1. 1 ANALYSIS EXTERNAL ANALYSIS INDUSTRY AND COMPETITION) (INDUSTRY AND COMPETITION) Payne (3) “Analysis is the critical starting point of strategic thinking.” Kenichi Ohmae

2. 2 Environmental Analysis Levels Connect Firm Industry Level Macro Level Competitors Suppliers Substitutes Customers Demographic TechnologicalPolitical/Legal Social Economic Global   EXTERNAL or MACRO- ENVIRONMENT   Industry and competitive conditions (opportunities and threats)   INTERNAL or MICRO- ENVIRONMENT   Its competencies, capabilities, resources, and competitiveness (strengths and weaknesses)

3. 3 Macro Environment (1) l Socio-cultural segment Women in the workplace Women in the workplace Workforce diversity Workforce diversity Attitudes about quality of worklife Attitudes about quality of worklife Concerns about environment Concerns about environment Shifts in work and career preferences Shifts in work and career preferences Shifts in product and service preferences Shifts in product and service preferences l Political/Legal Segment Antitrust laws Antitrust laws Taxation laws Taxation laws Deregulation philosophies Deregulation philosophies Labor training laws Labor training laws Educational philosophies and policies Educational philosophies and policies

4. 4 l Economic segment Inflation rates Inflation rates Interest rates Interest rates Trade deficits or surpluses Trade deficits or surpluses Budget deficits or surpluses Budget deficits or surpluses Personal savings rate Personal savings rate Business savings rates Business savings rates Gross domestic product Gross domestic product Macro Environment (2) l Technological Segment Product innovations Product innovations Applications of knowledge Applications of knowledge Focus of private and government-supported R&D expenditures Focus of private and government-supported R&D expenditures New communication technologies New communication technologies

5. 5 l Global Segment Important political events Important political events Critical global markets Critical global markets Newly industrialize countries Newly industrialize countries Different cultural and institutional attributes Different cultural and institutional attributes Macro Environment (3) l Demographic Population size Population size Age structure Age structure Geographic distribution Geographic distribution Ethnic mix Ethnic mix Income distribution Income distribution

6. 6 Five Forces Model of Competition Substitute Products (of firms in other industries) Rivalry Intensity Among Competing Sellers Potential New Entrants Suppliers of Key Inputs Buyers Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Threat of Substitutes

7. 7 Stakeholder Analysis and Social Capital Focal Firm Stakeholder A Stakeholder C Stakeholder B

8. 8 Who are Stakeholders? l l Identifying stakeholders is one way of sizing up the internal and external constituents that influence the firm. Stakeholders are individuals and groups who can affect and are affected by a firm’s strategic outcomes and who have enforceable claims on its performance Stakeholders include individuals, groups, and other organizations who have an interest in the actions of an organization and who have the ability to influence it l l Stakeholders may be categorized as internal, interface and external. l l Analyzing stakeholders involves 1) determining who matters and 2) how they might be managed for the betterment of the firm.

9. 9 Social Capital l l Social capital is “the sum of actual and potential resources embedded within, available through, and derived from the network of relationships possessed by individuals or social units,” Nahapiet and Ghoshal’s (1998, p. 243)   The “bonding” view of social capital suggests that persons derive social capital from the internal forces within their collective. This is achieved primarily as the collective matures and strong recursive bonds develop between actors who interact frequently (Coleman, 1988).   The “bridging” view of social capital (e.g., Burt, 2000) represents the value of resources derived from connections spanning structural holes in a network.

10. 10 Key Success Factors l KSFs or CSFs are competitive elements that most affect every strategic group member’s ability to prosper in the marketplace:  Specific strategy elements  Product attributes  Resources or Competencies  Competitive capabilities l KSFs spell difference between:  Profit and loss  Competitive success or failure Ask: For our organization to be successful, we MUST be especially good at ___________?

