Unit - Ii: Industry and Competitive Analysis
Unit - Ii: Industry and Competitive Analysis
Unit - Ii: Industry and Competitive Analysis
INDUSTRY AND
COMPETITIVE ANALYSIS
Elements of SM
1. Strategic Analysis
2. Strategic Choice
3. Strategy Implementation
Strategic Analysis
• Concerned with understanding the forces of
change and its impact on the choice of
strategy of an organisation.
• Internal and External environment could
pose major constraints and also provide
opportunities
• Competitive analysis helps the company to
deal with the uncertainty
Outcomes from External and Internal
Environmental Analyses
• Resources
– Are a firm’s assets,
including people and the
value of its brand name
– Represent inputs into a
firm’s production process,
such as:
• Capital equipment
• Skills of employees
• Brand names
• Financial resources
• Talented managers
Resources, Capabilities and Core Competencies
• Resources
– Tangible resources
• Financial resources
• Physical resources
• Technological resources
• Organizational resources
– Intangible resources
• Human resources
• innovation resources
• Reputation resources
Resources, Capabilities and Core Competencies
• Capabilities
– The foundation of many
capabilities lies in:
• The unique skills and
knowledge of a firm’s
employees
• The functional expertise of
those employees
– Capabilities are often
developed in specific
functional areas or as part
of a functional area
Examples of
Firms’ Capabilities
Resources, Capabilities and Core Competencies
• Core Competencies
– Activities that a firm
performs especially well
compared to competitors
– Activities through which the
firm adds unique value to its
goods or services over a
long period of time
Building Sustainable Competitive
Advantage
• Four Criteria of
Sustainable
Competitive
Advantage
– Valuable
– Rare
– Costly to imitate
– Nonsubstituable
The internal Environment
• It comprises of
– Value system
– Mission and Objectives
– Management Structure and nature
– Internal relationships
– Human Resource
– Company Image and Brand Equity
– R & D capability
– Financial Factors
– Marketing Factors
The External Environment
2–17
Analysis of the External Environments
• General environment
Focused on the future
• Industry environment
Focused on factors and conditions influencing a
firm’s profitability within an industry
• Competitor environment
Focused on predicting the dynamics of
competitors’ actions, responses and intentions
Components of the External Environmental Analysis
• Threat
A condition in the general
environment that may hinder
a company’s efforts to
achieve strategic
competitiveness.
2–23
Segments of the General Environment
• The Demographic Segment
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution
2–24
Segments of the General Environment
(cont’d)
• The Economic Segment
Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Gross domestic product
2–25
Segments of the General Environment
(cont’d)
• The Political/Legal Segment
Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and
policies
2–26
Segments of the General Environment
(cont’d)
• The Sociocultural Segment
Women in the workplace
Workforce diversity
Attitudes about quality of worklife
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences
Segments of the General Environment
(cont’d)
• The Technological Segment
Product innovations
Applications of knowledge
Focus on R&D
New technologies
2–28
Segments of the General Environment
(cont’d)
• The Global Segment
Important political events
Critical global markets
Newly industrialized countries
Different cultural attributes
2–29
Industry Environment Analysis
• Industry Defined
A group of firms producing products that are
close substitutes (ex: automotive, airline, grocery
retail)
• Firms that influence one another
• Includes a rich mix of competitive strategies
that companies use in achieving strategic
competitiveness and above-average returns
2–30
The Five Forces of Competition Model
Threat of New Entrants:
Barriers to Entry
• Economies of Scale
Marginal improvements in efficiency that a firm
experiences as it incrementally increases its size
• Factors (advantages and disadvantages)
related to large- and small-scale entry
Flexibility in pricing and market share
Costs related to scale economies
Competitor retaliation
2–33
Barriers to Entry
• Product differentiation • Switching Costs
Unique products One-time costs customers
Customer loyalty incur when they buy from a
Products at competitive different supplier
prices • New equipment
• Capital Requirements • Retraining employees
• Psychic costs of ending
Physical facilities
a relationship
Inventories
• Access to Distribution
Marketing activities
Availability of capital
Channels
Stocking or shelf space
Price breaks
Cooperative advertising
allowances
Barriers to Entry
• Cost Disadvantages • Expected retaliation
Independent of Scale Responses by existing
Proprietary product competitors may depend
technology on a firm’s present stake
Favorable access to raw in the industry (available
materials business options)
Desirable locations
• Government policy
Licensing and permit
requirements
Deregulation of
industries
Bargaining Power of Suppliers
• Supplier power increases when:
Suppliers are large and few in number.
Suitable substitute products are not available.
Individual buyers are not large customers of
suppliers and there are many of them.
Suppliers’ goods are critical to the buyers’
marketplace success.
Suppliers’ products create high switching costs.
Suppliers pose a threat to integrate forward into
buyers’ industry.
Bargaining Power of Buyers
• Buyer power increases when:
Buyers are large and few in number.
Buyers purchase a large portion of an industry’s
total output.
Buyers’ purchases are a significant portion of a
supplier’s annual revenues.
Buyers’ switching costs are low.
Buyers can pose threat to integrate backward into
the sellers’ industry.
Threat of Substitute Products
• The threat of substitute products increases
when:
Buyers face few switching costs.
The substitute product’s price is lower.
