Transcript Industry & Competitor Analysis

EXTERNAL ANALYSIS
(INDUSTRY AND COMPETITION)
Payne
(3)
“Analysis is the
critical starting
point of strategic
thinking.”
Kenichi Ohmae
1
Environmental Analysis Levels
EXTERNAL or
MACROENVIRONMENT
Macro Level
Economic
Industry Level
Competitors
Firm
Demographic
Suppliers
Connect
Connect
Social
Global
Substitutes
Political/Legal
Industry
and
competitive conditions
(opportunities and
threats)
INTERNAL or
Customers
Technological
MICROENVIRONMENT
Its
competencies,
capabilities, resources,
and competitiveness
(strengths and
weaknesses)
2
Macro Environment (1)

Socio-cultural segment

Women in the workplace
 Workforce diversity
 Attitudes about quality of worklife
 Concerns about environment
 Shifts in work and career preferences
 Shifts in product and service preferences

Political/Legal Segment





Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and policies
3
Macro Environment (2)

Economic segment








Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
Technological Segment




Product innovations
Applications of knowledge
Focus of private and government-supported R&D
expenditures
New communication technologies
4
Macro Environment (3)

Global Segment





Important political events
Critical global markets
Newly industrialize countries
Different cultural and institutional attributes
Demographic





Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution
5
Impact of General Environmental Trends on
Various Industries
Segment/Trends/Events
Demographic
Aging population
Industry
Health Care
Baby products
Brokerage services
Fast foods
Upscale pets and supplies
Political/legal
Tort reform
ADA (Americans with
Disabilities Act)
Technological
Genetic engineering
Pollution/global
warming
Economic
Interest Rate Increases
Global
Increasing Global Trade
Emergence of China as
an economic power
Neutral
Negative



Rising affluence
Sociocultural
More women in the
workforce
Greater concern for
health & fitness
Positive
Clothing
Baking Products (staples)






Home exercise equipment
Meat products
Legal Services
Auto Manufacturing



Retail
Manufacturers of elevators, escalators & ramps

Pharmaceutical
Publishing




Engineering Services
Petroleum

Residential construction
Most common grocery products
Shipping
Personal service




Soft drinks
Defense

6
Five Forces Model of Competition
Substitute
Products
(of firms in
other industries)
Suppliers of
Key Inputs
Rivalry Intensity
Among
Competing
Sellers
Bargaining Power of Buyers
Threat of Substitutes
Buyers
Threat of New Entrants
Potential
New
Entrants
7
Analyzing the Five Competitive
Forces: How to Do It

Assess strength of each competitive force
(Strong? Moderate? Weak? )





Rivalry among competitors
Substitute products
Potential entry
Bargaining power of suppliers
Bargaining power of buyers

Explain how each force acts to create
competitive pressure
 Decide whether overall competition is brutal,
fierce, strong, normal/moderate, or weak
8
Rivalry Among Competing Sellers

Usually the most powerful of the five forces
 Check which weapons of competitive rivalry
are most actively used by rivals in jockeying
for position








Price
Quality
Performance features offered
Customer service
Warranties/guarantees
Advertising/promotions
Dealer networks
Product innovation
9
What Causes Rivalry to Be Stronger?








Lots of firms, more equal in size and capability
Slow market growth
Industry conditions tempt some firms to go on the
offensive to boost volume and market share
Customers have low costs in switching brands
One or more firms initiates moves to bolster their
standing at expense of rivals
A successful strategic move carries a big payoff
Costs more to get out of business than to stay in
Firms have diverse strategies, corporate priorities,
resources, and countries of origin
10
Competitive Force of Threat of
New Entry


Seriousness of threat depends primarily on:

Barriers to entry

Reaction of existing firms to entry
Barriers exist when:

Newcomers confront obstacles

Economic factors put potential entrant at a
disadvantage relative to incumbent firms
11
Common Barriers to Entry








