3 Assess the nature of the Steps in environmental analysisAssess the nature of theenvironmentAudit environmentalinfluencesIdentify keycompetitive forcesIdentifycompetitive positionIdentify keyopportunitiesand threatsStrategicpositionStrategicposition
4 Approaches to making sense of the environment ENVIRONMENTALCONDITIONSSimpleComplexStaticTrend extrapolationDecentralisationor Delphy analysisStrategic analysisENVIRONMENTALCONDITIONSExperienceand learningScenarioplanningDynamic
10 Five Forces Analysis (1) The threat of entry ...Dependent on barriers to entry such as:Economies of scaleCapital requirements of entryAccess to distribution channelsCost advantages independent of size (eg the“experience curve”)Expected retaliationLegislation or government actionDifferentiation
11 Five Forces Analysis (2) Buyer power is likely to be high when:There are many small operators in the supplying industryThere are alternative sources of supplyComponents or materials are a high percentage of cost to the buyer leading to “shopping around”There is a concentration of buyersSwitching costs are lowThere is a threat of backward integration
12 Five Forces Analysis (3) Supplier power is high when:There is a concentration of suppliersSwitching costs are highThe supplier brand is powerfulIntegration forward by the supplier is possibleCustomers are fragmented and bargaining power low
13 Five Forces Analysis (4) Threat of substitutesSubstitutes take different forms:Product substitutionSubstitution of needGeneric substitutionDoing without
14 Pressure from substitute products Firms in an industry are also affected by competition from related markets. The availability of substitutes influences the ability of a firm to raise prices, or to change the attributes of its productsIdentify possible substitute products by asking:“What set of products constrains the ability of firms in this industry to substantially increase prices ?“Substitute products become particularly important in times of rapidly increasing demand, and in industries with few competitors (making it difficult to increase supply quickly)
15 Five Forces Analysis (5) Competitive Rivalry is high when:Entry is likelySubstitutes threatenBuyers or suppliers exercise controlCompetitors are in balanceThere is slow market growthGlobal customers increase competitionThere are high fixed costs in an industryMarkets are undifferentiatedThere are high exit barriers
16 Five Forces Analysis: Key Questions and Implications What are the key forces at work in the competitive environment?Are there underlying forces driving competitive forces?Will competitive forces change?What are the strengths and weaknesses of competitors in relation to the competitive forces?Can competitive strategy influence competitive forces (eg by building barriers to entry or reducing competitive rivalry)?
17 The importance of the five force modell In each of its businesses, the firm faces an industry structure that shapes the rules of competition it must respond to or try to influence, and that is the basis and motivation for a unique strategyOne way to organize information about an industry is the FIVE FORCES model that helps to explain why one industry is profitable while another is notThe strategist‘s goal is to find a place in the industry where the firm can best defend itself against the forces, and influence them in its favor.
18 1 Industry and Competitive Analysis - Questions Tasks : What is our business ?How do we create value ?What are our organizational and/or technological capabilities ?Who are we in business with ?How is our business/industry changing ?What drives this change ?What are our strengths and weaknesses ?What opportunities open up, and what threats exist ?Competitive & Industry Analysis ("Where do we stand?")Strategy formulation ("Where do we want to go ?")Implementation and Control ("How do we get there?")BBA_Str1v 18
19 what to do …?1. Positioning : accept competive structure as given and match yourself to it:.. build defenses against competitive forces.. identify positions where forces are weakest2. Take the offensive: Influencing the Balance.. identify key factors driving competition that you can control.. influence those costs that yield the greatest payoff3. Exploiting Change.. understand which trends affect the sources of competition, and forecast the magnitude of each trend and underlaying cause.. construct a picture of the likely profit potential of the industry4. Set and evaluate diversification potential
20 Strategic Group Analysis Strategic Group Analysis is useful to:Identify firms with similar strategic characteristicsTherefore identify the most direct competitorsIdentify mobility barriersIdentify strategic opportunities (“strategic spaces”)Strategic threats and problems
22 Mapping Strategic Groups in the U.S. Restaurant Chain Industry HighRed Lobster,Olive GardenPerkins,Int. House of PanckakePizza Hut,Wendy’sPriceShoney’s,Denny’s CountryKitchenMc’Donald’s, Taco Bell,Burger King, Hardee’sK.F.CLowFull menuLimited menuProduct-Line
24 Rating Most important Least important Figure Perceived value by customers: the luxury car marketCompetitor B's carCompetitor A's carCar X54.543.532.521.510.5RatingStylingPerformanceMarquestrengthsEngineeringinnovationsBuild qualityMost importantLeast importantSource: D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995.