Ch04
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Ch04 Ch04 Presentation Transcript

  • Further Topics in Industry and Competitive Analysis
      • Extending 5-forces analysis
        • Does industry matter?
        • Complements
        • Dynamic competition
      • Game Theory
      • Competitor Analysis
      • Segmentation
      • Strategic Groups
    OUTLINE
  • Does Industry Matter?   Percentage of variance in firms’ return on assets explained by:   Industry effects Firm-specific effects Unexplained variance Schmalensee (1985) 19.6% 0.6% 80.4% Rumelt (1991) 4.0% 44.2% 44.8% McGahan & Porter 1997) 18.7% 31.7% 48.4% Hawawini et al (2003) 8.1% 35.8% 52.0%
  • The Value Net COMPANY CUSTOMERS SUPPLIERS COMPLEMENTORS COMPETITORS
  • SUPPLIERS POTENTIAL ENTRANTS SUBSTITUTES BUYERS INDUSTRY COMPETITORS Rivalry among existing firms Bargaining power of suppliers Bargaining power of buyers Threat of new entrants Threat of substitutes COMPLEMENTS The suppliers of complements create value for the industry and can exercise bargaining power Five Forces or Six? —Introducing Complements
  • Dynamic Competition
    • Porter framework assumes:
    • industry structure drives competitive behavior
    • Industry structure is (fairly) stable.
    • But, competition also changes industry structure:
    • Schumpeterian Competition: A “perennial gale of creative destruction” where firm strategies continually transforms industry structure innovation overthrows established market leaders
    • Hypercompetition: “intense and rapid competitive moves….creating disequilibrium through continuously creating new competitive advantages and destroying, obsolescing or neutralizing opponents’ competitive advantages
    • Implication: Under dynamic competition, 5-forces framework is
    • less useful—Competitive behavior and industry structure jointly determined by underlying conditions of technology, demand & costs
  • The Contribution of Game Theory to Competitive Analysis
    • Main value:
    • Framing strategic decisions as interactions between competitors
    • Predicting outcomes of competitive situations involving a few,
    • evenly-matched players
    • Some key concepts:
    • Competition and Cooperation—Game theory can show conditions
    • where cooperation more advantageous than competition
    • Deterrence—changing the payoffs in the game in order to deter
    • a competitor from certain actions
    • Commitment—irrevocable deployments of resources that
    • give creditability to threats
    • Signaling—communication to influence a competitor's decision
    Problems of game theory: Useful in explaining past competitive behavior—weak in predicting future competitive behavior. What’s the problem? — Multitude of models, outcomes highly sensitive to small changes in assumptions
  • A Framework for Competitor Analysis
    • PREDICTIONS
    • What strategy changes
    • will the competitor
    • initiate?
    • How will the competitor
    • respond to our strategic
    • initiatives?
    OBJECTIVES What are competitor’s current goals? Is performance meeting there goals? How are its goals likely to change? STRATEGY How is the firm competing? ASSUMPTIONS What assumptions does the competitor hold about the industry and itself? RESOURCES & CAPABILITIES What are the competitors’ key strengths and weaknesses?
  • Segmentation Analysis: The Principal Stages
    • Identify key variables
    • and categories.
    • Construct a segmentation matrix
    • Analyze segment attractiveness
    • Identify KSFs in each segment
    • Analyze benefits of
    • broad vs. narrow scope.
