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1 - DILIGENT Phase 3 – Industry Dynamics Analysis
IDA Objective Industry Forces Generic Strategic Vs Forces Analysing Structure and Dynamics Shaping The Industry Confidence Index ©2004

2 Optimize the value-creation & value-capture strategy
IDA Objective Understand the context in which firms compete: Understand the rules of the game Predict competitors and their moves Identify options & strategies to optimize value capture Predict the likely reactions to the selection options. Optimize the value-creation & value-capture strategy ©2004

3 Industry Dynamics Analysis
1.0 CPA 2.0 MVP 3.0 IDA 4.0 ADC 3.1 Describe Industry 3.2 Describe Forces 3.3 Workshop Dynamics 3.4 Develop Thesis and Risk Analysis 3.6 Summarise Player Dynamics Overview Describe the industry in which the IP will apply and the dynamic forces of that industry developed to give a view of the major agents who will influence the value of the IP and identify the options & strategies. Supplier Process Output 2.0 MVP Business Leads Market Experts Industry Experts Researchers 3.1 Describe the Industry in which the IP will apply and the major sources of influence and power 3.2 Describe the forces that will apply to the owner or developer of the IP in the nominated industry 3.3 Workshop the dynamics of forces at play between players and technology in the industry 3.4 Develop an Industry thesis of forces and behaviours relevant to the future potential and value of the IP 3.5 Summarise the dynamics of the key players and their potential influence on the value of the IP 3.6 Complete and review Confidence Index for IDA Industry View Key Players Value Implications Strategy Issues Input Customer IP Map & Technology Roadmap Market Value Proposition Industry Description - Market Size, Growth, Structure 4.O ADC Business Leads Governance ©2004

4 IDA Industry Forces The classic Porter model:
The industry model is a subset of later cluster and country models Firm Strategy Structure and Rivalry Related and Supporting Industries Demand Conditions Factor Conditions Porter’s (1990) model of competitive advantage ©2004

5 IDA Porter's 5 Forces SUPPLIER POWER Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry BARRIERS TO ENTRY Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products THREAT OF SUBSTITUTES -Switching costs -Buyer inclination to substitute -Price-performance  trade-off of substitutes BUYER POWER Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs. industry Substitutes available Buyers' incentives DEGREE OF RIVALRY -Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes ©2004

6 IDA Generic Strategies Vs Forces
Industry Force Generic Strategies Cost Leadership Differentiation Focus Entry Barriers Ability to cut price in retaliation discourages potential entrants. Customer loyalty can discourage potential entrants. Focusing develops core competencies that can act as an entry barrier. Buyer Power Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives. Supplier Power Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Threat of Substitutes Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes. Rivalry Better able to compete on price. Brand loyalty to keep customers from rivals. Rivals cannot meet differentiation-focused customer needs. ©2004

7 IDA Impact of Technology
Technology can change the playing field: Technology 3Cs 4Ps Capabilities Speed Cost New value New market Limitations Ownership Distribution Performance Government Customer Company Competitor Product Price Place Promotion ©2004

8 IDA Suppliers and Inputs
Templates P C S O I Transform Typical questions for suppliers and inputs: Is the definition clear of what constitutes the “industry”? Is there information available about the nature of the industry? Are there trends regarding R&D expenditure and performance? Which knowledge created past competitive advantage? What outside views can shed light on industry dynamics? Is sufficient information known about generic firm strategies? Cost Differentiation Focus ©2004

9 IDA Process and Transformation
Templates P C S O I Transform Suggested analysis method: Map the major industry forces Map the periphery and the emerging players Understand the emerging players – strategies and objectives Hypothesis the major forces and trends Link in the IP Map and the Technology Roadmap Use the map and roadmap to confirm or remodel the forces Consider the effect of the forces the “disciplined” firms Consider the effect of the forces on the peripheral firms Describe the role of the invention and its network Identify the key players around the invention and the timing ©2004

10 IDA Analysing Structure and Dynamics
Typical detailed questions in support: What is the size of the total industry market? How concentrated is it – market share held by largest firms? How competitive – what are the typical margins? Which lines of business provide the major sources of profit? Where are the threats to the incumbent players? Are the “disciplined” firms being challenged by new players? What value would that destroy for the “disciplined” firms? What barriers are faced in getting there? Is technology or access to technology a key barrier? How high/low are the entry/exit barriers? ©2004

11 IDA Shaping the Industry
Key competitive moves shaping the industry are by: Firms improving differentiation Implementing key innovations in process and product Creatively using channels of distribution Exploiting relationships with suppliers Customers lowering their switching costs Firms raising the barriers to entry Buyers increasing their power Suppliers increasing their power Government regulation changing the dynamics New technology ©2004

12 IDA Outputs and Customers
Templates P C S O I Transform Present the industry dynamics: What are the compelling dynamics? How do they impact on the value of the invention? Which players will likely be most attracted by the invention? What would be the “size” of their interest? What would be the nature of their attraction? Blocker, Builder, Developer, Exploiter What would be the timing of their interest? What are they key resources they offer commercialization? Document and prioritise the key dynamics which explain and underwrite the potential value of the invention to partners, who may be current or emerging. ©2004

13 IDA Summary Industry structure determines customer and competitor behaviour Impact of Technology Revenue and cost Bundling Intermediation Cross-industry Process to understand and influence the impact of technology Describe current business model Describe capabilities and limitation of the technology Create alternative business models ©2004

14 IDA Templates The IDA Phase Summary Report:
C S O I Transform The IDA Phase Summary Report: Part of an evolving Business Plan Contains at least: Objective Conclusion Summary Actions Notes and carry-forward handover matters Actions for further work may precede or run in parallel with the next Phase - ADC ©2004

15 IDA Confidence Index How confident are you that:
The industry with the most potential has been well understood? The dynamic forces have been adequately determined? Porter’s Five Forces have each been well explored? The key fading firms and emerging firms have been identified? The invention will be important to the industry dynamics? The most prospective “target” companies have been identified? Possible intentions of those companies have been identified? The timing and resources necessary to go forward are clear? The resources which partners may contribute are understood? The technology should be taken to the next DILIGENT step? ©2004

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