This document provides an overview of industry analysis tools and techniques including the S-C-P paradigm, Porter's five forces model, and competitive positioning strategies. It discusses the S-C-P paradigm which examines the structure of an industry, the conduct of firms within the industry, and the performance of those firms. It then explains Porter's five forces model and the forces that shape competition - rivalry, threat of new entry, supplier power, buyer power, and threat of substitution. Finally, it covers Michael Porter's generic competitive strategies of cost leadership, differentiation, and focused strategies. An example is provided of each strategy.

1. Lecture 4
Industry Analysis
Lecturer: Dr. Preston Teeter
MGTS7301
Tools and Techniques
for Business Analysis

2. Outline
• S-C-P paradigm
• Five forces model
• Competitive positioning

3. S-C-P PARADIGM

4. John Steen
The Strategic Audit
Key IssuesOpportunities
Threats
Strengths
Weaknesses
Immediate Environment
Market Competitors Customers
General Environment
Legal/
political
Economic
Techno-
logical
Social Physical
Internal Environment
Core
competencies
Assets &
resources
People &
management
Systems
External Environment
Firm Performance
Current Strategy
Current Goals & Objectives

5. Levels of analysis
Company
Micro –
Industry
Macro PESTEL, 4 C’s,
etc.
Porter’s 5
Forces
Strategic Group Analysis

6. ‘The first fundamental determinant of a
firm’s profitability is industry
attractiveness.’
Michael Porter

7. S-C-P paradigm
• Structure
– The structure of the industry
• Conduct
– The conduct of the firms in the industry
• Performance
– The performance of firms in the industry

8. S-C-P paradigm
The structure
of
an industry
Determines the
conduct of
the firms in
the industry
Impacts the
performance of
firms

9. S-C-P paradigm
Perfect
Competition
Oligopoly Duopoly Monopoly
Concentration Many firms A few firms Two firms One firm
Entry and Exit
Barriers
No barriers Significant barriers High barriers
Product
Differentiation
Homogeneous
product
Potential for product differentiation
Information Perfect
information
flow
Imperfect availability of information

10. FIVE FORCES MODEL

11. Five forces
Consider the airline industry. Intuitively, one
would think that running an airline is incredibly
difficult and thus successful, large airlines would
make enormous profits. But history has shown
this is far from reality.
Watch video
And see the following articles…

12. Source: http://www.abc.net.au/news/2017-10-12/why-investing-in-airlines-is-a-dumb-
idea/9040916

13. Source: https://hbr.org/2016/05/the-reason-air-travel-is-terrible-and-so-few-airlines-are-
profitable

14. Five forces
So why has the airlines industry proven to be so
difficult to operate in and make a reliable, steady
profit? Answer the following:
1. What are the five forces of industry analysis?
What key factors shape each force?
2. Apply this model to describe the airline
industry. Which forces are most influential?

15. Five Forces

16. New entrants
Barriers to entry
• Economies of scale
• Capital requirements
• Incumbency advantages (proprietary
technology, brand loyalty, location, etc.)
• Unequal access to distribution channels
• Restrictive government policy
• Expected retaliation

17. Supplier power
• Suppliers are concentrated
• Few substitutes for suppliers’ products
• Industry is not an important customer
• Costly to switch suppliers
• Suppliers can threaten to integrate forward

18. Buyer power
• Buyers are large and few
• Buyers purchase large quantities
• Low switching costs
• Buyers can threaten to integrate backward
• Buyers are price sensitive

19. Substitution
• Substitutes have attractive price-performance
trade-off
• Switching costs are low
• Buyer propensity to substitute

20. Rivalry
• Slow industry growth
• Similarity of competitors (commodities, etc.)
• High fixed costs / perishable product
• Exit barriers are high
– Inflexible plant and equipment
– High fixed cost of exit
– Strategic relationships

22. Median return on equity (%), 2000-2010
High profitability Low Profitability
Tobacco 33.5 Packaging and containers 10.2
Household and personal products 27.8 Automotive retailing and services 9.8
Pharmaceuticals 20.5 Food and drugs stores 9.6
Food consumer products 20.0 Insurance 9.1
Food services 19.9 Hotels, casinos, resorts 8.5
Medical products and equipment 18.5 Metals 8.2
Mining, crude oil production 16.3 Semiconductors and electronic
components
7.7
Securities 15.9 Forest and paper products 7.3
Chemicals 15.7 Food production 5.2
Aerospace and defence 15.7 Telecommunications 5.8
Construction and farm equipment 14.5 Motor vehicles and parts 4.4
IT services 14.1 Airlines -11.3

23. Source:
https://hbr.org/2001/0
3/strategy-and-the-
internet

24. COMPETITIVE POSITIONING

25. Competitive
positioning
Consider the case of ABC Learning, an Australian
company that was once the world’s largest provider
of early childhood education services with a market
capitalisation of 2.5 billion AUD in 2006.
Somewhat amazingly, by 2009 the company was
essentially defunct and eventually bought by not-
for-profit organisation Goodstart Limited.
Watch video
And see the following articles…

26. Source: https://www.smh.com.au/business/lessons-to-be-learnt-from-abc-learnings-
collapse-20090101-78f8.html

27. Source: https://www.smartcompany.com.au/finance/five-lessons-from-the-
spectacular-fall-of-eddy-groves/

28. But aren’t childcare centres in high demand, with endless
waiting lists? Answer the following:
1. What are the generic strategies identified by Michael
Porter? Describe and give an example of each.
2. What strategy was ABC Learning following? What
was the problem with this approach?
Competitive
positioning

30. Cost leadership
• Creating a low-cost position relative to
competitors, allowing firm to sell at a lower price
or earn higher margins at the same price
• HOW?
– Economies of scale
– Learning curve effects
– Controlling input costs
– Controlling value chain costs

31. Cost leadership
When a low cost strategy works best:
• Vigorous price competition
• Commodity markets, little demand for
differentiation
• Low switching costs
• Powerful buyers

32. Differentiation
• Creating valued differences in the product or
service delivered
– Prestige/image
– Quality/features/attributes
– Innovative technology
– Customer service
• Identifying potential segments created by
– Variety in products and services
– Needs of specific customer groups
– Access in distinct geographic markets

33. Differentiation
Differentiation works best when:
• Buyer needs and uses are diverse, resulting in
market segmentation
• Few rival firms competing for the same market
segments
• Technological change is fast-paced and
competition revolves around features or attributes

34. ‘Stuck in
the middle’
• A firm that fails to gain real advantage in
either generic strategy
• Typically associated with below average
performance

35. Quiz
• Please pack up everything but one blank sheet
of paper per group
• Form groups of 5, these will become your
simulation groups
– Groups smaller than 5 are fine, but may be broken
up or changed
– If a student is absent, write ABSENT in caps next
to their name (can join group but no quiz marks)

36. Mon – Quiz #4
1. True or False: The SCP paradigm was based on the
belief that industries and industry structures change
frequently but individual companies are mostly stable.
2. Why are barriers to entry so high in the global soft drink
industry? (choose one)
A. Restrictive government policies and manufacturing locations
B. Brand loyalty and access to distribution channels
C. Economies of scale in bottling and packaging
3. Provide an example of an Australian company that
follows a differentiation strategy

37. Questions?