Module 2, Quiz 2 - Sharon Watson PDF

Preview

Summary

Sharon Watson...

Description

Module 2- Chapter 3: External Industry Analysis Lecture: Strategic Analysis: ● External Industry Analysis ○ External -PESTEL analysis ■ Thorough analysis of macro environment in which the firm operates including political, social and regulatory environment ○ Industry/Competitive conditions ● Internal Company Analysis ○ Resources and capabilities ○ Sources of competitive advantage ● External + Internal = company’s strategic situation ○ Can then find strategic alternatives (TOWS Matrix) ○ And figure out strategy External Industry Analysis ● Analysis Tools ○ Industry Characteristics ■ Current snapshot of the industry ■ Important characteristics: Market size, market growth rate/stage in life cycle, number of competitors and relative sizes, product characteristics, customer demographics, industry profitability ○

Driving Forces-Change Drivers ■ MAJOR driving forces or changes likely to impact firms in the industry over next few years ■ Types: changes in industry growth rate, societal changes, regulatory changes, product innovations, technological change/process innovation, marketing innovation, industry consolidation or fragmentation, industry globalization Analysis: ■ 1. Identify 3-5 major driving forces in the industry ■ 2. Assess impact they will have on the industry and the firms in it

○

Porter’s 5 Competitive Forces ■ Competition depends on 5 basic forces ■ Their collective strength determines industry attractiveness and ultimate industry profit potential ■ Goal: to find a profitable position in the industry ● Defend against strong forces, take advantage of weak forces

■

■

■

■

Industry rivalry is stronger when: ● Competitors fairly equal in size and capability ● Strong, capable competitors ● slow or flat industry growth ● Low customer switching costs ● High exit barriers Threat of Potential New Entrants boost competitive pressures by: ● Bringing new capacity/supply ● Through actions to build market share ● Threat of entry depends on barriers to entry ○ Common barriers to entry: capital requirements, access to specialized technology, brand preferences and customer loyalty, access to distribution channels, regulatory policies, economies of scale, existence of learning/experience curve effects ○ High entry barriers=low threat of entrants Threat of Substitute Products ● Substitutes: when products of firms in another industry enter the market picture ○ Ex: sugar vs. Artificial sweeteners -2 different products from 2 very different industries can be substitutes ○ Ex: restaurant food vs. grocery store food - 2 different industry but impact on another and are substitutes ○ Ex: Movie theatres vs. Movie Rentals/Video streaming -2 different industry but often compete ● Competitive threat of substitutes is strong when: ○ Prices are lower, buyers costs of switching are low, substitutes have equal or better performance features Power of Suppliers ● Provide inputs to rivals competing in industry ● Bargaining power of suppliers is strong when: ○ Item is crucial to production process

○ ○ ○ ○

■

○

Product is customized for buyer Supply is limited Buying firms are not important customers Can supply it more cheaply than industry members can make it Power of Buyers ● Identify the direct buyer and who buys from the industry rival ○ Ex: sellers/retailers are the direct buyers of coke and pepsi ● Bargaining power of buyers is strong when: ○ They are large and purchase a sizable percentage of the industry product ○ They buy in volume quantities ○ They have flexibility to purchase from several sellers (low switching costs) ● Buyer bargaining power is stronger when ○ Buyer demand is weak in relation to the available supply ○ Industry goods are standardized or differentiation is weak ○ Buyers costs of switching to competing brands or substitutes are relatively low ○ Buyers are large and few in number relative to the number of sellers ○ Buyers post a credible threat of integrating backward into the business of sellers ○ Buyers are well informed about the product offerings of sellers and cost of production ○ Buyers have discretion to delay their purchases or even not make a purchase at all

Industry Key Success Factors ■ Key Success Factors: The 3-5 major determinants of financial and competitive success of firms in an industry ■ Based on : 5 forces analysis and driving forces of change analysis ■ Examples: Brewing Industry KSFs: ● Pricing: Utilization of brewing capacity to keep costs low ● Distribution: Strong network of distributor to gain access to regulated retail outlets ● Advertising: Clever advertising to persuade beer drinkers to buy the brand ■ Example: Prescription drug industry KSFs: ● Strong R&D -new drug discovery ● New drug pipeline with patent protection ● Sales forces linked to doctors ■ Example: Textile Industry KSFs: ● Manufacturing Efficiency

