:
a) Industry membership is a minor influence on firm profitability
b) It assumes industry structure is stable—the competitive process can
transform industry structures
c) In “winner-take-all” industries, the notion of industry attractiveness is
meaningless
▪ We can extend our analysis of industry and competition to take account of:
a) complementary products
b) platform-based competition
c) business ecosystems
▪ Competitive interactions between close rivals can be analyzed:
a) game theory
b) competitor analysis—which is less formal than game theory, but can
help us to understand competitors and predict their behavior
▪ Segmentation analysis and strategic group analysis allows us to
understand industries at a more detailed level

Copyright © 2019 John Wiley & Sons, Inc.