To accompany contemprory strategy analysis concepts techiniques application chapter04slides

Further Topics in Industry and Competitive Analysis Further Topics in Industry and Competitive Analysis o Does industry matter?. Dynamic CompetitionPorter framework assumes: a industry

Further Topics in Industry and Competitive Analysis

Further Topics in Industry and Competitive Analysis

o Does industry matter?

o Complements

o Dynamic competition

OUTLINE

Does Industry Matter?

explained by:

effects

Firm-specific effects

Unexplained variance Schmalensee

(1985)

McGahan &

Porter 1997)

Hawawini et al

(2003)

The Value Net The Value Net

COMPANY CUSTOMERS

SUPPLIERS

COMPLEMENTORS COMPETITORS

POTENTIAL

ENTRANTS

SUBSTITUTES

BUYERS

INDUSTRY COMPETITORS

Rivalry among existing firms

Bargaining power of suppliers

Bargaining power of buyers

Threat of

new entrants Threat of

substitutes

COMPLEMENTS

The suppliers of complements create value for the industry and can exercise bargaining power

Five Forces or Six? Introducing Complements

Dynamic Competition

Porter framework assumes:

(a) industry structure drives competitive behavior

(b) Industry structure is (fairly) stable.

But, competition also changes industry structure:

• Schumpeterian Competition: A “perennial gale of creative

destruction” where firm strategies continually transforms industry

structure innovation overthrows established market leaders

• Hypercompetition: “intense and rapid competitive

moves….creating disequilibrium through continuously creating new competitive advantages and destroying, obsolescing or

neutralizing opponents’ competitive advantages

Implication: Under dynamic competition, 5-forces framework is

less useful—Competitive behavior and industry structure jointly

determined by underlying conditions of technology, demand &

costs

The Contribution of Game Theory

to Competitive Analysis

The Contribution of Game Theory

to Competitive Analysis

Main value:

1 Framing strategic decisions as interactions between competitors

2 Predicting outcomes of competitive situations involving a few,

evenly-matched players

Some key concepts:

1 Competition and Cooperation—Game theory can show conditions

where cooperation more advantageous than competition

2 Deterrence—changing the payoffs in the game in order to deter

a competitor from certain actions

3 Commitment—irrevocable deployments of resources that

give creditability to threats

4 Signaling—communication to influence a competitor's decision

Problems of game theory:

Useful in explaining past competitive behavior—weak in predicting

future competitive behavior.

What’s the problem? — Multitude of models, outcomes highly sensitive

to small changes in assumptions

PREDICTIONS

• What strategy changes

will the competitor initiate?

• How will the competitor

respond to our strategic initiatives?

OBJECTIVES

What are competitor’s current goals?

Is performance meeting there goals?

How are its goals likely to change?

STRATEGY

How is the firm competing?

ASSUMPTIONS

What assumptions does the competitor

hold about the industry and itself?

RESOURCES & CAPABILITIES

What are the competitors’ key

strengths and weaknesses?

A Framework for Competitor Analysis A Framework for Competitor Analysis

Segmentation Analysis: The

Principal Stages

Segmentation Analysis: The

Principal Stages

• Identify key variables

and categories.

• Construct a segmentation matrix

• Analyze segment attractiveness

• Identify KSFs in each segment

• Analyze benefits of

broad vs narrow scope.

Identify segmentation variables Reduce to 2 or 3 variables

Identify discrete categories for each variable

Potential for economies

of scope across segments Similarity of KSFs

Product differentiation benefits

of segment focus

Opportunities for

Differentiation

Opportunities for

Differentiation

Characteristics

of the Buyers

Characteristics

of the Buyers

Characteristics

of the Product

Characteristics

of the Product

Industrial buyers

Household buyers

Distribution channel Distribution channel

Geographical location

Geographical location

•Size

•Technical

sophistication

•OEM/replacement

•Size

•Technical

sophistication

•OEM/replacement

•Demographics

•Lifestyle

•Purchase occasion

•Demographics

•Lifestyle

•Purchase occasion

•Size

•Distributor/broker

•Exclusive/

nonexclusive

•General/special

list

•Size

•Distributor/broker

•Exclusive/

nonexclusive

•General/special

list

•Physical size

•Price level

•Product features

•Technology design

•Inputs used (e.g raw materials)

•Performance characteristics

•Pre-sales & post-sales services

•Physical size

•Price level

•Product features

•Technology design

•Inputs used (e.g raw materials)

•Performance characteristics

•Pre-sales & post-sales services

The Basis for Segmentation: Customer

and Product Characteristics

Opportunities for

Differentiation

Opportunities for

Differentiation

Characteristics

of the Buyers

Characteristics

of the Buyers

Characteristics

of the Product

Characteristics

of the Product

Industrial buyers

Household buyers

Distribution channel Distribution channel

Geographical location

Geographical location

*Size

*Technical sophistication

*OEM/replacement

*Size

*Technical sophistication

*OEM/replacement

*Demographics

*Lifestyle

*Purchase occasion

*Demographics

*Lifestyle

*Purchase occasion

*Size

*Distributor/broker

*Exclusive/

nonexclusive

*General/special list

*Size

*Distributor/broker

*Exclusive/

nonexclusive

*General/special list

*Physical size

*Price level

*Product features

*Technology design

*Inputs used (e.g raw materials)