●

●

● Economies of Scale ● Source of low cost labor Summary of Industry Analysis ○ Industry’s Economic Characteristics ○ Driving Forces of Change and their impact ○ Strength of 5 Competitive Forces: ■ Their collective implications for firms in the industry ■ Industry attractiveness ■ Long term industry profitability ○ Key success factors for competing in the industry Conclusion from Industry Analysis ○ How attractive is the industry? ○ What is the overall profit potential? ○ What are the key success factors for competing in the industry? ○ What are the opportunities and threats facing competitors? ○ Strategic options for address opportunities and threats

Quiz: ● Which of the following is NOT a factor to consider in identifying an industry’s dominant economic features? ○ How strong driving forces and competitive forces are ● Proper use of the five-forces model of competition involves ○ Evaluating the strength of the pressures and comprising each competitive force and determining whether the collective impact of all 5 competitive forces is conducive to earning attractive profits ● Which of the following is NOT a factor that causes buyer bargaining power to be stronger? ○ The industry is composed of a few large sellers and the customer group consists of numerous buyers that purchase in fairly small quantities ● Factors that cause the rivalry among competing sellers to be weak include: ○ Rapid growth in buyer demand and higher buyer switching costs ● Just how strong the competitive pressures are from substitute products depends on

○

●

●

●

●

●

Whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes The best test of whether potential entry is strong or weak competitive force is ○ To ask if the industry’s growth and profit prospects are strongly attractive to potential entry candidates The steps involved in driving forces analysis are ○ Identifying the driving forces and assessing their impact on firms in the industry They key success factors in an industry ○ Are the competitive capabilities that most affect industry members abilities to prosper in the marketplace The strategic group ○ Consists of those rival firms with similar competitive approaches and market positions A particular office furniture manufacturer produces … ○ The cost of the desks will be high because of the bargaining power of the supplier

Textbook: ●

●

The company’s macro environment ○ Political, economic in firm’s general environment (local, country, regional, worldwide), sociocultural forces, technological factors, environmental factors, legal/regulatory conditions ○ Analysis of impact of these factors = PESTEL analysis ■ Acronym - political, economic, sociocultural, technological, environmental, legal/regulatory ○ Important for managers to determine which macro economic factors represent the most strategically relevant factors -important enough to have a bearing on the decision the company makes about long term direction, strategy and business model ○ Analytical tools ■ Five forces framework, value net, driving forces, strategic groups, competitor analysis, and key success factors Five Forces Framework ○ Most powerful and widely used tool for diagnosing principal competitive pressures in a market ○ Competitive pressures come from 5 sources 1. Rival sellers 2. Potential new entrants 3. Producers of substitute products 4. Supplier bargaining power 5. Customer bargaining power

●

A company’s strategy is strengthened the more it provides insulation from competitive pressures, shifts the competitive battle in the company’s favor, and positions the firm to take advantage of attractive growth opportunities 1. Pursuing avenues that shield the firm from as many of the different competitive pressures as possible 2. Initiating actions calculated to shift the competitive forces in the company’s favor by altering the underlying factors driving the 5 forces ● Industry and competitive conditions change because forces are enticing or pressuring certain industry participants (competitors, customers, supplier, complementors) ○ Driving forces: most powerful of change agents because have biggest influence in reshaping industry landscape and altering competitive conditions -some originate in outer ring of macro environment but most originate in company’s immediate industry environment ● Identifying forces driving industry change ○ Increasing globalization ○ Emerging new internet capabilities and applications ○ Shifts in who buys products and how products are used ○ Technological change and manufacturing process innovation ○ Product innovation ● Collective impact of driving forces - look at likely effects of each factor separately since driving forces may not all be pushing change in the same direction

●

●

●

Adjusting strategy to prepare for impacts of driving forces ○ What strategy adjustments will be needed to deal with the impacts of the driving forces Key Success Factors ○ Competitive factors that most affect industry member’s ability to survive and prosper in the marketplace ○ Strategy elements, product attributes, operational approaches, resources, competitive capabilities PESTEL- each of the frameworks ○ Five forces analysis, driving forces, strategy groups, competitor analysis and key success factors ○ Provides useful perspective on industry’s outlook for future profitability ○ Put them all together to evaluate the industry and competitive environment from the results of each analysis to determine if the industry presents the company with a strong prospects for competitive success and attractive profits...