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Business Strategy Session 2
External Analysis: The Identification of Opportunities & Threats The document discusses analyzing opportunities and threats within an industry through an external analysis. It defines key concepts like industry boundaries, market segments, and Porter's 5 forces model. Porter's 5 forces include the threat of new entrants, competitive rivalry, bargaining power of suppliers and customers, and threat of substitutes. The document also discusses how industries evolve through the industry life cycle of introduction, growth, maturity, shakeout, and decline. Finally, it addresses how macroenvironmental factors like economic conditions, technology, politics, and demographics can impact industries and create opportunities or threats over time.
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Business Strategy Session 2
- 1. External Analysis: TheIdentification of Opportunities & Threats Sept 27th , 2016
- 2. Agenda Analyze competitivestructure of Industry Identify Industry Opportunities & Threats Competitive Implications within Industry Evolution of Industry over Time and changes in Competitive Conditions Effect of Macro-environment on Industry 2 © Anik Saha
- 3. Defining An Industry 3 Offeringproducts / services as close substitutes Serving similar customer needs A group of Companies/ Organizations Supply (Industry) and Demand (Customer) Industry boundary: Market serving customer’s basic needs Market Managers focus on Industry boundary expansion; Not miss the bus © Anik Saha http://jansonwholesale.com http://brucemctague.com/tag/dove-mens-care-line-introduction https://www.pinterest.com/pin/517280707171618314/
- 4. Sector & MarketSegments 4 Sector: Closely related group of Industries Market Segments: Differentiate customer set by specific attributes or demands Maruti Alto Maruti Dzire Maruti Suzuki iV-4 BFSI Sector Banking Automobile Insurance Asset Management Securities Micro-FinanceLife/ Health Insurance © Anik Sahahttp://www.marutisuzuki.com
- 5. 5 Expanding Industry Boundaries IndustryAnalysis to Expansion: Porter’s 5 forces, Strategic Group Analysis, Life Cycle Analysis Changing Industry Boundaries © Anik Saha
- 6. 6 Porter’s 5 Forces https://www.boundless.com/ GreaterImpact of Each Force Limits Revenue & Profitability Growth Strength of Forces change over Time, Industry, Location, etc. Identify Forces to leverage Opportunities and counter Threats Build Strategy to Alter Strength of Forces to Advantage © Anik Saha
- 7. 7 Threat of NewEntrants Economies of Scale Brand Loyalty Absolute Cost Advantage Customer Switching Costs Government Regulations Potential Entrants: Not Current competitors but capable to enter • Cost advantage with economies of scale raises barrier • Capital intensive • Price war by incumbent enterprises leads to bleeding • End customer’s preference for established brands • Building brand through patents, R&D investment, quality perception consumes time • Operational/ Technological efficiency, lower cost structure • Cross leverage of funds easy for established enterprises • Higher switching cost a deterrent • Associated cost of changing culture/ usage pattern • Regulation restricts new players to enter • De-regulation eases new players to leverage technology and compete Transition & entry of Music devices to smart phone market © Anik Saha
- 8. 8 Competitive Rivalry withinIndustry Industry Competitive Structure Demand Conditions Intense Rivalry Brings down Revenue & Profitability Potential Cost Conditions Exit Barrier Height • Consolidated Industry drives market pricing over Fragmented • Easy entry barrier, low differentiation, Price war in Fragmented industry • Manage cost structure better, leverage strategies to elevate to consolidated industry • Growing demand creates more potential for customer acquisition • Growing Demand reduces price cuts, aggressive rivalry; drives profitability • Declining demand initiates fight on market share; reduced profits • Higher Fixed Cost (FC) leads to aggressive strategies to increase volume • Intense rivalry to sustain and be profitable through volume sale • In sluggish market demand situations, high FC industry ends up with price cuts • High Exit barriers prevent market growth/ development • On static or sluggish demand situation, players get locked to unprofitable business © Anik Saha Source: Company logos taken from respective company’s official websites
- 9. 9 Bargaining Power ofCustomers Buyers: Consumers or Distributors/wholesalers/Retailers Powerful Customers A few enterprise customers; suppliers composed of small companies Purchases in Bulk Qty for better price bargain Supplier’s Dependency on Buyers for Revenue Lower switching cost to different suppliers Too many suppliers available as options Capable of backward Integration With Changes in Industry demands, relative power shifts from supplier to customers © Anik SahaSource: Company logos taken from respective company’s official websites
