5th Lecture Industry & Competitive Analysis Mahmood Ahmed

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  • 5th Lecture Industry & Competitive Analysis Mahmood Ahmed

    1. 1. STRATEGIC ANALYSIS <ul><li>Industry & Competitive Analysis </li></ul><ul><li>Situation Analysis </li></ul><ul><ul><li>Evaluating Company Resources and Competitive Capabilities </li></ul></ul>
    2. 2. Strategic Analysis is the critical starting point of strategic thinking. — Kenichi Ohmae
    3. 3. <ul><li>Strategic Analysis </li></ul><ul><li>Industry and Competitive Analysis </li></ul><ul><li>Seven Questions </li></ul><ul><ul><li>Industry’s Economic Traits </li></ul></ul><ul><ul><li>Industry’s Competitive Forces </li></ul></ul><ul><ul><li>Drivers of Industry Change </li></ul></ul><ul><ul><li>Competitive Positions of Rivals </li></ul></ul><ul><ul><li>Competitive Moves of Rivals </li></ul></ul><ul><ul><li>Key Success Factors </li></ul></ul><ul><ul><li>Conclusions: Overall Industry Attractiveness </li></ul></ul>SEQUENCE
    4. 4. 1. Strategic Analysis
    5. 5. What Is Strategic Analysis ? <ul><li>Organization’s External Environment </li></ul><ul><ul><li>Industry and Competitive Conditions </li></ul></ul><ul><li>Organization’s Internal Environment </li></ul><ul><ul><li>Competencies, Capabilities, Resource Strengths and Weaknesses, and Competitiveness </li></ul></ul>
    6. 6. Strategic Analysis Leads to Strategic Choices Identify Strategic Options for the Company Select the Best Strategy for the Company 1. Industry’s dominant economic traits 2. Nature of competition & strength of competitive forces 3. Drivers of industry change 4. Competitive position of rivals 5. Strategic moves of rivals 6. Key success factors 7. Conclusions about industry attractiveness Assess Industry & Competitive Conditions 1. Assessment of company’s present strategy 2. Resource strengths and weaknesses, market opportunities, and external threats 3. Company’s costs compared to rivals 4. Strength of company’s competitive position 5. Strategic issues that need to be addressed Assess Company Situation
    7. 7. 2. Industry & Competitive Analysis Learning from the Strengths and Weaknesses of Others
    8. 8. External Environment Legislation and Regulation Societal Values and Lifestyles Population Demographics Technology The Economy at Large COMPANY Suppliers Substitutes Buyers New Entrants Rival Firms  IMMEDIATE INDUSTRY AND COMPETITIVE ENVIRONMENT
    9. 9. PORTER’S FIVE FORCES MODEL OF COMPETITION Threat of New Entrants Threat of New Entrants
    10. 10. Threat of New Entrants Threat of New Entrants Porter’s Five Forces Model of Competition Bargaining Power of Suppliers
    11. 11. Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Bargaining Power of Buyers
    12. 12. Threat of New Entrants Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Threat of Substitute Products
    13. 13. Threat of Substitute Products Threat of New Entrants Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry
    14. 14. Five-Forces Analysis <ul><li>Five-Forces Analysis is a framework for analyzing a particular industry. </li></ul><ul><li>The five forces are environmental forces that impact on a company’s ability to compete in a given market. </li></ul><ul><li>The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is. </li></ul>
    15. 15. COMPETITOR ANALYSIS The follow-up to Industry Analysis is effective analysis of a firm’s Competitors Competitive Environment Industry Environment
    16. 16. COMPETITIVE ADVANTAGE <ul><li>Overriding objective behind Strategic Planning is achieving Sustainable Competitive Advantage. </li></ul><ul><li>Competitive Advantage refers to some aspect of organization performed better than competitors. </li></ul><ul><ul><li>Having a Lower Cost base </li></ul></ul><ul><ul><li>Providing a Better Product </li></ul></ul><ul><ul><li>Doing Both at the same time </li></ul></ul><ul><li>Even ‘not for profit’ sector compete for limited resources </li></ul>
    17. 17. WHAT IS COMPETITIVE ANALYSIS ? <ul><li>Competitive Analysis </li></ul><ul><ul><li>A set of methods for getting ideas from your competitors </li></ul></ul><ul><li>Also known as: Comparative Analysis </li></ul>
    18. 18. COMPETITOR ANALYSIS Assumptions What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?
