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Defining And Evaluating Industries
 

Defining And Evaluating Industries

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Defining And Evaluating Industries Defining And Evaluating Industries Presentation Transcript

  • What you will learn in this Section ?
    • Envisioning Strategy
      • Definition
      • Framework
      • Visual Models
    • External Analysis
      • PEST
      • PEST Impact Analysis
    • Industry and Competitive Analysis
      • Industry Structure
      • Evolution of Industries
      • Industry Supply Chain
      • Potential Industry Earnings
      • Porter’s 5 Forces Analysis
      • Competitive Intensity
      • Strategies for minimizing competitive forces
      • Perceptual Map
      • Barriers to Entry/Incumbency advantages
      • DSIR effect
    • Company Resources and Capabilities
      • ARC Analysis/HR
      • SWOT Analysis
      • Value Creating Processes/Core Competencies
      • Strategic Gameboard
      • Balanced Scorecard
      • Change Management
    © Sunil Mehrotra
  • Mnemonic 1
  • Visual Model Industry Analysis New Paradigm Consulting The environment International law Governments Standards bodies Stakeholders Supplier’s suppliers Customer’s customers New entrants Customers Suppliers Competitors Substitutes Organisation
  • Industry Definition/ Structure Competitors Suppliers Customers © Sunil Mehrotra The Firm T he term industry is sometimes used to define a very precise business activity (eg: semiconductors) or a more generic activity (eg:consumer goods). Substitutes Industry New entrant
  • There are 100s of industries
  • Industries are grouped into sectors http://www.census.gov/econ/census02/guide/INDSUMM.HTM US Census Bureau's Industry sector groupings http://www.smartmoney.com/map-of-the-market/ Interactive map of market performance by sector Sector Industry company Example: Sector: Retail Trade Industry: General Mdse Company: Walmart Some of the sectors: Agriculture Mining Construction Manufacturing Wholesale Trade Retail Trade Utillities
  • Industries differ greatly
            • Size
            • Growth rate
            • Profitability
            • Maturity
            • Competitive intensity
            • Markets and customer segments
            • Geography
            • Technology orientation
    http://money.cnn.com/magazines/fortune/fortune500/2008/performers/industries/fastgrowers/ Fortune 2008 Industry profile by growth rate, profitability, size, etc
  • Drilling down from Sector to Industry to company http://biz.yahoo.com/p/
  • Why are some industries more profitable than others? Fortune's ranking of Industries by profits
  • WHY ?
  • Industries grow/decline at different rates http://www.visualizingeconomics.com/2007/07/02/gross-domestic-product-by-industry-winners-losers/ VISUAL SHOWING SECTORS AS % OF GDP 1975-2005.... WINNERS AND LOSERS
  • Industry Map a snapshot
  • Industry Analysis for start-ups
    • Is the industry that I am planning to enter a good one for starting a new company?
    • Are the knowledge conditions in the industry favorable to a start-up?
    • Are demand conditions in the industry favorable to a start-up?
    • Is the industry at the right stage of the life cycle for a start-up?
    • Is the industry structure favorable for a start-up?
  • Selecting the right industry for a start-up
    • Don't start a business in a capital intensive industry.
    • Don't start a business in an advertising intensive industry.
    • Don't start a business in an industry in which the average sized firms are large.
    • Don't start a business in a concentrated market.
  • What makes an industry attractive?
    • Industry size
    • Industry growth rates
    • Industry profitability
    • Pricing trends
    • Competitive intensity
    • Entry barriers
    • Risk of reasonable returns
    • Demand variability
    • Opportunity for product differentiation
    • Segmentation
    • Distribution structure
    • Technology development
  • Individual Assignment 1
    • For Walmart define:
      • Industry sector and the NAICS two digit code
      • Industry sub-sector and the NAICS code for it
      • Industry and the NAICS code for it
    • Draw a graph for the Industry showing
      • SIZE
      • Growth rate
      • Profitability
    • Show Walmart's performance relative to industry in growth rate and profitability
  • Industry Evolution: Traditional View Introduction Growth Maturity Decline Revenue Operating Income Losses Few competitors Increasing sales and profits New competitors appear Saturation Declining profits Standardized features Industry shakeout Displaced by substitute products Profitability falls Only a few large scale players survive
    • Oligopoly
    • Few Firms
    • Strategic Interdependence
    • Profitability determined by behavior of incumbents
    © Sunil Mehrotra Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm Most industries evolve towards
  • Strategies differ at different stages of the industry life-cycle Introduction Growth Maturity Decline Revenue Operating Income Losses Few competitors Increasing sales and profits New competitors appear Saturation Declining profits Standardized features Industry shakeout Displaced by substitute products Profitability falls Only a few large scale players survive © Sunil Mehrotra Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm
    • Entrepreneurial Action
    • Open niches
    • Blind spots
    • Focus on Growth
    • Invest to grow
    • Leverage Factors of Production
    • Market power actions
    • Market share
    • Channels of distribution
    • Customer loyalty
    http://online.onetcenter.org/find/indemand
  • The New View: The Cycle of Industry Creative Destruction
    • Three major phases of industry evolution
    • “ Cycle time” of evolution is driven by the pace and magnitude of marketplace discontinuities
    • Cycle-driving discontinuities include deregulation, technology, shifts in consumer preferences, globalization of markets, etc.
    1 2 3 Mature/Vertically Integrated Recombinant Market Leaders http://www.manyworlds.com/ Focused New Entrants
  • The New View: The Cycle of Industry Creative Destruction IBM DEC Sperry Univac Wang Chips Computer Operating System Application Software Sales and Distribution Superstores Retail Word Wordperfect Windows Apple IBM HP Apple INTEL Direct Others Linux Dell The “mature” Computer Industry The “recombinant” Computer Industry AMD Adapted from: Saloner, Shepard, & Podolny: Strategic Management , Wiley and Sons, 2001
  • Nappies 7-10? Industry Definition -Sector/Industry/Company -SIC and NAICS codes Measures of Industry Attractiveness -Government sources for Industry statistics -Visualizing Industry statistics/compare industries Industry life-cycle and creative destruction -appropriate resource focus at each stage in the cycle
  • Mnemonic 4
    • Industry size
    • Industry growth rates
    • Industry profitability
    • Pricing trends
    • Competitive intensity
    • Entry barriers
    • Risk of reasonable returns
    • Demand variability
    • Opportunity for product differentiation
    • Segmentation
    • Distribution structure
    • Technology development
  • Individual Assignment 2
    • Draw a life-cycle chart and position on the chart the following industries
      • Discount merchandising industry
      • Travel Agency industry
      • Book publishing industry
    • Explain how the “cycle of creative destruction” might apply to the CRS industry, that is how the industry was born, matured, and reconstituted.