Economies of scale
Inability to gain access to specialized
technology
Existence of learning/experience curve effects
Strong brand preferences and customer loyalty
Capital requirements and/or other specialized
resource requirements
Cost disadvantages independent of size
Access to distribution channels
Regulatory policies, tariffs, trade restrictions
12
How to Tell Whether Substitute
Products Are a Strong Force

Sales of substitutes are growing rapidly

Producers of substitutes are planning to
add new capacity

Substitutes’ profits are up
The competitive threat of substitutes is stronger when
they are:




Readily available
Attractively priced
Believed to have comparable or better performance
features
Customer switching costs are low
13
Competitive Force of Substitute Products
Concept
Substitutes matter when customers are attracted to
the products or services of firms in other industries
Examples

Eyeglasses vs. Contact Lens
 MD vs. DPM vs. DC
 Plastic vs. Glass vs. Metal
14
Competitive Force of Suppliers

Suppliers are a strong competitive force when:






Item makes up large portion of product costs, is crucial to
production process, and/or significantly affects product
quality
It is costly for buyers to switch suppliers
They have good reputations and growing demand
They can supply a component cheaper than industry members
can make it themselves
They do not have to contend with substitutes
Buying firms are not important customers
Suppliers are a stronger force the more they can exercise power
over:
 Prices charged
 Quality/performance of items supplied
 Amounts and delivery times
15
Competitive Force of Buyers

Buyers are a strong competitive force when:







They are large and purchase a sizable percentage of
industry’s product
They buy in volume quantities
They can integrate backward
Industry’s product is standardized
Their costs in switching to substitutes or other brands are
low
They can purchase from several sellers
Product purchased does not save buyer money
Buyers are a stronger competitive force the more they have
leverage to bargain over:
 Price or Quality or Service
 Other terms and conditions of sale
16
Strategic Implications of the Five Forces

Competitive environment is unattractive when:





Rivalry is strong
Entry barriers are low
Competition from substitutes is strong
Suppliers and customers have considerable bargaining power
Competitive environment is ideal when:




Rivalry is moderate
Entry barriers are high
Good substitutes do not exist
Suppliers and customers are in a weak bargaining position
Objective is to craft a strategy that will:



Insulate firm from competitive forces
Influence competitive pressures in ways that favor firm
Build a sustainable competitive advantage
17
Stakeholder Analysis
Stakeholder A
Focal Firm
Stakeholder B
Stakeholder C
18
Who are Stakeholders?

Identifying stakeholders is one way of sizing up the
internal and external constituents that influence the firm.



Stakeholders are individuals and groups who can affect and are
affected by a firm’s strategic outcomes and who have
enforceable claims on its performance
Stakeholders include individuals, groups, and other
organizations who have an interest in the actions of an
organization and who have the ability to influence it
Stakeholders may be categorized as internal, interface and
external.
19
Building Stakeholder Relationships




Managing down
 Relationships with subordinates
Managing up
 Relationships with bosses and corporate staff
Managing out
 Relationships with customers and suppliers
Managing across
 Relationships with peers
20
Stakeholder Analysis
21
Examples of Stakeholder Groups
Internal
stakeholders
– Management
– Professionals
– Support Personnel
Interface
stakeholders
– Shareholders
– Board of Directors
– Medical Staff
External
stakeholders
– Suppliers
– Competitors
– Government Agencies
–Patients
22
Relationships with Stakeholders



Organizations have dependency relationships with
stakeholders
Firms are not equally dependent on all
stakeholders and not every stakeholder has the
same level of influence
An effective organization strategy requires
consensus from a plurality of key stakeholders
about what it should be doing and how these
things should be done
23
Key Success Factors

KSFs or CSFs are competitive elements that most
affect every strategic group member’s ability to
prosper in the marketplace:

Specific strategy elements
 Product attributes
 Resources or Competencies
 Competitive capabilities

KSFs spell difference between:


