1. EXTERNAL ANALYSIS, CHAPTER 2 DR. MARK FRUIN SPRING 2010 BUSINESS 189

2. DEVIATIONS FROM SYLLABUS WE’VE ALREADY DONE CHAPTER 1 THIS WEEK, TODAY, WE’LL COVER CHAPTER 2 –NEXT WEEK, WE’LL DO CHAPTER 3 (SOME OVERLAP WITH CHAPTER 2) –WE’LL START WITH GROUP FORMATION PROCESS; CIRCULATE, MEET & GREET, SO THAT YOU’LL BE ABLE TO FORM GROUPS THIS WEEK, THURSDAY, WE’LL START ON THE HARLEY DAVIDSON CASE –HOW TO DO CASE ANALYSIS, PP. C1-C12; READ & CONSIDER –BEGIN TO LAY OUT THE HD STORY AND HOW TO ANALYSE IT

3. BEFORE DOING SWOT INDUSTRY DEFINITION –? –TEXTBOOK VS. EMPIRICAL DEFINITION SECTOR DEFINITION –? MARKET SEGMENTS DEFINITION –? –AGAIN, TEXTBOOK VS EMPIRICAL DEFINITION EXAMPLE: FIGURE ON PAGE 41

4. CHANGING INDUSTRY BOUNDARIES WHY DO INDUSTRY BOUNDARIES CHANGE? –TEXTBOOK ANSWERS CHANGING CUSTOMER NEEDS CHANGING/EVOLVING TECHNOLOGY –REAL LIFE ANSWERS MARKET POWER ECONOMIC CONDITIONS INFLATE OR DEFLATE RIVALRY & DEGREE OF COMPETITION NEW, UNANTICIPATED COMPETITION AS GLOBALIZATION ADVANCES –INDUSTRY & SECTOR FORMATION IN EMERGING ECONOMIES NOT AS DEPENDENT ON “FREE-MARKET” FORCES

5. INDUSTRY BOUNDARIES CUSTOMER NEEDS EVOLVE NEW TECHNOLOGIES EMERGE TYPICALLY, WE THINK THAT TECHNOLOGIES DRIVE INDUSTRIES WHILE CUSTOMER NEEDS DRIVE MARKET SEGMENTS

6. SWOT FOR COB, 2009 SWOT FOR COB STRATEGIC GROUPS? –WHAT ARE THEY; WHAT DIFFERENCE DO THEY MAKE? SEPARATE UNDERGRAD & GRADUATE? WHAT CAN & SHOULD BE DONE TO MOVE UP IN RANKINGS? ROLE OF STRATEGIC INTENT HOW FAR CAN ONE GO WITH SWOT?

7. PORTERS 5 FORCES MODEL 5 FORCES MODEL & GENERIC COMPETITIVE STRATEGIES MODEL ARE KEY/PIVOTAL PORTER MODELS –WHAT IS A MODEL AND HOW MUCH VERISIMILITUDE SHOULD WE EXPECT FROM ONE? –UNDERSTAND AND BE ABLE TO DIAGRAM BOTH –TEXTBOOK’S 5 FORCES FIGURE IS LESS ROBUST THAN USUAL MODEL THAT PROVIDES A LOT OF DETAILS/ITEMS FOR EACH FORCE

8. DRIVERS OF 5 FORCES & GENERIC COMPETITIVE STRAT RISK OF ENTRY BY COMPETITORS THREAT OF SUBSTITUTES (NEW TECHNOLOGIES) BARGAINING POWER OF SUPPLIERS –HOW MANY, BIG, RARE, LOCKED IN & INDEPENDENT BARGAINING POWER OF BUYERS –HOW MANY, BIG, LOCKED IN & INDEPENDENT RIVALRY (MIDDLE BOX) –4Ss (ABSOLUTE & RELATIVE COST ADVANTAGES) –BRAND LOYALTY –SWITCHING COSTS –GOVERNMENT REGULATION –BARRIERS TO ENTRY (& TO EXIT)

9. COMPLEMENTORS OR VALUE NET PORTER’S MODEL IS INDUSTRY- SPECIFIC/FOCUSED ON ONE INDUSTRY OFTEN, INDUSTRIES ARE INTERRELATED OR CONNECTED AT THE HIP –IN THIS CASE, THE TWO INDUSTRIES SHOULD BE ANALYZED TOGETHER –EXAMPLES: AUTO INDUSTRY VS COMPUTERS AUTOS, TIRES, GLASS, PLASTICS COMPUTERS, CHIPS, PERIPHERALS, SOFTWARE