    19. 19. Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? What Drives the competitor? COMPETITOR ANALYSIS
    20. 20. What is the competitor doing? What can the competitor do? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competitive structure? COMPETITOR ANALYSIS
    21. 21. What does the competitor believe about itself and the industry? Do we assume the future will be volatile? Are we assuming stable competitive conditions? What assumptions do our competitors hold about the industry and themselves? Assumptions COMPETITOR ANALYSIS Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure?
    22. 22. What are the competitor’s capabilities? What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors? Capabilities COMPETITOR ANALYSIS Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves? Assumptions
    23. 23. Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition? COMPETITOR ANALYSIS Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves? Assumptions Capabilities What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors?
    24. 24. 3. Seven Questions
    25. 25. Industry and Competitive Analysis – Seven Questions <ul><ul><li>Industry’s Economic Traits </li></ul></ul><ul><ul><li>Industry’s Competitive Forces </li></ul></ul><ul><ul><li>Drivers of Industry Change </li></ul></ul><ul><ul><li>Competitive Positions of Rivals </li></ul></ul><ul><ul><li>Competitive Moves of Rivals </li></ul></ul><ul><ul><li>Key Success Factors </li></ul></ul><ul><ul><li>Conclusions: Overall Industry Attractiveness </li></ul></ul>
    26. 26. Industry and Competitive Environment Industry’s economic traits Competitive forces and strength of each force Drivers of change in the industry Competitor analysis Key success factors Conclusions: Industry attractiveness
    27. 27. 1. Industry’s Economic Traits
    28. 28. 1.   What are the industry’s dominant economic features? <ul><li>Industries differ significantly on such factors as: </li></ul><ul><ul><li>Market Size and Growth Rate, </li></ul></ul><ul><ul><li>Geographic Scope of Competitive Rivalry, </li></ul></ul><ul><ul><li>Number and Relative Sizes of Both Buyers and Sellers, </li></ul></ul><ul><ul><li>Ease of Entry and Exit, </li></ul></ul><ul><ul><li>Whether Sellers are Vertically Integrated, </li></ul></ul><ul><ul><li>How Fast Basic Technology is Changing, </li></ul></ul><ul><ul><li>Extent of Scale Economies and Experience Curve Effects, </li></ul></ul><ul><ul><li>Whether Products of Rival Sellers are Standardized or Differentiated, </li></ul></ul><ul><ul><li>Overall Profitability. </li></ul></ul><ul><li>An industry’s economic characteristics are important because of the implications they have for crafting strategy. </li></ul>
    29. 29. Cost Advantages of Different Experience Curve Effects $1 $1 .90 .80 .70 .81 .64 .49 .729 .512 .343 10% Cost Reduction 20% Cost Reduction 30% Cost Reduction 1 Million Units 2 Million Units 4 Million Units 8 Million Units Cost per Unit
    30. 30. Relevance of Key Economic Features Economic Feature Market Size Market growth rate Capacity surpluses/shortages Industry profitability Entry/exit barriers Product is big-ticket item for buyers Standard products Rapid technological change Capital requirements Vertical integration Economies of scale Rapid product innovation Strategic Importance Small markets don’t tend to attract new firms; large markets attract firms looking to acquire rivals with established positions in attractive industries Fast growth breeds new entry; slow growth spawns increased rivalry & shake-out of weak rivals Surpluses push prices & profit margins down; shortages pull them up High-profit industries attract new entrants; depressed conditions lead to exit High barriers protect positions and profits of existing firms; low barriers make existing firms vulnerable to entry More buyers will shop for lowest price Buyers have more power because it’s easier to switch from seller to seller Raises risk; investments in technology facilities/equipment may become obsolete before they wear out Big requirements make investment decisions critical; timing becomes important; creates a barrier to entry and exit Raises capital requirements; often creates competitive & cost differences among fully vs. partially vs. non-integrated firms Increases volume & market share needed to be cost competitive Shortens product life cycle; increases risk because of opportunities for leapfrogging
    31. 31. 2. Industry’s Competitive Forces