11. 11 Key Success Factors A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor! KSF 1 KSF 2 KSF 3 Optimize Performance

12. 12 Strategic Group Mapping l One technique for revealing the different competitive positions of industry rivals is strategic group mapping l A strategic group consists of those rivals with similar competitive approaches in an industry

13. 13 Strategic Group Mapping l Firms in same strategic group have two or more competitive characteristics in common...  Sell in same price/quality range  Cover same geographic areas  Be vertically integrated to same degree  Have comparable product line breadth  Emphasize same types of distribution channels  Offer buyers similar services  Use identical technological approaches

14. 14 A Framework of Competitor Analysis MarketCommonality High Low LowHigh ResourceSimilarity The shaded area represents degree of market commonality between two firms Resource endowment B Resource endowment A KEY III IIIIV

15. 15 Market Commonality l Market Commonality is concerned with  the number of markets with which a firm and a competitor are jointly involved  the degree of importance of the individual markets to each competitor l Most industries’ markets are somewhat related in terms of  technologies  core competencies l Multi-market competition  Firms competing in several markets

16. 16 Resource Similarity l Resource similarity  the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount l Firms with similar types and amounts of resources are likely to  have similar strengths and weaknesses  use similar broad strategies l Assessing resource similarity can be difficult if critical resources are intangible rather than tangible

17. 17 Procedure: Constructing a Strategic Group Map STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales

18. 18 Interpreting Strategic Group Maps (i.e., Implications of the Strategic Groups Concept) l Driving forces and competitive pressures often favor some strategic groups and hurt others – such recognition may be the key to developing a competitive advantage. l Profit potential of different strategic groups varies due to strengths and weaknesses in each group’s market position. Important niches may be identified that are not currently being filled by competitors. l The closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be (“Organizations most like yours are the most dangerous.”)

19. 19 Price / Quality / Image High Low Medium Product Line / Merchandise Mix Specialty Full-line Providers Limited-category Retailers Broad-category Retailers Within or Between Strategic Groups

20. 20 Categorizing the Objectives and Strategies of Competitors Competitive Scope Strategic Intent Market Share Objective Competitive Position Strategic Posture Competitive Strategy Local Be dominant leader Aggressive expansion via acquisition & internal growth Getting stronger; on the move Mostly offensive Regional Overtake industry leader Well- entrenched Mostly defensive National Be among industry leaders Expansion via internal growth Stuck in the middle of the pack Combination of offensive & defensive Multi-country Move to top 10 Expansion via acquisition Going after a different position Aggressive risk-taker Global Move up a notch in rankings Hold on to present share Struggling; losing ground Conservative follower Maintain current position Give up present share to achieve short- term profits Retrenching to a position that can be defended Just survive Striving for low-cost leadership Mostly focusing on a market niche Pursuing differentiation based on – – Quality – – Service – – Technology superiority – – Breadth of product line – – Image & reputation – – More value for the money – – Other attributes

21. 21 Unweighted Competitive Strength Assessment KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Technological skills Dealer network/distribution New product innovation Financial resources Relative cost position Customer service capability Overall strength rating ABC Co. Rival 1 Rival 2 8510 8710 2104 1017 9410 9410 5107 5103 5710 615871 Rival 3 1 1 5 3 5 5 3 1 1 25 Rival 4 6 6 1 8 1 1 1 4 4 32 Rating Scale: 1 = Very weak; 10 = Very strong

22. 22 A Weighted Competitive Strength Assessment KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Technological skills Dealer network/distribution New product innovation Financial resources Relative cost position Customer service capability Rival 1 Rival 2 5/0.5010/1.00 7/0.7010/1.00 10/1.004/0.40 1/0.057/0.35 4/0.2010/0.50 4/0.2010/0.50 10/1.007/0.70 10/3.503/1.05 7/1.0510/1.50 ABC Co. 8/0.80 8/0.80 2/0.20 10/0.50 9/0.45 9/0.45 5/0.50 5/1.75 5/0.75 Rival 3 1/0.10 1/0.10 5/0.50 3/0.15 5/0.25 5/0.25 3/0.30 1/0.35 1/0.15 Rival 4 6/0.60 6/0.60 1/0.10 8/0.40 1/0.05 1/0.05 1/0.10 4/1.40 4/1.60 Weight 0.10 0.10 0.10 0.05 0.05 0.05 0.10 0.35 0.15 Sum of weights 1.00 Overall strength rating 6.208.207.002.102.90 Rating Scale: 1 = Very weak; 10 = Very strong