10. STRATEGIC GROUPS GROUPS OF COMPANIES THAT PURSUE SIMILAR STRATEGIES WITHIN THE SAME INDUSTRY AND MARKET SEGMENTS BUT AT ODDS WITH FIRMS THAT PURSUE DIFFERENT BUSINESS MODELS/MARKET SEGMENTS IN THE SAME INDUSTRY MOBILITY BARRIERS = WITHIN-INDUSTRY FACTORS THAT INHIBIT ABILITY TO MOVE BETWEEN STRATEGIC GROUPS EXAMPLES?

11. IMPLICATIONS OF STRATEGIC GROUPS PRODUCTS IN THE SAME GROUP ARE SEEN AS DIRECT SUBSTITUTES –RIVALRY IS HEIGHTENED –MARGINS MAY BE SQUEEZED EACH STRATEGIC GROUP MAY FACE DIFFERENT OPPORTUNITIES & THREATS (IN THE SAME INDUSTRY) “MOBILITY BARRIERS” INHIBIT MOVEMENT BETWEEN STRATEGIC GROUPS –SOME EXAMPLES OF MOBILITY BARRIERS IN AUTO & COMPUTER INDUSTRIES?

12. INDUSTRY ANALYSIS DISTINGUISH BETWEEN FRAGMENTED AND CONCENTRATED INDUSTRIES INDUSTRY LIFE CYCLE MODEL IS FOR “CONCENTRATED” INDUSTRIES WHAT DRIVES INDUSTRIES? –TECHNOLOGIES, MARKETS, GOV POLICIES? DON’T BE FOOLED BY SMOOTH LINE/ CURVE OF THE STANDARD I.LC. MODEL

13. INDUSTRY LIFE CYCLE ANALYSIS EMBRYONIC GROWTH INDUSTRY SHAKEOUT MATURE DECLINE

14. LIMITATIONS OF I.L.C. MODEL LIFE CYCLE IS A GENERALIZATION INNOVATIONS ARE OF VARIOUS SORTS INNOVATIONS CAN TRANSFORM INDUSTRY DYNAMICS OVEREMPHASIZES INDUSTRY EFFECTS UNDEREMPHASIZES FIRM-LEVEL DIFFERENCES & STRATEGIC GROUP DIFFERENCES HENCE, REAL I.L.C. IS NOT SUCH A PRETTY THING AS TEXTBOOK I.L.C.

15. MACRO-ECONOMIC ENVIRONMENT ILC EFFECTS & RIVALRY TAKE PLACE WITHIN ECONOMIC & INSTITUTIONAL ENVIRONMENTS ROLE OF MACROECONOMIC EFFECTS? ROLE OF INSTITUTIONAL ENVIRONMENT? –WHAT IS AN INSTITUTION? –WHAT ARE INSTITUTIONAL EFFECTS? OTHERS –DEMOGRAPHIC FORCES –GLOBAL COMPETITION –POLITICAL & LEGAL FORCES: CO-EVOLUTIONARY EFFECTS ON COMPETITION

16. WHY BEER INDUSTRY SO CON- CENTRATED? CLOSING CASE IN NOV ‘08, InBev, A BELGIUM BRAZILIAN COMPANY, BUYS BUDWEISER (ANHEUSER-BUSCH) W/ 50% U.S. MARKET SHARE –ANHEUSER BUSCH HAS ROIC OF BETWEEN 17-23% BETWEEN 1996 AND 2008; WHAT’S ROIC? HOW CALCULATE? PAGE C9. BEER IND, ALREADY CONCENTRATED, GETS MORE CONCENTRATED. WHY? DISTINGUISH BETWEEN MASS MARKET FOR BEER (@90%) & PREMIUM MARKET WHY SO CONCENTRATED? –BEER CONSUMPTION FALLING; BREWERS COMPETE HARDER FOR SHRINKING MARKET; “FULL LINE” STRATEGY –ADVERTISING $$ UP, MAKING HARDER FOR SMALL BREWERS TO COMPETE –MINIMUM EFFICIENT SCALE GOING UP; FROM 8 MILLION BARRELS IN ‘70 TO 23 MILLION BARRELS IN 2000s 13% MARKET SHARE REQUIRED TO TAKE ADVANTAGE OF MES