    32. 32. 2. What is competition like and how strong are each of the five competitive forces? <ul><li>The strength of competition is a composite of five forces: </li></ul><ul><ul><li>Rivalry among competing sellers, </li></ul></ul><ul><ul><li>presence of attractive substitutes, </li></ul></ul><ul><ul><li>potential for new entry, </li></ul></ul><ul><ul><li>competitive pressures stemming from supplier–seller collaboration and bargaining, and </li></ul></ul><ul><ul><li>competitive pressures stemming from seller–buyer collaboration and bargaining. T </li></ul></ul><ul><li>Task of competition analysis is to understand the competitive pressures associated with each force; </li></ul><ul><ul><li>determine whether these pressures add up to a strong or weak competitive force in the marketplace, and then </li></ul></ul><ul><ul><li>think strategically about what sort of competitive strategy, given the rules of competition in the industry, the company will need to employ to </li></ul></ul><ul><ul><ul><li>insulate the firm as much as possible from the five competitive forces, </li></ul></ul></ul><ul><ul><ul><li>influence the industry’s competitive rules in the company’s favor, and </li></ul></ul></ul><ul><ul><ul><li>gain a competitive edge. </li></ul></ul></ul>
    33. 33. Five Forces Model of Competition Substitute Products (of firms in other industries) Suppliers of Key Inputs Buyers Potential New Entrants Rivalry Among Competing Sellers
    34. 34. 1. Competitive Rivalry <ul><li>Competitive jockeying among rival firms is dynamic and ever-changing </li></ul><ul><ul><li>As industry members initiate new offensive and defensive moves </li></ul></ul><ul><ul><li>As emphasis swings from one mix of competitive weapons to another </li></ul></ul>
    35. 35. 2. Potential New Entrants <ul><li>Threat of entry is stronger when: </li></ul><ul><ul><li>Entry barriers are low </li></ul></ul><ul><ul><li>Sizable pool of entry candidates exists </li></ul></ul><ul><ul><li>Incumbents are unwilling or unable to contest a newcomer’s entry efforts </li></ul></ul><ul><ul><li>Newcomers can expect to earn attractive profits </li></ul></ul>
    36. 36. 3. Substitute Products <ul><li>Competitive threat of substitutes is stronger when they are: </li></ul><ul><ul><li>Readily available </li></ul></ul><ul><ul><li>Attractively priced </li></ul></ul><ul><ul><li>Believed to have comparable or better performance features </li></ul></ul><ul><ul><li>Customer switching costs are low </li></ul></ul>
    37. 37. 4. Bargaining Power of Suppliers <ul><li>Suppliers are a stronger force the more they can exercise power over: </li></ul><ul><ul><li>Prices charged </li></ul></ul><ul><ul><li>Quality and performance of items supplied </li></ul></ul><ul><ul><li>Reliability of deliveries </li></ul></ul>
    38. 38. 4. Bargaining Power of Buyers <ul><li>Whether seller-buyer relationships represent a weak or strong competitive force depends on </li></ul><ul><ul><li>Whether buyers have sufficient bargaining leverage to influence terms of sale in their favor </li></ul></ul><ul><ul><li>Extent and competitive importance of collaborative partnerships between one or more sellers and their customers </li></ul></ul>
    39. 39. 3. Drivers of Industry Change
    40. 40. 3. What is causing the industry’s competitive structure and business environment to change? <ul><li>Industry and competitive conditions change because forces are in motion that create incentives or pressures for change. </li></ul><ul><li>Common driving forces are: </li></ul><ul><ul><li>Industry changes being wrought by the Internet and mushrooming e-commerce transactions, </li></ul></ul><ul><ul><li>Globalization of competition in the industry, </li></ul></ul><ul><ul><li>Changes in the long-term industry growth rate, </li></ul></ul><ul><ul><li>Changes in buyer composition, </li></ul></ul><ul><ul><li>Product innovation, </li></ul></ul><ul><ul><li>Entry or exit of major firms, </li></ul></ul><ul><ul><li>Changes in cost and efficiency, </li></ul></ul><ul><ul><li>Changing buyer preferences for standardized versus differentiated products, </li></ul></ul><ul><ul><li>Regulatory influences and government policy changes, </li></ul></ul><ul><ul><li>Changing societal and lifestyle factors, and </li></ul></ul><ul><ul><li>Reductions in uncertainty and business risk. </li></ul></ul><ul><li>Sound analysis of driving forces and their implications for the industry is a prerequisite to sound strategy making. </li></ul>
    41. 41. Environmental Scanning <ul><li>Monitoring and interpreting sweep of social, political, economic, ecological, and technological events to spot budding trends that could eventually impact industry </li></ul>Definition
    42. 42. Environmental Scanning <ul><li>Purpose </li></ul><ul><li>Raise consciousness of managers about potential developments that could </li></ul><ul><ul><li>Have important impact on industry conditions </li></ul></ul><ul><ul><li>Pose new opportunities and threats </li></ul></ul>
