Presentation on theme: "“Analysis is the critical starting point of strategic thinking.”"— Presentation transcript:
1 “Analysis is the critical starting point of strategic thinking.” Kenichi Ohmae“Things are always different--the art is figuring out which differences matter.”“Quote”Laszlo BirinyiMcGraw-Hill/IrwinCopyright2001 by The McGraw-Hill Companies, Inc. All rights reserved.
3 Chapter Outline Role of Situation Analysis in Strategy-Making Methods of Industry and Competitive AnalysisIndustry’s Dominant Economic TraitsIndustry’s Competitive ForcesDrivers of Industry ChangeCompetitive Positions of RivalsCompetitive Moves of RivalsKey Success FactorsConclusions: Overall Industry AttractivenessConducting an Industry and Competitive Analysis
4 What Is Situation Analysis? Two considerationsCompany’s external or macro-environmentIndustry and competitive conditionsCompany’s internal or micro-environmentCompetencies, capabilities, resource strengths and weaknesses, and competitiveness
5 Figure 3.1: The Components of a Company’s Macro-Environment The Economy at LargeTechnologyLegislation and RegulationSuppliersSubstitutesCOMPANYRival FirmsBuyersNewEntrantsSocietal Values and LifestylesPopulation DemographicsIMMEDIATE INDUSTRY AND COMPETITIVE ENVIRONMENT
6 Key Considerations Regarding the Industry and Competitive Environment Industry’s dominant economic traitsCompetitive forces and strength of each forceDrivers of change in the industryCompetitor analysisKey success factorsConclusions: Industry attractiveness
7 Industry’s Dominant Economic Traits What is the definition of an industry?What are the Industry’s dominant economic traits?High capital requirements TRUE FALSEdo not create exit barriersIndustries characterized by TRUE FALSEthe need for economies ofscale do not require that firmshave high market share.
8 Industry’s Dominant Economic Traits How does vertical integration affect an industry?Capacity surpluses pull TRUE FALSEindustry prices up.Consolidation is typical in TRUE FALSEslow growth industries.What are some possible industry exit barriers?What is the Experience Curve?
9 Figure 3-3: Cost Advantages of Different Experience Curve Effects $1$22.214.171.12410% CostReduction.7126.96.36.199220% CostReductionCost per Unit.49.34330% CostReduction1MillionUnits2MillionUnits4MillionUnits8MillionUnits
10 Figure 3-4: Five Forces Model of Competition Substitute Products(of firms inother industries)Suppliers of Key InputsRivalryAmongCompetingSellersBuyersPotentialNewEntrants
11 Intensity of RivalryWhat factors cause a strong rivalry in the industry?Competition in an industry is typically based upon what two things?
12 Competitive Force of Potential Entry What is the potential impact of new entrants to existing firms?What are some type of entry barriers?What are some forms of retaliation to prevent new entrants into an industry?New entrants in an TRUE FALSE industry do not benefit customers.
13 Competitive Force of Potential Entry An industry which has economies True Falseof scale may cause new entrantsto accept a cost disadvantageHigh advertising costs is not a True Falsea deterrent to entering an industry.The threat of new entrants is True Falsestrong when the industry has highbrand loyalty.
14 Effects of Entry Barriers and Exit Barriers on Industry Profits High, Risky ReturnsEntry BarriersExit BarriersHighLowLow, Stable ReturnsHigh, Stable ReturnsLow, Risky Returns
15 Competitive Force of Substitute Products What are substitute products?How do substitutes affect the prices in the competing industry?The threat of substitutes is TRUE FALSEstrong when switching costsare high.The threat of substitutes is TRUE FALSEstrong when substitutes havebetter product attributes.The threat of substitutes is TRUE FALSEstrong when the substitutesprices are lower.
16 Competitive Force of Suppliers Suppliers have power when there TRUE FALSEare easily available substituteproducts to their productHigh switching costs for firms in TRUE FALSEthe industry gives suppliers morepowerSupplying to an industry that is a TRUE FALSEmajor customer weakens supplierWhen the suppliers’ product is a TRUE FALSElarge portion of the industry coststhe suppliers have more power.
17 Competitive Force of Suppliers What are some reasons why sellers and suppliers collaborate?Suppliers with good reputations TRUE FALSEand growing demand have littleinfluence over the buying industry.Suppliers that supply a standard TRUE FALSEcommodity available fromnumerous other firms can exertsubstantial power.A lack of vertical integration in the TRUE FALSEbuyers’ industry gives suppliersstrong bargaining power.
18 Competitive Force of Buyers High switching costs for buyers True Falsein the industry decreases thebuyers power.Buyers that purchase a large True Falseamount of the industry’s outputhave strong bargaining power.An industry with a large number True Falseof firms gives buyers more power.
19 Competitive Force of Buyers An industry with buyers that True Falsebuy in large quantities havebuyers with strong power.When buyers can backward True Falseintegrate into the selling industrythey have strong bargainingpower.An industry with a standardized True Falseproduct gives buyers less power.
20 Strategic Implications of the Five Competitive Forces Competitive environment is unattractive from the standpoint of earning good profits when:Rivalry is strongEntry barriers are low and entry is likelyCompetition from substitutes is strongSuppliers and customers have considerable bargaining power
21 Strategic Implications of the Five Competitive Forces Competitive environment is ideal from a profit-making standpoint when:Rivalry is moderateEntry barriers are high and no firm is likely to enterGood substitutes do not existSuppliers and customers are in a weak bargaining position
22 Industry Driving Forces What is an industry driving force?What are some common types of driving forces?Name three driving forces in the Automotive Industry. Be prepared to discuss in class.Name three driving forces in the Wireless Communications Industry. Be prepared to discuss in class.
23 Competitors and Strategic Group Mapping What is a strategic group map?What are some characteristics that you can use to compare firms in a strategic group map?What are some possible sources of information about a firm’s competitors?
24 Procedure for Constructing a Strategic Group Map STEP 1: Identify competitive characteristics that differentiate firms in an industry from one anotherSTEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristicsSTEP 3: Assign firms that fall in about the same strategy space to same strategic groupSTEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales
25 Guidelines: Strategic Group Maps Variables selected as axes should not be highly correlatedVariables chosen as axes should expose big differences in how rivals competeVariables do not have to be either quantitative or continuousDrawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic groupIf more than two good competitive variables can be used, several maps can be drawn
26 Interpreting Strategic Group Maps Driving forces and competitive pressures often favor some strategic groups and hurt othersProfit potential of different strategic groups varies due to strengths and weaknesses in each group’s market positionThe closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be
27 Key Success FactorsWhat are Industry Key Success Factors ?KSFs consist of the really major determinants of financial and competitive success in an industryWhat are three Key Success Factors in the Fast Food/Leisure Segment of the Restaurant Industry. Be prepared to discuss in class.
28 Strategic Management Principle A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor!
29 Things to Consider in Assessing Industry Attractiveness Industry’s market size and growth potentialWhether competitive conditions are conducive to rising/falling industry profitabilityWill competitive forces become stronger or weakerWhether industry will be favorably or unfavorably impacted by driving forcesPotential for entry/exit of major firmsStability/dependability of demandSeverity of problems facing industryDegree of risk and uncertainty in industry’s future
30 Conducting an Industry and Competitive Situation Analysis Two things to keep in mind1. Evaluating industry and competitive conditions cannot be reduced to a formula-like exercise--thoughtful analysis is essential2. Sweeping industry and competitive analyses need to done every 1 to 3 years