1. Industry and Competitive Analysis
Chapter 4

2. Learning Objectives
Connect phrase "competitive advantage" to strategy and performance.
How to define an industry.
How 4 other forces beyond competition can affect strategy and performance.
Employ "strategy maps" to identify strategic groups.
How "driving forces" shape an industry.
How industry change affects strategy.

3. Markets All firms identical No competitive advantage
One firm dominates
All competitive advantage

4. Where Strategy is Important
Where industry profits exist and firms compete for them
Where firms are different
Where entry barriers can prevent new firms from competing
Where "mobility barriers" can prevent firms from imitating others

5. Profitability Varies Across Industries
(Source: Porter, 2008)

6. What macro trends might impact the KSFs over time?
Industry Analysis
Advice on Actions
Helps to Determine
Entry & Exit Decisions
Industry
Attractiveness
(Profit Potential)
Industry Structure Actions:
Entry Barriers
Price/Value Equation
Supplier/Customer Relations
Mobility Barriers
Competitive Actions:
How can we create value?
How must we compete?
Key Success Factors
Driving
Forces
Changing Competition:
What macro trends might impact the KSFs over time?

7. Steps in Industry Analysis
Define the industry boundaries
Evaluate external "Driving Forces"
Conduct "Five Forces" analysis
Draw conclusions
Industry attractiveness
Key Success Factors (KSFs)
Competitive KSF analysis
Strategy maps

8. Defining an Industry Narrow boundaries Use similar inputs, and
Produce similar outputs

9. Defining an Industry Broader boundaries
Acknowledges wider competitive substitutes
Different KSFs and industry dynamics
Often a more realistic competitive set

10. Defining an Industry
Use NAICS code classifications

11. Evaluate External "Driving Forces"
Conditions & trends affecting entire industry
Beyond the control of any company.
See Figure 4.6

12. "Five Forces" Analysis Examine each of the five forces (Figure 4.8)
Use data & analysis to quantify impact
Bargaining Power of Buyers/Suppliers
Calculate relative concentration ratios
Switching costs – real and perceived
Substitutes
Based on Price-Performance characteristics
Consider encroaching influences coming from other "industries"

14. Calculating Concentration Ratios
Preferred method is Herfindahl Index (HHI)

15. Draw Conclusions Is this an attractive industry?
Are profits available to Rivals
Not siphoned off to other four forces
Not competed away by Intensity of Rivalry
What are the Key Success Factors
How is value created for customers?
How must we compete against Rivals to succeed?

16. Key Success Factors No more than 4-6 factors – a "short list"
What each company must make strategic investments in to succeed in the industry
Measure each KSF
Based on data, not "guess-timates"
Can be compared across competitors
How might KSFs change because of Driving Forces?

17. Competitive KSF Analysis

18. Draw Strategy Maps Use pairs of KSFs
Use "common sized" comparable data
Orient axes with "desirable" position at end
Circles represent size of competitor
Identify strategic group
Companies competing in nearly the same way on the plotted KSF dimensions

19. Hypothetical PC Industry Map
Strategic Group