Profit and loss
Competitive success or failure
Ask: For our organization to be successful, we
MUST be especially good at ___________?
24
Key Success Factors
KSF 1
Optimize
Performance
KSF 3
KSF 2
A sound strategy incorporates efforts to be
competent on all industry key success
factors and to excel on at least one factor!
25
Identifying Key Success Factors


Answers to three questions pinpoint KSFs
 On what basis do customers choose between
competing brands or offerings of sellers?
 What must a seller/provider do to be competitively
successful -- what resources and competitive
capabilities does it need?
 What does it take for sellers/providers to achieve a
sustainable competitive advantage?
KSFs consist of the 3 - 5 really major determinants of
financial and competitive success in a strategic group.
(Recall our discussion on developing objectives?)
26
Common Types of Key Success Factors
Scientific research expertise; Product innovation capability; Expertise in a
given technology; Capability to use Internet to conduct various business
activities
Manufacturing Low-cost production efficiency; Quality of manufacture; High use of
fixed assets; Low-cost plant locations; High labor productivity; Low-cost
-related
product design; Flexibility to make a range of products
Distribution- Strong network of wholesale distributors/dealers; Gaining ample space on
retailer shelves; Having company-owned retail outlets; Low distribution
related
costs; Fast delivery
Fast, accurate technical assistance; Courteous customer service; Accurate
Marketingfilling of orders; Breadth of product line; Merchandising skills; Attractive
related
styling; Customer guarantees; Clever advertising
Superior workforce talent; Quality control know-how; Design expertise;
Skills-related Expertise in a particular technology; Ability to develop innovative
products; Ability to get new products to market quickly
Organizational Superior information systems; Ability to respond quickly to shifting
market conditions; Superior ability to employ Internet to conduct
capability
business; More experience & managerial know-how
Favorable image/reputation with buyers; Overall low-cost; Convenient
locations; Pleasant, courteous employees; Access to financial capital;
Other types
Patent protection
Technologyrelated
27
Example: KSFs for the Refractive Eye Surgery
Industry

High numbers of procedures, which is a
component of price, experience, and
service.

Low rate of complications and high rate of
success (20/20)

Positive word-of-mouth and reputation
28
Example: KSFs for Beer Industry

Utilization of brewing capacity -- to keep
manufacturing costs low

Strong network of wholesale distributors - to gain access to retail outlets

Clever advertising -- to induce beer
drinkers to buy a particular brand
29
Strategic Group Mapping

One technique for revealing the different competitive
positions of industry rivals is strategic group mapping

A strategic group consists of those rivals with similar
competitive approaches in an industry
30
Strategic Group Mapping

Firms in same strategic group have two or more
competitive characteristics in common . . .
 Sell in same price/quality range






Cover same geographic areas
Be vertically integrated to same degree
Have comparable product line breadth
Emphasize same types of distribution channels
Offer buyers similar services
Use identical technological approaches
31
A Framework of Competitor Analysis
High
II I
III IV
Market
Commonality
Low
KEY
The shaded area represents
degree of market commonality
between two firms
Low
Resource
Similarity
High
Resource endowment A
Resource endowment B
32
Market Commonality

Market Commonality is concerned with



Most industries’ markets are somewhat related in
terms of



the number of markets with which a firm and a
competitor are jointly involved
the degree of importance of the individual markets to
each competitor
technologies
core competencies
Multi-market competition