*Performance characteristics

*Pre-sales & post-sales services

*Physical size

*Price level

*Product features

*Technology design

*Inputs used (e.g raw materials)

*Performance characteristics

*Pre-sales & post-sales services

Segmenting the European Metal Can Industry

Food Fruit Juice Pet food Soft drink Beer Oil

Steel 3-piece

Steel 2-piece

Aluminum 2-piece

General cans

Composite cans

Aerosol cans

Segmenting the World Automobile Market

REGION US& Canada W.Europe E.Europe Asia Lat America Australia Africa

Luxury Cars

Full-size sedans

Mid-size sedans

Small sedans

Station wagons

Passenger minivans

Sports cars

Sport-utility

Pick-up trucks

0

5

0

10

15

20

25

%

100% Share of industry revenue

Auto loans

Leasing

Warranty

Gasoline

Auto insurance

Aftermarket parts

Auto rental

Auto manufacturing

New car dealers

Used car dealers

Service & repair

Vertical Segmentation & Industry Profit Pools

—The US Auto Industry

Vertical Segmentation & Industry Profit Pools

—The US Auto Industry

Low price bicycles sold primarily

through department and discount

stores, mainly under the retailer’s

own brand (e.g Sears’ “Free Spirit”);

KEY SUCCESS FACTORS

* Low-costs through global sourcing of components & low-wage assembly.

* Supply contract with major retailer.

Leading competitors: Taiwanese & Chinese assemblers,

some U.S manufacturers, e.g Murray Ohio, Huffy

Medium-priced bicycles sold

primarily under manufacturer’s brand

name and distributed mainly through

specialist bicycles stores;

*Cost efficiency through large scale operation and either low wages or automated manufacturing.

*Reputation for quality (durability, reliability) through effective marketing to dealers and/or consumers.

* International marketing & distribution.

Leading competitors: Raleigh, Giant, Peugeot, Fuji

*Quality of components and assembly, Innovation in design (e.g minimizing weight and wind resistance).

*Reputation (e.g through success in racing, through effective brand management).

*Strong dealer relations.

Similar to low-price bicycle segment.

High-priced bicycles for enthusiasts.

Children’s bicycles (and tricycles) sold

primarily through toy retailers (discount

toy stores, department stores, and

specialist toy stores).

Segmentation and Key Success Factors in the U.S Bicycle Industry

Strategic Group Analysis

A strategic group is a group of firms in an industry following the same or similar strategy

Identifying strategic groups:

• Identify principal strategic

firms.

• Position each firm in relation

to these variables.

• Identify clusters.

PRODUCT

RANGE

Narrow

National GEOGRAPHICAL SCOPE Global

NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS e.g., Bristol (U.K.), Classic Roadsters (U.S.), Morgan (U.K.)

NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS e.g Tofas, Proton, Maruti First Auto Works (China)

REGIONALLY-FOCUSED BROAD-LINE PRODUCERS e.g Fiat, PSA, Renault,

Kia,

PERFORMANCE CAR PRODUCERS e.g., Porsche, Ferrari (owned by Fiat) Maserati, Lotus

LUXURY CAR MANUFACTURERS e.g., Aston Martin, BMW, Rolls Royce (owned by VW)

GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Subaru, Isuzu, Suzuki, Saab, Hyundai, Daihatsu

GLOBAL, BROAD-LINE PRODUCERS e.g., GM, Ford, Toyota, Nissan, Honda, VW, DaimlerChrysler

Strategic Groups in the World Automobile Industry

Strategic Groups in the World Automobile Industry

Geographical Scope

0 10 20 30 40 50 60 70 80

NATIONAL PRODUCTION COMPANIES

INTEGRATED INTERNATIONAL MAJORS

NATIONALLY-FOCUSED

DOWNSTREAM COMPANIES

INTEGRATED DOMESTIC OIL COMPANIES

Royal Dutch -Shell Gp.

Exxon -Mobil Statoil

PDVSA Kuwait Petroleum

Petronas Petrobras

Repsol Nippon

Sunoco

BP-Amoco Chevron

Texaco Phillips

Peme x Indian Oil

ENI

INTEGRATED OIL MAJORS

INTERNATIONAL UPSTREAM, REGIONALLY FOCUSED DOWNSTREAM

Iran NOC

Neste Ashland

Conoco Phillips

ENI Elf-Fina-Total

DOWNSTREAM OIL COMPANIES

INTERNATIONAL UPSTREAM COMPANIES

Dana Petroleum

Premier Oil

PetroChina Lukoil

Apache

Valero

Strategic Groups Within the World Petroleum Industry

Strategic Groups Within the World Petroleum Industry