1. Industry and Competitive Analysis
Chapter 4
Industry and Competitive Analysis
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Answering the Question, “Where are We Now?”
Two situational considerations
Company’s external industry and competitive environment
Company’s own market position and competitiveness
Its competencies, capabilities, resource strengths and weaknesses, cost position, culture, and the strength of its leadership

3. External Environmental Factors Shaping A Company’s Choice of Strategy

4. Assessing a Company’s Industry and Competitive Environment: The Seven Key Questions to Answer
What are the industry’s business and economic traits?
What are the nature and strength of competitive forces?
What forces are driving industry change?
What market positions do industry rivals occupy?
What strategic moves are rivals likely to make next?
What are the key factors of competitive success?
Does the industry outlook offer good prospects for profitability?

5. Assessing a Company’s Industry and Competitive Environment
What are the industry’s business and economic traits?
What are the nature and strength of competitive forces?
What forces are driving industry change?
What market positions do industry rivals occupy?

6. Assessing a Company’s Industry and Competitive Environment
What strategic moves are rivals likely to make next?
What are the key factors of competitive success?
Does the industry outlook offer good prospects for profitability?

7. Identifying the Industry’s Dominant Economic Features
Market size and growth rate
Number of rivals
Scope of competitive rivalry
Pace of technological change
Degree of vertical integration
Need for economies of scale
Learning and experience curve effects

8. Porter’s Five Forces Model of Competition
Complementors

9. When Is the Bargaining Power of Buyers Stronger ?
Buyers are large and can demand concessions
Buyer switching costs for substitutes are low
The number of buyers is small
Buyer demand is weak or declining
Buyers are well-informed about sellers’ products, prices, and costs
Buyers threaten to integrate backward

10. When Is the Competition From Substitutes Stronger ?
There are many good substitutes that are readily available
Substitutes are attractively priced
Substitutes have comparable or better quality and performance
End-users have low switching costs

11. When Is the Bargaining Power of Suppliers Stronger ?
Industry members incur high switching costs
Needed inputs are in short supply
Supplier provides a differentiated input that enhances the quality or performance of sellers’ products
There are only a few suppliers of a specific input
Some suppliers threaten to integrate forward

12. When Is the Threat of Entry Stronger ?
Industry growth is rapid and profit potential is high
Incumbents are unwilling or unable to contest a newcomer’s entry efforts
The pool of entry candidates is large
Entry barriers are low

13. What Causes Rivalry to Be Stronger ?
Competing sellers regularly launch fresh actions to boost market standing
Declining demand or slow market growth
The products or services offered by rivals are standardized or weakly differentiated
One or more industry rivals becomes dissatisfied with their market standing

14. What Causes Rivalry to Be Stronger ?
Number of rivals increases
Buyer costs to switch brands are low
Industry conditions tempt rivals use price cuts or other competitive weapons to boost volume
Outsiders have recently acquired weak firms in the industry and are trying to turn them into major market contenders

15. When the Five Competitive Forces Result in Attractive Market Conditions
An industry’s competitive environment tends to be attractive from a profit-making standpoint when
Rivalry is moderate
Entry barriers are high and no firm is likely to enter
Good substitutes do not exist
Suppliers and customers are in a weak bargaining position
thereby producing competitive pressures that are very weak!

16. When the Five Competitive Forces Result in Unattractive Market Conditions
An industry’s competitive environment tends to be unattractive from a profit-making standpoint when
Rivalry is strong
Entry barriers are low and new competitors are likely to enter
Good substitutes exist
Suppliers and customers are in a strong bargaining position
thereby producing competitive pressures that are very intense or fierce!

17. Analyzing Driving Forces
Identify forces likely to reshape industry competitive conditions
Changes likely to take place within next 1 – 3 years
Usually no more than factors qualify as real drivers of change

18. Analyzing Driving Forces
Assess impact of driving forces on industry attractiveness
Are the driving forces causing demand for product to increase or decrease?
Are the driving forces acting to make competition more or less intense?
Will the driving forces lead to higher or lower industry profitability?
Determine what strategy changes are needed to prepare for impact of driving forces

19. Common Driving Forces Changes in long-term industry growth rate
Increasing globalization of the industry
Changes in who buys the product and how they use it
Product innovation
Technological change
Entry or exit of major firms

20. Identifying the Market Positions of Rivals

21. What Can Be Learned from Strategic Group Maps
Driving forces and competitive pressures often favor some strategic groups and hurt others
Competitive pressures may cause the profit potential of different strategic groups to vary
Identification of competitive
“white spaces” or
“blue ocean” opportunities

22. Blue Ocean Strategies
Blue ocean strategies offer growth by discovering or inventing new industry segments that create altogether new demand
Cirque du Soleil has attracts 10 million people annually to its shows by “reinventing the circus”—its audience typically doesn’t attend circus events

23. Predicting the Next Strategic Moves Rivals Are Likely to Make
Profiling key rivals involves gathering competitive intelligence about
Thinking and leadership styles of top executives
Identifying trends in the timing of new product launches and marketing promotions
Considering which rivals have the motivation and capability to make major strategy changes

24. Pinpointing the Key Factors for Future Competitive Success
Key Success Factors (or KSFs) are competitive factors most affecting every industry member’s ability to prosper.
KSFs include:
Specific product attributes
Necessary resources, competencies, and capabilities
Specific intangible assets
Competitive capabilities

25. Three Questions to Ask in Identifying Industry Key Success Factors
On what basis do buyers choose between brands?
What resources are needed to compete successfully?
What shortcomings are almost certain to put a company at a competitive disadvantage?

26. Common Types of Industry Key Success Factors
Expertise in a particular technology
Scale economies or experience curve benefits
High capacity utilization
Strong network of wholesale distributors
Brand building skills
Convenient retail locations

27. Deciding Whether the Industry Presents an Attractive Opportunity
Involves assessing whether the industry and competitive environment is attractive or unattractive for earning good profits
Draws upon all the previous analysis
The industry’s growth potential
The intensity of competition
Whether the impacts of the driving forces are positive or negative
The company’s competitive position in the industry relative to rivals
How well the company performs the industry’s key success factors