Strategic Management Revision- Industry Structure PDF

Preview

Summary

Industry Structure revision plan for exam...

Description

Strategic Management Revision Industry Structure Industry Structure    

Industry competition is driven by five forces These forces help you visualise the competition for profits within every industry- how it creates and shares value The framework provides you with insights about your industry’s performance and your own firm Specifically it can help you to enhance or defend your competitive stance against the industry’s competitive forces

Potential New Entrants

Competitive pressures coming from the threat of entry of new rivals

Suppliers of Raw Materials, Parts, Components or Other Resource Inputs

Competitive pressures stemming from supplierseller collaboration and bargaining

Rivalry among Competing Sellers Competitive pressures created by the jockeying of rival sellers for better market position an competitive advanta

Competitive pressures stemming from sellerbuyer collaboration and bargaining

Buyers

Competitive pressures coming from the market attempts of outsiders to win buyers over their products

Firms in Other Industries Offering Substitute Products

General Guidelines  

Industry structure is always analysed from the perspective of companies already in the industry The more powerful the force, the more pressure it will put on prices or costs or both, and therefore the less attractive the industry will be to its incumbents

Basis of Competition    

Differentiation Premium Economy Blue Ocean

Competitive Rivalry         

Intense rivalry amongst firms can compete away value through lower prices and/or increases in the cost of competing such as higher levels of advertising Rivalry: Differentiation Excess Capacity Exit barriers Cost conditioners Concentration Diversity of competitors Industry Life Cycle

(Horizontal Forces) Supplier Power  

      

Power dictate prices, quality standards, delivery lead times and other terms Remember you are not looking at the power of firms in the industry as suppliers- that is analysed under rivalry. You are looking at a firm’s ability to influence the organisations that supply it. Powerful suppliers will charge higher prices or insist on more favourable terms, lowering industry profitability Supplier Power: Forward Integration Concentration Differentiation Switching power Importance Volume, total purchase, strategy

Buyer Power Power to dictate prices, quality standards, and other terms For most modern industries- best to assume that buyer pwer is high, then look for reasons to believe otherwise  Under buyer power, we are looking at a firm’s ability to influence their own customers  Powerful buyer will force process down or demand more value in the produce, thus capturing more of the value for themselves  Buyer Power:  Backward integration  Differentiation (price)  

   

Switching power Concentration Competition Importance

(Vertical Forces) Substitutes          



Products or services that meet the same basic need as the industry’s product in a different way-put a cap on industry profitability If customers have a choice, not just between rival producers but between rival products, then this will increase their power Substitutes: Switching power Doing without Generic Substitutes Doing without Product-for-product substitution Substitution of need Beware of confusing substitutes with competitors. Competition occurs between firms in the same industry sector ot strategic group, substitution happens between firms in different industries or strategic groups. However, you must define the industry’s boundaries to ascertain if it is a competitor or source of substitute

Entry Barriers          

Entry barriers protect an industry from new comers who would add new capacity Entry Barriers: Access to distribution channels and inputs Absolute cost advantage Capital requirements Retaliation Capital requirements Economies of scale Differentiation Government and legal barriers

Industry Profitability

Legend 3 = High power 2 = Moderate power 1 = Low power

Long Term Application of Five Forces

Five Forces Matrix- READ...