    43. 43. 4. Competitive Positions of Rivals
    44. 44. 4. Which companies are in the strongest/ weakest positions? <ul><li>Strategic group mapping is a valuable, if not necessary, tool for understanding the similarities, differences, strengths, and weaknesses inherent in the market positions of rival companies. </li></ul><ul><li>Rivals in the same or nearby strategic groups are close competitors, whereas companies in distant strategic groups usually pose little or no immediate threat. </li></ul>
    45. 45. Strategic Group Mapping <ul><li>Firms in the same strategic group have two or more competitive characteristics in common </li></ul><ul><ul><li>Sell in same price/quality range </li></ul></ul><ul><ul><li>Cover same geographic areas </li></ul></ul><ul><ul><li>Be vertically integrated to same degree </li></ul></ul><ul><ul><li>Have comparable product line breadth </li></ul></ul><ul><ul><li>Emphasize same types of distribution channels </li></ul></ul><ul><ul><li>Offer buyers similar services </li></ul></ul><ul><ul><li>Use identical technological approaches </li></ul></ul>
    46. 46. 5. Competitive Moves of Rivals
    47. 47. 5.   What strategic moves are rivals likely to make next? <ul><li>This analytical step involves: </li></ul><ul><ul><li>Identifying competitors’ strategies, </li></ul></ul><ul><ul><li>Deciding which rivals are likely to be strong contenders and which weak contenders, </li></ul></ul><ul><ul><li>Evaluating their competitive options, and </li></ul></ul><ul><ul><li>Predicting what moves they are likely to make next. </li></ul></ul><ul><li>Scouting competitors well enough to anticipate their actions can help a company prepare effective countermoves (perhaps even beat a rival to the punch) and allows managers to take rivals’ probable actions into account in designing their own company’s best course of action. </li></ul><ul><li>Managers who fail to study competitors closely risk being blindsided by surprise actions on the part of rivals. </li></ul><ul><li>A company can’t expect to outmaneuver its rivals without monitoring their actions and anticipating their next moves. </li></ul>
    48. 48. Strategies of Competitors Competitive Scope Strategic Intent Market Share Objective Competitive Position Strategic Posture Competitive Strategy <ul><li>Local </li></ul><ul><li>Be dominant leader </li></ul><ul><li>Aggressive expansion via acquisition & internal growth </li></ul><ul><li>Getting stronger; on the move </li></ul><ul><li>Mostly offensive </li></ul><ul><li>Regional </li></ul><ul><li>Overtake industry leader </li></ul><ul><li>Well-entrenched </li></ul><ul><li>Mostly defensive </li></ul><ul><li>National </li></ul><ul><li>Be among industry leaders </li></ul><ul><li>Expansion via internal growth </li></ul><ul><li>Stuck in the middle of the pack </li></ul><ul><li>Combination of offensive & defensive </li></ul><ul><li>Multicountry </li></ul><ul><li>Move into top 10 </li></ul><ul><li>Expansion via acquisition </li></ul><ul><li>Going after a different position </li></ul><ul><li>Aggressive risk-taker </li></ul><ul><li>Global </li></ul><ul><li>Move up a notch in rankings </li></ul><ul><li>Hold on to present share </li></ul><ul><li>Struggling; losing ground </li></ul><ul><li>Conservative follower </li></ul><ul><li>Maintain current position </li></ul><ul><li>Give up present share to achieve short-term profits </li></ul><ul><li>Retrenching to a position that can be defended </li></ul><ul><li>Just survive </li></ul><ul><li>Striving for low-cost leadership </li></ul><ul><li>Focusing on market niche </li></ul><ul><li>Pursuing differentiation based on </li></ul><ul><li>Quality </li></ul><ul><li>Service </li></ul><ul><li>Technology superiority </li></ul><ul><li>Breadth of product line </li></ul><ul><li>Image & reputation </li></ul><ul><li>More value for the money </li></ul><ul><li>Other attributes </li></ul>
    49. 49. 6. Industry’s Key Success Factors
    50. 50. 6.   What are the key factors for competitive success ? <ul><li>An industry’s key success factors (KSFs) are: </li></ul><ul><ul><li>The particular strategy elements, </li></ul></ul><ul><ul><li>Product attributes, </li></ul></ul><ul><ul><li>Competitive capabilities, and </li></ul></ul><ul><ul><li>Business outcomes that spell the difference between profit and loss and, ultimately, between competitive success or failure. </li></ul></ul><ul><li>KSFs by their very nature are so important that all firms in the industry must pay close attention to. </li></ul><ul><li>KSFs are the rules that shape whether a company will be financially and competitively successful. </li></ul><ul><li>Frequently, a company can gain sustainable competitive advantage by training its strategy on industry KSFs and devoting its energies to being distinctively better than rivals at succeeding on these factors. </li></ul><ul><li>Companies that only dimly or incompletely perceive what factors are truly crucial to long-term competitive success are less likely to have winning strategies. </li></ul>