Firms competing in several markets
33
Resource Similarity

Resource similarity


Firms with similar types and amounts of resources
are likely to



the extent to which the firm’s tangible and intangible
resources are comparable to a competitor’s in terms of
both type and amount
have similar strengths and weaknesses
use similar broad strategies
Assessing resource similarity can be difficult if
critical resources are intangible rather than
tangible
34
Procedure: Constructing a Strategic
Group Map
STEP 1: Identify competitive characteristics that
differentiate firms in an industry from
one another
STEP 2: Plot firms on a two-variable map using
pairs of these differentiating
characteristics
STEP 3: Assign firms that fall in about the same
strategy space to same strategic group
STEP 4: Draw circles around each group, making
circles proportional to size of group’s
respective share of total industry sales
35
Example: Strategic Group Map of
Retail Jewelry Industry
Price / Quality / Image
High
Small
Independent
Guild Jewelers
Medium
National, Regional, &
Local Guild - “Fine
Jewelry” Stores
Prestige
Departmentalized
Retailers
Upscale
Department
Stores
National
Jewelry Chains
Chains
Local Jewelers
Low
Credit
Jewelers
Outlet Mall Retailers
Specialty Jewelers
Full-line Jewelers
Catalog
Showrooms
Off-Price
Retailers
Limited-category
Retailers
Discounters
Broad-category
Retailers
Product Line / Merchandise Mix
36
Guidelines: Strategic Group Maps





Variables selected as axes should not be highly
correlated
Variables chosen as axes should expose big
differences in how rivals compete
Variables do not have to be either quantitative or
continuous
Drawing sizes of circles proportional to combined
sales of firms in each strategic group allows map
to reflect relative sizes of each strategic group
If more than two good competitive variables can
be used, several maps can be drawn
37
Interpreting Strategic Group Maps
(i.e., Implications of the Strategic Groups Concept)

Driving forces and competitive pressures often favor
some strategic groups and hurt others – such
recognition may be the key to developing a
competitive advantage.

Profit potential of different strategic groups varies
due to strengths and weaknesses in each group’s
market position. Important niches may be identified
that are not currently being filled by competitors.

The closer strategic groups are on map, the stronger
the competitive rivalry among member firms tends to
be (“Organizations most like yours are the most
dangerous.”)
38
Within or Between Strategic Groups
Price / Quality / Image
High
Medium
Low
Specialty
Full-line
Providers
Limited-category
Retailers
Broad-category
Retailers
Product Line / Merchandise Mix
39
The World Automobile Industry
High
Ferrari
Lamborghini
Porsche
Price
Mercedes*
BMW
Toyota
Ford
General
Motors
Chrysler*
Honda
Nissan
Hyundai
Kia
High
Low
Low
Breadth of Product Line
40
Strategic Groups Within the World Petroleum Industry
Dana Petroleum
Kuwait Petroleum
PDVSA
NATIONAL
Iran PRODUCTION
COMPANIES
NOC
1.5
1.0
0.5
INTEGRATED OIL
MAJORS
INTERNATIONAL
UPSTREAM,
REGIONALLY
FOCUSED
DOWNSTREAM
INTEGRATED
DOMESTIC
OIL COMPANIES
Statoil
BP-Amoco
Exxon
-Mobil
Chevron
Pemex
Petronas
INTEGRATED
Royal Dutch
Texaco
Lukoil
PetroChina
INTERNATIONAL -Shell Gp.
Conoco
Phillips
Indian Oil
Phillips
MAJORS
Petrobras
ENI
Elf-Fina-Total
ENI
Nippon
Repsol
YPF
INTERNATIONAL
Repsol
DOWNSTREAM
Valero
Neste
OIL COMPANIES
Ashland
Sunoco
0
Vertical Balance
2.0
INTERNATIONAL
UPSTREAM Premier
Apache
COMPANIES Oil
0
10
NATIONALLY-FOCUSED
DOWNSTREAM COMPANIES
20
30
40
50
60
70
80
Geographical Scope
41
Competitor Analysis and Strength Assessment

Successful strategists take great pains in scouting
competitors





Understanding their strategies
Watching their actions
Evaluating their vulnerability to driving forces and
competitive pressures
Sizing up their resource strengths and weaknesses and
their capabilities
Trying to anticipate rivals’ next moves
42
Predicting Strategic Moves of Rivals

A firm’s own best strategic moves are affected by:

Current strategies of competitors
 Actions competitors are likely to take next
 Predicting rivals’ next moves involves:

