STRATEGIC MANAGEMENT - I

Session 2 The Concept of Strategy STRUCTURAL ANALYSIS OF INDUSTRIES

1

BASIS OF INDUSTRY STRUCTURE ANALYSIS-1

Industrys dominant economic features Type of competition, strength of the Five Forces Causes for the change in industrys competitive structure and business environment

BASIS OF INDUSTRY STRUCTURE ANALYSIS-2

Which companies are strongest/ weakest Likely strategy moves by the rivals Key factors for competitive success Prospect for above-average profits

DOMINANT ECONOMIC FEATURES-1

ASPECTS OF INDUSTRY STRUCTURE: Market size Scope of rivalry: local/ regional/ international Market growth rate Position in business life [early development/ rapid growth and takeoff/ early maturity/ maturity/ saturation/ decline]

DOMINANT ECONOMIC FEATURES-2

Number of rivals and their relative sizes Number of customers and their relative sizes Backward/ forward integration by rivals Distribution channel types Pace of technological change in production process and product introduction
5

DOMINANT ECONOMIC FEATURES-3

Product differentiation trend in industry Potential to achieve economies of scale
[in purchasing, manufacturing, transportation, marketing, advertising, etc.]

Location clustering Effect of the Learning Curve

DOMINANT ECONOMIC FEATURES-4

Whether high capacity utilisation is required Capital requirements Ease of entry and exit Whether industry profitability is above or below par

COMPETITION ANALYSIS
The Five Forces Model of Michael Porter Stronger the collective impact of the five forces, the lower will be the profitability

FORCES THAT CHANGE COMPETITIVE STRUCTURE-1

The DRIVING FORCES like: Impact of Internet Globalisation Changes in the long-term industry growth rate Changes in who buys the products and who uses them technological changes
9

FORCES THAT CHANGE COMPETITIVE STRUCTURE-2

Marketing innovations Entry or exit of major firms Diffusion of technical know-how Changes in costs and efficiency Shift in buyer preference from commodity to differentiated product

10

FORCES THAT CHANGE COMPETITIVE STRUCTURE-3

Regulatory influences and government policy changes Changing societal concerns, attitudes and lifestyles Reductions in uncertainty and business risk

11

FORCES THAT CHANGE COMPETITIVE STRUCTURE-4

Undertake environmental scanning to make people aware about the potential developments that could have an important impact on industry conditions and throw up: New opportunities New threats
12

STRONG AND WEAK COMPETITORS

Use strategic group maps to assess competitive positions: Identify the competitive characteristics that differentiate firms in the industry Plot the firms on a two-variable map using pairs of these characteristics Assign firms that fall in the same strategy space to the same strategic group Draw circles around each group, make the circles proportional to the size of the market share of the group 13

STRONG AND WEAK COMPETITORS what to learn from Strategic Group Maps Do the driving forces favour some groups and hurt others? Does the profit potential of different groups vary due to the strengths and weaknesses in each groups marketing position The closer strategic groups are to each other, the stronger will be the rivalry
14

WHAT THE RIVALS ARE LIKELY TO DO NEXT-1

Change competitive scope: Local/ National etc. Strategic intent Market share objectives: thru internal growth/ acquisition

15

WHAT THE RIVALS ARE LIKELY TO DO NEXT-2

Competitive position: already strong? Getting stronger? Strategic posture: offensive? Defensive? Competitive strategy: cost leadership/ niche marketing/ differentiation

16

KEY FACTORS FOR COMPETITIVE SUCCESS-1

RELATED TO: Technology Manufacturing Distribution Marketing Skills Organisation capability
17

KEY FACTORS FOR COMPETITIVE SUCCESS-2

Others, e.g.

Favourable image or reputation Overall low cost Convenient locations Pleasant, courteous employees in all customer contact positions Access to finance Patent protection
18

PROSPECTS FOR ABOVEAVERAGE RETURNS-1

Industrys growth potential Is there enough profit in this competition Impact of driving forces Companys competitive position in industry; will this improve? Ability to benefit from weaker rivals
19

PROSPECTS FOR ABOVEAVERAGE RETURNS-2

Ability to defend against or counterattack the factors and rivals Degree of risk and uncertainty Severity of problems confronting the industry as a whole Cross-benefits to other businesses of the company
20