1. 1 Industry & Competitor Analysis

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.  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. Economic Socio-Cultural
Political Industry Technological
Legal Environmental
4 Industry & Competitor Analysis

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. Industry Profitability
Industry Concentration
7 Industry & Competitor Analysis

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 Ratio
8 Industry & Competitor Analysis

8. Low Cost Uniqueness
Broad Cost Differentiation
Market Leadership
Narrow Focused Low Focused
Market Cost Differentiation
9 Industry & Competitor Analysis

9. Economic Socio-Cultural
Industry Environment
Entry
Barriers
Political Supplier Rivalry Buyer Technological
Power Power
Substitute
Products
Legal Environmental
10 Industry & Competitor Analysis

10. Entry
Barriers
Supplier Buyer
Power Rivalry Power
Substitute
Products
11 Industry & Competitor Analysis

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
Products
12 Industry & Competitor Analysis

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.  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
Products
14 Industry & Competitor Analysis

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
Products
15 Industry & Competitor Analysis

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
Products
16 Industry & Competitor Analysis

16. 17 Industry & Competitor Analysis

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
Products
18 Industry & Competitor Analysis

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.  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.  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. 23 Industry & Competitor Analysis

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? Yes
24 Industry & Competitor Analysis

23. Apple 100
++
Samsung +50
Samsung Apple + 50
Samsung ++75
Apple
Apple + 50
Samsung Samsung ---50
Apple - 25
Samsung - -25
25 Industry & Competitor Analysis

24. 26 Industry & Competitor Analysis

25. Awareness
of Rival
Motivation Rival’s
/Perceived Response
Threat (e.g., lag, order,
magnitude)
Ability to
Respond
27 Industry & Competitor Analysis

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 Respond
28 Industry & Competitor Analysis

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