- 10. 10 Bargaining Power ofSuppliers Suppliers: Provides Input Resources, Materials etc. Threats: Powerful Suppliers Less Suppliers, Critical Items Supplier’s Profitability least affected Unique Products, high switching cost Forward Integration Low Chances of Backward Integration by Customers © Anik SahaSource: Company logos taken from respective company’s official websites
- 11. 11 Threat of SubstituteProducts Products/ Services of Different Business Satisfying Similar Customer Needs The Existence of #of Close substitute The Pricing Structure of Close Substitutes Impacts Customer base and additional Profitability Existence of Substitute Results Cross Elasticity in Pricing © Anik Saha
- 12. 12 Strategic Groups withinIndustries Organizations Strategically Positioned differently within same Industry Differentiation on Quality, Segment, RTM, Technology etc Business Models adopted by Orgs in different groups vary Impact of Competitive forces vary across strategic groups Brand/performancereputation http://slideplayer.com/slide/3923963/ http://www.slideshare.net/RichardGomez15/strategic-management-1-45847362 © Anik Saha
- 13. 13 Industry Life CycleAnalysis Strength of Competitive forces change as Industry evolves Analyze and Anticipate transformations of Industry; Develop New Strategies to Counter Shifts driven by Progressive/ Disruptive Technological Innovations, Changing Demands of customers © Anik Saha http://wikicase.wikia.com/wiki/Industry_Life_Cycle
- 14. 14 Industry Life CycleAnalysis Introduction Growth Mature Shakeout Decline Competition in Industry Entry Barrier Bargaining Power of Buyer Bargaining Power of Supplier Threat of Substitutes • Rivalry high on design, RTM • Not on Price • FMA, better design • Tech know-how crucial • Less on Cost economics, brand • Focus more on developing market • Less profitable • Purchased in less volume; less discount from suppliers • More competition helps developing market for industry • Market Growing, customers becoming familiar • Prices fall • Tech know-how barrier dissolves • Customer experiences • Volume purchase increases • Depends on criticality of supply & # of suppliers • New entrants look for growth High Moderate Low • High competition • Price war to gain market share • Tech know-how barrier dissolves • Mature Market • Volume sales reduces price • Too many options • Depends on criticality of supply & # of suppliers • Potential competitors like PDA, smart phones enter the market • Price war to cut loss • Focus on CSAT, loyalty, offers • Too many large established players • Mature Market • Volume sales reduces price • Too many options • Depends on criticality of supply & # of suppliers • competitors like smart phones grow business • Enterprise players left with excess capacity • Higher exit barrier drives Price war • NA • Available at low price • Market slowing down • competitors like smart phones grow business The transition depends on Industry type, Availability of Critical Resources, Technological Complexity, Example : Mobile phones (Non-smart) © Anik Saha
- 15. 15 Macro Environment Macro EconomicFactors Global Forces GDP/ Economic Growth Interest Rates Currency Fluctuations Inflation Deflation • Customer’s budget increases • Less price cuts, profitable business • Customer’s capex not financed • Budget squeezes • $ fluctuations increases price in local currency • Impacts expense budget • Impacts expense budgets, TCO & ROI planning • Fixed payments to debt hurts • Budget for capex goes down • Falling trade barriers across border • Growth regions like BRICS attractive for developed countries • Remote domestic players able to participate in global market place © Anik Saha
- 16. 16 Macro Environment –Other Factors Technological Forces Social Forces Demographic Forces Political & Legal Forces • Disruptive Technology shifts industry trajectory • Online route of business dissolved geo boundary • Shift in demographic pattern creates threat & opportunity • Region with aging population favors similar products/ services • Cultural trend of early marriages, consumer traits etc creates opportunity/ threats • Social awareness • Generational trends, cultural shifts • Example : health consciousness, Reduced smoking • online purchases, e-learning • Deregulations, divestments • Work culture improving, Trade union strength reducing • War situations © Anik Saha
- 17. 17 Acknowledgement Strategic Management byCharles W. L. Hill/ Gareth R. Jones, Published by CENGAGE Learning © Anik Saha