Substitute product’s quality and performance are
equal to or greater than the existing product.
Low entry
barriers
Suppliers and
buyers have strong
positions Unattractive
Strong threats Industry
from substitute
products
Intense rivalry
Low profit potential
among
competitors
Interpreting Industry Analyses (cont’d)
High entry
barriers
Suppliers and
buyers have weak
positions Attractive
Few threats from Industry
substitute
products
Moderate rivalry
among High profit potential
competitors
Competitor Analysis
• Competitor Intelligence
The ethical gathering of needed information and
data that provides insight into:
• A competitor’s direction (future objectives)
• A competitor’s capabilities and intentions
(current strategy)
• A competitor’s beliefs about the industry (its
assumptions)
• A competitor’s capabilities
Competitor Analysis (cont’d)
Future Objectives
• How are we currently
competing?
Current Strategy • Does this strategy
support changes in the
competitive structure?
Competitor Analysis (cont’d)
Future Objectives
• Do we assume the
Current Strategy future will be volatile?
• Are we operating
Assumptions under a status quo?
• What assumptions do
our competitors hold
about the industry and
themselves?
Competitor Analysis (cont’d)
Future Objectives
Current Strategy
Assumptions
• What are our strengths
and weaknesses?
Capabilities • How do we rate
compared to our
competitors?
Competitor Analysis (cont’d)
A
A multidomestic
multidomestic industry
industry
competition
competition isis essentially
essentially
segmented
segmented from
from country
country toto
country
country (food
(food retailing)
retailing)
A
A global
global industry
industry is
is one
one in
in
which
which competition
competition crosses
crosses
national
national borders
borders (tires,
(tires, athletic
athletic
shoes)
shoes)
Projected Economic Growth
Why Firms Globalize?
• Earning high returns from
transferring distinctive
competencies to foreign markets
• Realizing location economies by
using lower-cost locations
• The resulting lost opportunities,
reduced income, and limited
production
• Moving down the experience
curve
- Larger global markets = more
accumulated volume
• Question: Should firms be
21st Century Competitive Landscape
2–70
TOWS Matrix
Internal Strengths Weaknesses
Factors (list key (list key
External strengths) weaknesses)
Factors
Opportunities SO Strategies: WO Strategies:
(list key strategies that strategies that
opportunities) use strengths reduce
to take weaknesses &
advantage of take advantage
opportunities of opportunities
(Maxi – Maxi) (Mini – Maxi)
Threats ST Strategies: WT Strategies:
(list key strategies that strategies that
threats) use strengths reduce
to overcome weaknesses
threats and overcome
( Maxi – Mini) threats
( Mini – Mini)
TOWS Matrix
• SO Strategies
Seeks to mass-up firm’s strengths to exploit the
opportunities. ( Ex. – HUL)
• ST Strategies
Attempts use the firm’s strengths to deal with
environmental threats. ( Ex. – HUL)
• WO Strategies
Aims at minimising the weakness and maximising
the opportunities. (Ex. – Raymond's dependence for
technology)
• WT Strategies
Tries to minimise weaknesses and threats.
For Ex. Managerial weakness can be minimised
by training & external threat can be met by 2–72
Identifying the Competitive
Advantage
Competitive Advantage
• A firm’s profitability is greater than the average profitability
for all firms in its industry.
Sustained Competitive Advantage
• A firm maintains above average and superior profitability
and profit growth for a number of years.
The Primary Objective of Strategy
is to achieve a
Sustained Competitive Advantage
which in turn results in
Superior Profit and Profit Growth.
73
Strategy, Resources, Capabilities,
and Competencies
74
Competitive Advantage, Value
Creation, and Profitability
How profitable a company becomes depends
on three basic factors:
1. VALUE or UTILITY the customer gets from owning
the product
2. PRICE that a company charges for its products
3. COSTS of creating those products
Consumer surplus is the “excess” utility a
consumer captures beyond the price paid.
77
Building Blocks of
Competitive Advantage
The Generic Distinctive
Competencies
Allow a company to:
• Differentiate product offering
• Offer more utility to customer
• Lower the cost structure
regardless of the industry,
its products, or its services
78
Efficiency
Measured by the quantity of inputs it takes to
produce a given output:
Efficiency = Outputs / Inputs
Productivity leads to greater efficiency and
lower costs:
• Employee productivity
• Capital productivity
Superior efficiency helps a company
attain a competitive advantage
through a lower cost structure. 79
Quality
Quality products are goods and services that are:
• Reliable and
• Differentiated by attributes that customers perceive to have
higher value
When customers
evaluate the quality of a
product, they commonly
measure it against two
kinds of attributes:
1. Quality as Excellence
2. Quality as Reliability
81
Innovation
Innovation is the act of creating new
products or new processes
• Product innovation
» Creates products that customers perceive as
more valuable and
» Increases the company’s pricing options
• Process innovation
» Creates value by lowering production costs
Successful innovation can be a major
source of competitive advantage – by
giving a company something unique,
something its competitors lack. 82
Responsiveness to Customers
Identifying and satisfying customers’ needs –
better than the competitors
Superior quality and innovation are integral to superior
responsiveness to customers.
Customizing goods and services to the unique demands of
individual customers or customer groups.
Enhanced customer responsiveness
Customer response time, design, service, after-sales
service and support