Analyzing their current competitive positions
 Examining public pronouncements about what it will take to
be successful in industry
 Gathering information from grapevine about current
activities and potential changes
 Studying past actions and leadership

Determining who has flexibility to make major strategic
changes and who is locked into pursuing same basic strategy
43
Categorizing the Objectives and
Strategies of Competitors
Competitive
Scope
Strategic Intent
Market Share
Objective
Competitive
Position
Strategic
Posture
• Aggressive
expansion via
acquisition &
internal growth
•Getting
stronger; on the
move
•Mostly
offensive
•Striving for
low-cost
leadership
•Wellentrenched
•Mostly
defensive
•Mostly
focusing on a
market niche
• Local
• Be dominant
leader
• Regional
• Overtake
industry leader
• National
• Be among
industry leaders
• Expansion via
internal growth
•Stuck in the
middle of the
pack
•Combination of
offensive &
defensive
• Multi-country
• Move to top 10
• Expansion via
acquisition
•Going after a
different
position
•Aggressive
risk-taker
• Global
• Move up a
notch in
rankings
• Hold on to
present share
•Struggling;
losing ground
•Conservative
follower
• Maintain
current position
• Just survive
•Give up
present share to
achieve shortterm profits
•Retrenching to
a position that
can be defended
Competitive
Strategy
•Pursuing
differentiation
based on
– Quality
– Service
– Technology
superiority
– Breadth of
product line
– Image &
reputation
– More value
for the money
– Other
attributes
44
Assessing a Company’s Competitive
Strength versus Key Rivals
1. List industry key success factors and other relevant
measures of competitive strength
2. Rate firm and key rivals on each factor using rating
scale of 1 - 10 (1 = weak; 10 = strong)
3. Decide whether to use a weighted or unweighted
rating system
4. Sum individual ratings to get overall measure of
competitive strength for each rival
5. Determine whether the firm enjoys a competitive
advantage or suffers from competitive disadvantage
45
Unweighted Competitive Strength Assessment
KSF/Strength Measure
ABC Co.
Rival 1
Rival 2
Rival 3
Rival 4
Quality/product performance
8
5
10
1
6
Reputation/image
8
7
10
1
6
Manufacturing capability
2
10
4
5
1
Technological skills
10
1
7
3
8
Dealer network/distribution
9
4
10
5
1
New product innovation
9
4
10
5
1
Financial resources
5
10
7
3
1
Relative cost position
5
10
3
1
4
Customer service capability
5
7
10
1
4
Overall strength rating
61
58
71
25
32
Rating Scale: 1 = Very weak; 10 = Very strong
46
A Weighted Competitive Strength Assessment
KSF/Strength Measure
Weight
ABC Co.
Rival 1
Rival 2
Rival 3
Rival 4
Quality/product performance
0.10
8/0.80
5/0.50
10/1.00
1/0.10
6/0.60
Reputation/image
0.10
8/0.80
7/0.70
10/1.00
1/0.10
6/0.60
Manufacturing capability
0.10
2/0.20
10/1.00
4/0.40
5/0.50
1/0.10
Technological skills
0.05
10/0.50
1/0.05
7/0.35
3/0.15
8/0.40
Dealer network/distribution
0.05
9/0.45
4/0.20
10/0.50
5/0.25
1/0.05
New product innovation
0.05
9/0.45
4/0.20
10/0.50
5/0.25
1/0.05
Financial resources
0.10
5/0.50
10/1.00
7/0.70
3/0.30
1/0.10
Relative cost position
0.35
5/1.75
10/3.50
3/1.05
1/0.35
4/1.40
Customer service capability
0.15
5/0.75
7/1.05
10/1.50
1/0.15
4/1.60
Sum of weights
1.00
6.20
8.20
7.00
2.10
2.90
Overall strength rating
Rating Scale: 1 = Very weak; 10 = Very strong
47