1. Analyzing the Strategic Position

2. A Framework for Strategic Analysis
Stakeholders
analysis
Strategy formulation
Industry
Environment
Strategic
position
Internal
R&C
Alternative
Strategies
Implementation plan
Execution
Strategy implementation
Monitoring
Feedback

3. Analyzing the Industry Environment
“External” analysis

4. Analyzing the Industry Environment
The objectives of industry analysis
Analysis of macro environmental factors
PESTEL, trends
Analysis of competitive forces
Five Forces, Strategic Groups
Competitors Analysis
Market segmentation
Key Success Factors per main segment
Scenarios 17 1

5. What we need to KNOW about the industry environment?

6. The Objectives of Industry Analysis
To understand how industry structure drives competition, hence industry profitability
To assess industry attractiveness
Identify attractive segments, under served
And Key Success Factors in main segments
To think how we can change industry structure to make it more attractive
Be active rather than passive 18 2

7. Macroenvironment – PESTEL (1)
The Industry
(sector)
Political
Legal
Economic
Technological
Environmental
Sociocultural
What environmental factors are affecting the industry?
Which of these are the most important at the present time? In the next few years?

8. Key Aspects of PESTEL Analysis
Need to understand key drivers of change and their impact on the industry (sector)
Not just a comprehensive list of influences
Focus is on future impact of key factors
Isolated factors and
factors combined
Combined effect of some of the factors is likely to be most important

9. Different sectors /industries have different average levels of profitability ….
Why?

10. Profitability of US Sectors, 1985-97
Return on Equity (1985-'97)
Drugs
20.3
Food and kindred products
14.8
--of which Tobacco products
19.6
Instruments and related products
11.2
Electrical, and electronic equipment
11.0
Rubber and misc. plastics products
10.7
Printing and publishing
10.6
Fabricated metal products
9.9
Aircraft, guided missiles, and parts
9.7
Petroleum and coal products
9.6
Retail trade corporations
8.9
Paper and allied products
8.5
Textile mill products
7.6
Wholesale trade corporations
6.5
Stone, glass and clay products
6.8
Machinery, exc. electrical
6.0
Nonferrous metals
5.6
Motor vehicles and equipment
5.5
Iron and Steel
2.6
Mining corporations
2.7
Airlines
1.1

11. The Determinants of Industry Profitability
3 key influences:
The value of the product to customers
The intensity of competition
Relative bargaining power at different levels within the value chain
Plus “cycles” 5

12. The Five Forces: industry
Potential
Entrants
Threat of entry
Competitive
Rivalry
Buyers
Suppliers
Bargaining Power
Bargaining Power
Threat of substitutes
Substitutes
Source: Adapted from M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors © 1980,.

13. Five Forces: Key questions
Are some industries more attractive than others? (weaker forces)
What are the underlying changes in the industry structure and competitive forces?
What is the position of key competitors in relation to the competitive forces? (depend on their activities in the value chain)
Can we influence the environment through collective and individual actions? (e.g. make agreements)
Missing in the text – the strengths and weaknesses of the organisation under study in relation to the competitive forces. 8

14. How can we change industry structure?
Increase scale, built market share, e.g. through mergers and acquisitions
Build product differentiation to avoid competition
Build entry barriers (through collective strategizing)
Make agreements
With suppliers /buyers
With competitors against suppliers
But be aware of collusive practices!!!

15. Are barriers effective?
Generally, you can keep out new firms but not giants moving in from other industries
see the record of diversifications of giants
But even if you are small, you can circumvent barriers with clever strategies
In value chain, e.g. how Dell bypassed dealers
Through innovation
Through networking / agreements

16. How is surplus divided between sellers and buyers?
According to their relative economic power
You may circumvent weakness with appropriate strategies
E.g. log term agreements
Jointed actions and developments

17. Is there anything missing from the 5-forces model?
More forces

18. Complements that provide further value offerings
E.g. which complements that provide further value to ink-jet printers?
ink-cartridges …

19. Five Forces or Six? Introducing Complements
The suppliers of
complements
can exercise
bargaining power
SUPPLIERS
Bargaining power of suppliers
INDUSTRY
COMPETITORS
COMPLEMENTS
POTENTIAL
ENTRANTS
Threat of
new entrants
Threat of
substitutes
Rivalry among
existing firms
SUBSTITUTES
Bargaining power of buyers
BUYERS 7

20. Strategic Group Analysis
A strategic group is a group of firms in an industry with certain similar characteristics
They may face similar conditions, and are likely to follow the same or similar strategy
Identifying strategic groups:
Select important strategic variables which distinguish firms
Position each firm in relation to these variables
Identify groups / clusters. 33

21. Strategic Groups in the World Automobile Industry
GLOBAL, BROAD-LINE
PRODUCERS
e.g., GM, Ford, Toyota, Nissan, Honda, VW
Broad
REGIONALLY-FOCUSED BROAD-LINE PRODUCERS
e.g. Fiat, PSA, Renault
GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Volvo, Subaru, Suzuki, Saab,
NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS
e.g. Tofas, Kia, Proton, Maruti
PRODUCT
RANGE
LUXURY CAR MANUFACTURERS
e.g., Jaguar, Rolls Royce, BMW
NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS e.g., Classic Roadsters (U.S.), Morgan (U.K.)
PERFORMANCE CAR PRODUCERS e.g., Porsche, Maserati, Lotus
Narrow
National
GEOGRAPHICAL SCOPE
Global 3

