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1   Industry & Competitor Analysis
Internal Analysis (SW)                                            External Analysis (OT)    • Value chain                 ...
 PESTEL framework for analyzing the macro      environment (beyond the industry).     Industry Analysis: What determines...
Economic          Socio-Cultural    Political              Industry           Technological                 Legal         ...
Perfect Competition            Oligopoly                     MonopolyNumerous firms.            A few firms.            ...
Industry Profitability                             Industry Concentration7                                        Industry...
Industry Concentration v.                      6%                                    Profitability 24 Industries          ...
Low Cost       Uniqueness     Broad      Cost       Differentiation    Market   Leadership    Narrow Focused Low     Focus...
Economic                   Socio-Cultural                     Industry Environment                                 Entry  ...
Entry                 Barriers     Supplier                        Buyer      Power      Rivalry             Power        ...
 Low economies of scale/capital requirements      Undifferentiated product      Incumbents cannot retaliate easily     ...
 Two types of entry barriers:        Structural: Inherent natural advantages that incumbents         have simply by thei...
   Buyers are large and concentrated/little rivalry        Undifferentiated products reduce switching costs        Buye...
 Suppliers are large and concentrated/little rivalry      Differentiated products increase switching costs       between...
 Substitute product/service is comparable or       superior (in the price/performance relationship)      Low switching c...
17   Industry & Competitor Analysis
 Large number of competitors in industry.      Industry is stagnant or declining.      Opportunity to spread fixed or s...
 “Rivalry” here mainly means intensity of       competition that erodes margins.      The focus is mainly on price compe...
 Market entry/exit based on forecasts of prices,       costs, & profits.      Positioning: Find ways to mitigate the gre...
 PESTEL framework for analyzing the macro       environment (beyond the industry).      Industry Analysis: What determin...
23   Industry & Competitor Analysis
Red                        C                  D                            $500               $550            B $1000     ...
Apple   100                                           ++                                   Samsung +50             Samsung...
26   Industry & Competitor Analysis
Awareness      of Rival     Motivation       Rival’s     /Perceived      Response       Threat      (e.g., lag, order,    ...
IsResource       firm in same       Similarity         league?                      Awareness                       of Riv...
Internal Analysis (SW)                                            External Analysis (OT)     • Value chain                ...
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Ii 1 externalanalysistools

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Transcript of "Ii 1 externalanalysistools"

  1. 1. 1 Industry & Competitor Analysis
  2. 2. Internal Analysis (SW) External Analysis (OT) • Value chain • PESTEL • VRINE • 5 Forces • Corporate value • Game theory Arenas Staging Vehicles & Economic M&A Logic Pacing 4C Differentiators Implementation • Business plan Strategy People Structure • Resource allocation Symbols Rewards Processes • Organizational design/∆2 Industry & Competitor Analysis
  3. 3.  PESTEL framework for analyzing the macro environment (beyond the industry).  Industry Analysis: What determines the overall profitability of an industry?  How will it change over time?  How can firms use this information to formulate strategy?  Competitor analysis & game theory. How do we predict our rivals actions?3 Industry & Competitor Analysis
  4. 4. Economic Socio-Cultural Political Industry Technological Legal Environmental4 Industry & Competitor Analysis
  5. 5. Perfect Competition Oligopoly MonopolyNumerous firms.  A few firms. One firm.No market power: Price-  Outcome depends on Market power: Choose takers on identical how firms compete: price to maximize profit products.  Bertrand: Competition subject to demand.Free entry & exit. on price. Quantity No entry or exit. adjusts to demand.Long-run: Economic  Cournot: Competition Long-run: Positive profits driven to zero. on quantity. Price economic profits. (Good for consumers & adjusts to demand. (Good for firm, bad for society, bad for firms) consumers & society)  Collusion: Firms choose price cooperatively.6 Industry & Competitor Analysis
  6. 6. Industry Profitability Industry Concentration7 Industry & Competitor Analysis
  7. 7. Industry Concentration v. 6% Profitability 24 Industries Book publishing 5% Process-control instruments 4%Industry Median ROS 3% 2%  Why does this diverge from expectations? 1%  What factors explain Flour Alkalies & chlorine performance differences across industries. 0% 0% 20% 40% 60% 80% 100% 8-Firm Concentration Ratio8 Industry & Competitor Analysis
  8. 8. Low Cost Uniqueness Broad Cost Differentiation Market Leadership Narrow Focused Low Focused Market Cost Differentiation9 Industry & Competitor Analysis