    Identify segmentation variables Reduce to 2 or 3 variables Identify discrete categories for each variable Potential for economies of scope across segments Similarity of KSFs Product differentiation benefits of segment focus
  • The Basis for Segmentation: Customer and Product Characteristics Opportunities for Differentiation Characteristics of the Buyers Characteristics of the Product Industrial buyers Household buyers Distribution channel Geographical location
    • Size
    • Technical
    • sophistication
    • OEM/replacement
    • Demographics
    • Lifestyle
    • Purchase occasion
    • Size
    • Distributor/broker
    • Exclusive/
    • nonexclusive
    • General/special
    • list
    • Physical size
    • Price level
    • Product features
    • Technology design
    • Inputs used (e.g. raw materials)
    • Performance characteristics
    • Pre-sales & post-sales services
  • Opportunities for Differentiation Characteristics of the Buyers Characteristics of the Product Industrial buyers Household buyers Distribution channel Geographical location *Size *Technical sophistication *OEM/replacement *Demographics *Lifestyle *Purchase occasion *Size *Distributor/broker *Exclusive/ nonexclusive *General/special list *Physical size *Price level *Product features *Technology design *Inputs used (e.g. raw materials) *Performance characteristics *Pre-sales & post-sales services
  • Segmenting the European Metal Can Industry
  • Segmenting the World Automobile Market US& Canada W.Europe E.Europe Asia Lat America Australia Africa Luxury cars Full-size cars Mid-size cars Small cars Station wagons Passenger vans Sports cars Sport-utility Pick-up trucks
  • 0 5 0 10 15 20 25% 100% Share of industry revenue Auto loans Leasing Warranty Gasoline Auto insurance Aftermarket parts Auto rental Operating margin Auto manufacturing New car dealers Used car dealers Service & repair Vertical Segmentation & Industry Profit Pools — The US Auto Industry
  • Segmentation and Key Success Factors in the U.S. Bicycle Industry SEGMENT Low price bicycles sold primarily through department and discount stores, mainly under the retailer’s own brand (e.g. Sears’ “Free Spirit”); KEY SUCCESS FACTORS * Low-costs through global sourcing of components & low-wage assembly. * Supply contract with major retailer. Leading competitors: Taiwanese & Chinese assemblers, some U.S manufacturers, e.g. Murray Ohio, Huffy Medium-priced bicycles sold primarily under manufacturer’s brand name and distributed mainly through specialist bicycles stores; *Cost efficiency through large scale operation and either low wages or automated manufacturing. *Reputation for quality (durability, reliability) through effective marketing to dealers and/or consumers. * International marketing & distribution. Leading competitors: Raleigh, Giant, Peugeot, Fuji *Quality of components and assembly, Innovation in design (e.g. minimizing weight and wind resistance). *Reputation (e.g. through success in racing, through effective brand management). *Strong dealer relations. Similar to low-price bicycle segment. High-priced bicycles for enthusiasts. Children’s bicycles (and tricycles) sold primarily through toy retailers (discount toy stores, department stores, and specialist toy stores).
  • Strategic Group Analysis
    • A strategic group is a group of firms in an industry that follow the same or similar strategies
    • Identifying strategic groups:
      • Identify principal strategic variables which
    • distinguish firms.
      • Position each firm in relation to these
    • variables.
      • Identify clusters.
  • Strategic Groups in the World Automobile Industry Broad PRODUCT RANGE Narrow National GEOGRAPHICAL SCOPE Global NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS e.g., Bristol (U.K.), Classic Roadsters (U.S.), Morgan (U.K.) NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS e.g. Tofas, Proton, Maruti First Auto Works (China) REGIONALLY-FOCUSED BROAD-LINE PRODUCERS e.g. Fiat, PSA, Renault, Kia, PERFORMANCE CAR PRODUCERS e.g., Porsche, Ferrari (owned by Fiat) Maserati, Lotus LUXURY CAR MANUFACTURERS e.g., Aston Martin, BMW, Rolls Royce (owned by VW) GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Subaru, Isuzu, Suzuki, Saab, Hyundai, Daihatsu GLOBAL, BROAD-LINE PRODUCERS e.g., GM, Ford, Toyota, Nissan, Honda, VW, DaimlerChrysler
  • Strategic Groups Within the World Petroleum Industry Geographical Scope 0 10 20 30 40 50 60 70 80 Vertical Balance 0 0.5 1.0 1.5 2.0
        • NATIONAL
        • PRODUCTION
        • COMPANIES
    THE SUPER MAJORS NATIONALLY-FOCUSED DOWNSTREAM COMPANIES INTEGRATED DOMESTIC OIL COMPANIES Royal Dutch Shell Exxon -Mobil Statoil PDVSA Kuwait Petroleum Petronas Petrobras Repsol Nippon Sunoco BP Chevron Phillips Pemex Indian Oil ENI INTEGRATED OIL MAJORS INTERNATIONAL UPSTREAM, REGIONALLY FOCUSED DOWNSTREAM Iran NOC Neste Ashland Conoco Phillips ENI Elf-Fina-Total Repsol YPF INTERNATIONAL DOWNSTREAM OIL COMPANIES INTERNATIONAL UPSTREAM COMPANIES Adanarko Premier Oil PetroChina Lukoil Apache Valero