Strategy and Industry Analysis GBUS 600 SWOT PEST and Strategy

What you have NOT thought about will come back to haunt you!

PEST Political factors include areas such as tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability. Economic factors are growth, interest rates, foreign conditions, exchange rates, and prices. Social factors often look at the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Technological factors include ecological and environmental aspects. Technological factors look at elements such as R&D activity, automation, technology incentives and the rate of technological change.

SWOT Internal – This is company specific! – Strengths – Weaknesses External – Opportunities – Threats

Goal! To achieve AND sustain an above average rate of return. HOW? – Position your company where the industry is the weakest. What do others NOT do? – Exploit changes in the FORCEs. – Rearrange the forces in you favor.

Industry (Porter) Overview! What forces are powerful and can reduce profits and what forces are weak and can be exploited. 5-forces – Entry – Buyer power – Seller power – Substitutes – Rivalry

Entry Supply-side: huge fixed costs (scale). Demand-side: buyer loyalty (scale). Switching costs. Capital requirements – Inventory – Financing Distribution channels GOVERNMENT!

Supplier Power Switching costs Limited substitutes Forward integration Who are your suppliers?

Buyer Power Few buyers Price sensitive (elasticity of demand) – Large share of budget – Limited income – Quality does NOT matter much – Easy substitutes

Rivalry Numerous competitors Slow growth Difficult to exit Homogeneity

Substitutes There is a substitute for everything! Definition of industry matters. Switching costs? Price-performance tradeoff.

Common Pitfalls* Defining the industry too broadly or too narrowly. Making lists instead of engaging in rigorous analysis. Paying equal attention to all of the forces rather than digging deeply into the most important ones. Confusing effect (price sensitivity) with cause (buyer economics). Using static analysis that ignores industry trends. Confusing cyclical or transient changes with true structural changes. Using the framework to declare an industry attractive or unattractive rather than using it to guide strategic choices. *Porter, Michael E., “The Five Competitive Forces that Shape Strategy.” Harvard Business Review – reprint, January 2008, p.16.

STRATEGY Any good strategy starts with a statement of where you are going! – a VISION! Mission – why we exist, what we do. Values – what we believe in (ethics, green, …) Vision – what we want to be!

Your Strategy If it is the same as any competitors, you do not have one. GOALS – SMART – Specific, measurable, assessable, reasonable, time bound. Scope – whom do we serve? Benefits of a strategy?