    51. 51. Industry’s Key Success Factors <ul><li>Answers to three questions pinpoint KSFs </li></ul><ul><ul><li>On what basis do customers choose between competing brands of sellers? </li></ul></ul><ul><ul><li>What resources and competitive capabilities does a seller need to have to be competitively successful? </li></ul></ul><ul><ul><li>What does it take for sellers to achieve a sustainable competitive advantage? </li></ul></ul><ul><li>KSFs consist of major determinants of financial and competitive success in an industry </li></ul>
    52. 52. Types of Key Success Factors Distribution-related Marketing-related Skills-related Organizational capability Other types Technology-related Manufacturing-related Scientific research expertise; Product innovation capability; Expertise in a given technology; Capability to use Internet to conduct various business activities Low-cost production efficiency; Quality of manufacture; High use of fixed assets; Low-cost plant locations; High labor productivity; Low-cost product design; Flexibility to make a range of products Strong network of wholesale distributors/dealers; Gaining ample space on retailer shelves; Having company-owned retail outlets; Low distribution costs; Fast delivery Fast, accurate technical assistance; Courteous customer service; Accurate filling of orders; Breadth of product line; Merchandising skills; Attractive styling; Customer guarantees; Clever advertising Superior workforce talent; Quality control know-how; Design expertise; Expertise in a particular technology; Ability to develop innovative products; Ability to get new products to market quickly Superior information systems; Ability to respond quickly to shifting market conditions; Superior ability to employ Internet to conduct business; More experience & managerial know-how Favorable image/reputation with buyers; Overall low-cost; Convenient locations; Pleasant, courteous employees; Access to financial capital; Patent protection
    53. 53. Strategic Management Principle <ul><li>A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor! </li></ul>
    54. 54. 7. Conclusions: Overall Industry Attractiveness
    55. 55. 7.   Is the industry attractive and what are its prospects for above-average profitability? <ul><li>The answer to this question is a major driver of company strategy. An assessment that the industry and competitive environment is attractive suggests employing a strategy calculated to build a stronger competitive position, expanding sales efforts and investing in additional facilities and equipment as needed. </li></ul><ul><li>If the industry is relatively unattractive, outsiders considering entry may decide against it and weak companies in the industry may merge with or be acquired by a rival, and strong companies may restrict further investments and employ cost-reduction strategies or product innovation strategies to boost long-term competitiveness and protect their profitability. </li></ul><ul><li>On occasion, an industry that is unattractive overall is still very attractive to a favorably situated company with the skills and resources to take business away from weaker rivals. </li></ul>
    56. 56. Assessing Industry Attractiveness <ul><li>Industry’s market size and growth potential </li></ul><ul><li>Whether competitive conditions are conducive to rising/ falling industry profitability </li></ul><ul><li>Will competitive forces become stronger or weaker? </li></ul><ul><li>Whether industry will be favorably or unfavorably impacted by driving forces </li></ul>
    57. 57. <ul><li>Potential for entry/ exit of major firms </li></ul><ul><li>Stability/ dependability of demand </li></ul><ul><li>Severity of problems facing industry </li></ul><ul><li>Degree of risk and uncertainty in industry’s future </li></ul>
    58. 58. CONCLUSION <ul><li>Good industry and competitive analysis is a prerequisite to good strategy making. </li></ul><ul><li>A competently done industry and competitive analysis tells a clear, easily understood story about the company’s external environment. </li></ul><ul><li>It provides the understanding of a company’s macro-environment needed for shrewdly matching strategy to the company’s external situation. </li></ul>
    59. 59. THANK YOU

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