22. Competitors Analysis PREDICTIONS
OBJECTIVES
What are each competitors current goals and performance?
How are its goals likely to change?
PREDICTIONS
What strategy changes will the competitor initiate?
How will the competitor respond to our strategic initiatives?
STRATEGY
How are they competing?
ASSUMPTIONS
What assumptions does the competitor
hold about the industry and itself?
RESOURCES & CAPABILITIES
What are the competitors’ key
strengths and weaknesses? 5

23. Segmentation analysis - Why?
For identifying attractive markets or sub-markets
unexploited opportunities
Segmentation is especially useful when the nature of competition, attractiveness and CSFs vary among different sub-markets

24. Segmenting the World Automobile Market
US& Canada
W.Europe
E.Europe
Asia
Lat America
Australia
Africa
Luxury Cars
Full-size sedans
Mid-size sedans
Small sedans
Station wagons
Passenger minivans
Sports cars
Sport-utility
Pick-up trucks

25. Segmenting the European Metal Can Industry
Food
Fruit Juice
Pet food
Soft drink
Beer
Oil
Steel 3-piece
Steel 2-piece
Aluminum 2-piece
General cans
Composite cans
Aerosol cans
France
Germany
Spain/Port
Italy

26. Key Success Factors per segment in the Bicycle Industry
Low price bicycles
Low-costs through global sourcing of
components & low-wage assembly
Supply contract with major retailers
Medium-priced
bicycles
Cost efficiency through large scale operation
and either low wages or automated
manufacturing
Reputation for quality (durability, reliability)
International marketing & distribution
High-priced
Quality of components and assembly
Innovation in design
Reputation, effective brand management
Strong dealer relations
Children’s bicycles
Similar to low-price bicycle segment.

27. CONCLUSIONS
Changes in industry structure drive competition and profitability
Basis for forecasting future Industry Profitability
Past profitability a poor indicator of future profitability
Select attractive segments
With appropriate segmentation, assess CSF for main segments
Assess if we can change conditions in the future
Identify what structural variables depress profitability
Assess if they can be changed by individual or collective strategies
Define Industry Boundaries
Think how to expand “borders” 14

28. Important in the crisis…
Using Scenarios
Important in the crisis…

29. Scenarios: views of the future
Different views of the future environment
plausible states of the future
defined on key environmental factors about which there is a high level of uncertainty
Uses:
to think about uncertainty
to check if strategies are acceptable under different evolutions of business environment
to check the robustness of strategic decisions e.g. investments

30. Typical Scenarios In the past, usually three: Today at least two:
Business as usual (existing trends)
An optimistic (e.g. rosy skies)
Pessimistic (e.g. world of contradictions, growth restraint)
Today at least two:
continuation of trends
pessimistic, worsening conditions, late recovery
Contingent scenarios also for important events
E.g. emergency situations, catastrophic evens

31. Naming Scenarios Attractive “names” can have communication value
Ostrich scenario
Lame Duck scenario
Icarus scenario
Flamingos scenario
(Van der Heijden (1996), The Art of Strategic Conversation, J. Wiley)
Set the ‘tone’ of each scenario
e.g. Shell’s ‘new frontiers’ (‘formerly ‘the sustainable world) and ‘barricades’, or BA’s ‘wild gardens’ and ‘new structures’.

32. Building scenarios Step 1: Step 2: Step 3:
Select key environmental factors
Select those with high impact and high uncertainty
Step 2:
Combine factors as to produces plausible future pictures of the world
Form two or more pictures to show the range of changes
Step 3:
Assess impact under each scenario, to the sector and the firm
Use scenarios in strategy process and decision taking

33. Identifying high impact, high uncertainty factors
A B
C D
Potential Impact
Low
High
Low
Uncertainty
What do we mean by uncertainty?
Step 1

34. Scenario planning: Step 1
From the PEST, 5 forces analysis , competitor analysis identify high uncertainty / high impact factors
Examine possible range of change and impact
Consider the interconnectedness of the factors and the driving forces which influence these factors.
Step 1

35. Scenarios – e.g. range of change / impact
Factor
High uncertainty
High Impact
Political
Change of government leads to environmental tax
Very high – very significant implications for cost
Social
Adverse media campaign
Bad publicity, costly
Technological
New technology makes our products obsolete
Disastrous
Market growth
Rate of decline
More quick than our response
5 forces - rivalry
Competitors acquire new tech.
We are shut out of growth segments of the industry
Entrants
New entrants enter with new business model offering extra value
Significant revenue is lost to new entrants
Substitutes
Price advantage of substitutes increases significantly
Significant revenue is lost to substitutes. We are hit hardest
Competitive
Merger between No 2 and 3 in the industry
Will intensify competitive rivalry significantly

36. Scenario planning: Step 2
Build 2 or 3 scenarios, plausible outcomes, based on different configurations of the selected factors
The same factors in each scenario
To express plausible states, not impossible to occur
What pictures of the future each scenario gives?
Set the ‘tone’ of the scenarios e.g. optimistic, pessimistic future or dominant themes
Flesh out the story behind the scenario
Step 2

37. Scenario planning: Step 3
Examine the implications of each scenario
for the sector and for the firm
Use the scenarios in strategy making and taking important decisions
Strategy:
How strategy stands under each scenario.
Can the strategy stand even under the worse scenario?
Would other alternative strategies stand better?
Decisions:
How robust are the decisions?
Can e.g. an investment stand under the worse scenario?
Step 3

38. Using Scenarios: main points
Build scenarios on external factors, not on company decisions
Evaluate the range for possible outcomes, the “risk” involved
Assess possible outcomes under each scenario
Implications for the sector and the firm
Evaluate how robust a given strategy is
Does it stand even under the worst scenario?
Revise strategy with a view of risks involved