  9. 9. Economic Socio-Cultural Industry Environment Entry Barriers Political Supplier Rivalry Buyer Technological Power Power Substitute Products Legal Environmental10 Industry & Competitor Analysis
  10. 10. Entry Barriers Supplier Buyer Power Rivalry Power Substitute Products11 Industry & Competitor Analysis
  11. 11.  Low economies of scale/capital requirements  Undifferentiated product  Incumbents cannot retaliate easily  Restrict access to distribution channels or suppliers  Limit pricing  No critical proprietary knowledge/technology  No network externalities Entry  No government/legal barriers Barriers Supplier Rivalry Buyer Power Power Substitute Products12 Industry & Competitor Analysis
  12. 12.  Two types of entry barriers:  Structural: Inherent natural advantages that incumbents have simply by their incumbency – no action is required.  Strategic: Active entry-deterring behavior by incumbents (e.g., pre-emptive capacity expansion or “limit pricing”).  Opposite effects on industry profits:  Structural barriers tend to increase industry profits since they keep out entrants at no additional cost.  Strategic barriers may decrease industry profits, since they impose costs on incumbents (e.g., reduced margins from limit pricing, or costs of excess capacity).  Always know which type of barrier you’re talking about!13 Industry & Competitor Analysis
  13. 13.  Buyers are large and concentrated/little rivalry  Undifferentiated products reduce switching costs  Buyer can backward integrate (in-source)  Buyers know the cost structure  Product represents a large % of buyers’ total costs  Product has little impact on the quality of the buyers’ final output Entry Barriers Supplier Rivalry Buyer Power Power Substitute Products14 Industry & Competitor Analysis
  14. 14.  Suppliers are large and concentrated/little rivalry  Differentiated products increase switching costs between vendors and/or substitute products  Suppliers can forward integrate  Focal industry represents a small % of suppliers’ business Entry Barriers Supplier Rivalry Buyer Power Power Substitute Products15 Industry & Competitor Analysis
  15. 15.  Substitute product/service is comparable or superior (in the price/performance relationship)  Low switching costs for buyers (redesign, retooling, etc.)  Buyers are highly price sensitive Entry Barriers Supplier Rivalry Buyer Power Power Substitute Products16 Industry & Competitor Analysis
  16. 16. 17 Industry & Competitor Analysis
  17. 17.  Large number of competitors in industry.  Industry is stagnant or declining.  Opportunity to spread fixed or sunk costs:  Excess capacity  Large fixed cost investment.  High storage costs for product.  Competitors’ costs differ.  Product is undifferentiated. Entry  Buyers have low switching costs. Barriers  Exit barriers are high. Supplier Power Rivalry Buyer Power Substitute Products18 Industry & Competitor Analysis
  18. 18.  “Rivalry” here mainly means intensity of competition that erodes margins.  The focus is mainly on price competition since it directly erodes margins.  In most cases, differentiation-based competition protects or increases margins resulting in greater industry profitability.19 Industry & Competitor Analysis
  19. 19.  Market entry/exit based on forecasts of prices, costs, & profits.  Positioning: Find ways to mitigate the greatest threats among the 5 forces (supply chain, switching costs, entry barriers, etc.)  Industry evolution: Anticipate & prepare for changes in the 5 forces.  Industry transformation: Find ways to change the 5 forces to your advantage (new business models, etc.).20 Industry & Competitor Analysis
  20. 20.  PESTEL framework for analyzing the macro environment (beyond the industry).  Industry Analysis: What determines the overall profitability of an industry?  How will it change over time?  How can firms use this information to formulate strategy?  Competitor analysis & game theory. How do we predict our rivals actions?22 Industry & Competitor Analysis
  21. 21. 23 Industry & Competitor Analysis
  22. 22. Red C D $500 $550 B $1000 $100 Blue $50 $55 A $1100 $110 N Prisoner’s Dilemma? • Dominant strategies? Two • Nash equilibrium? One • Pareto inefficient? Yes24 Industry & Competitor Analysis
  23. 23. Apple 100 ++ Samsung +50 Samsung Apple + 50 Samsung ++75 Apple Apple + 50 Samsung Samsung ---50 Apple - 25 Samsung - -2525 Industry & Competitor Analysis
  24. 24. 26 Industry & Competitor Analysis
  25. 25. Awareness of Rival Motivation Rival’s /Perceived Response Threat (e.g., lag, order, magnitude) Ability to Respond27 Industry & Competitor Analysis
  26. 26. IsResource firm in same Similarity league? Awareness of Rival Market Do the mkts Commonality overlap? Motivation Rival’s /Perceived Response Threat (e.g., lag, order, Rival Is firm viewed magnitude) Cognition as a threat? Resource Ability to Strength Respond28 Industry & Competitor Analysis
  27. 27. Internal Analysis (SW) External Analysis (OT) • Value chain • PESTEL • VRINE • 5 Forces • Corporate value • Game theory Arenas Staging Vehicles & Economic M&A Logic Pacing 4C Differentiators Implementation • Business plan Strategy People Structure • Resource allocation Symbols Rewards Processes • Organizational design/∆30 Industry & Competitor Analysis
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