Business Policy & Strategy

7/31/2019 Business Policy & Strategy

1/24

Business Policy & Strategy

External Environment Analysis

PEST


2/24

The General Environment Segments & Elements

Demographic Segment Population sizeAge Structure

Geographic distribution

Ethnic MixIncome Distribution

Economic Segment Inflation Rates

Interest Rates

Trade and fiscal deficits

Personal savings rate

Business Saving rates

GDP and GNPPolitical/legal segment Antitrust laws

Taxation laws

Deregulation philosophy

GAAR

Product safety / liability

Labor laws

Educational

philosophies


3/24

The General Environment Segments & Elements

Socio-cultural segment Women in the w/f

Work force diversity

Attitudes about the

quality of work life

Environmental

concerns

Shifts in work and

career preferences

Shifts in preferencesregarding products and

service characteristics

Technological segment Product Innovations

Applications of

knowledge

Public Private

partnerships

New communicationtechnologies

Global segment Important political

events

Critical markets

Newly industrialized

countries

Culture and institutional

attributes


4/24


5/24

Entry Barriers

Scale Economies

Product differentiation

Capital requirements

Switching costs

Distribution access

Cost disadvantages independent of scale(proprietary product technology, raw material

access, locations, subsidies, Govt. policies

Expected retaliation


6/24

Entry Barriers

Slow Industry Growth

High fixed / storage costs

Lack of differentiation and low switching costs Capacity Augmentation (PVC)

Diverse competition

High strategic stakes High exit barriers and Mobility barriers


7/24

Strategic Groups

A group of firms in an industry following the

same or similar strategy along the same

strategic dimensions


8/24


9/24

Strategic Group Analysis

Strategic group mapping is an analytical tool


10/24


Strategic group mapping is an analytical tool. Methodsand Techniques for Analyzing Business Competition, wehave often been asked to identify the most useful orinsightful models for CI. Each model has its own

strengths and weaknesses: selecting the most useful ormost insightful technique is always highly dependenton the strategic issue at hand.

However, among the vast number of techniques

available, many are either unknown to most analystsand CI professionals or under-utilized, and yet they canprovide great insight. One of these analyticaltechniques is strategic group analysis.


11/24

Background

Subset of industry analysis

Developed in early 1970s

Porters Competitive Strategy: Techniques forAnalyzing Industries and Competitors in 1980


12/24


Strategic groups is a cluster of companies in anindustry

Groups of companies clustered around asimilar competitive approach or strategicposition

Companies in a group are similar to eachother but different from companies in othergroups


13/24

Analysis is used to determine:

Different competitive positions of companies

in the industry

Intensity of rivalry within and between groups

Profit potential of various groups

Implications of competitive position


14/24

Porters Five Force Model:

Threats of entry

Internal rivalry

Bargaining power of buyers and suppliers

Threat of substitution

The Five Forces jointly determine the

profitability of the industry, the groups in theindustry and individual companies within thegroups


15/24

Strengths

Comprehensiveness

Helpful in dealing with fast-changing

environment

Encourages finding new ideas and strategies

More accurate strategic analysis


16/24

Weaknesses

Provides little guidance on implementation

Depends on identifying the strategically

important dimensions

Requires in-depth industry knowledge and

experience

Does not incorporate importance of

government and social issues


17/24

Step 1: Analyze industry structure

Complete a Five Force Industry Analysis:

Threat of new entrants

Bargaining power of suppliers

Bargaining power of buyers

Threat of substitution

Degree of internal rivalry

Identify all major competitors in the industry

based on competitive variables


18/24

Step 2: Map the strategic groups

Key variable for defining strategic groups:

Specialization

Cost position

Brand identification

Service

Push vs. Pull

Price policy

Channel Selection

Leverage

Product quality

Technological leadership


19/24

Strategic Maps of the United States Airline Industry

Braniff

TWA

Eastern

United

American

Delta

WesternRepublic Ozark

USAir Piedmont

FrontierAirCal

PSA

South-

west

Texas Intl

United

South-

west

America

West

InternationalInternational

NationalNational

Regional Regional

No Frills No FrillsFull Service Full Service

Quality of Service Quality of Service

GeographicS

cope

The Late 1970s The Early 1990s

Reno

Air

Continental

Pan

Am

Northwest

Laker

World

American

TWA

Delta

USAir

NorthwestConti-

nental

Kiwi

Others


20/24

Step 3:Measure the strength of barriers

between groups

Identify factors that prevent firms in one groups from

competing with companies in other groups

Assess the strength of bargaining power between

groups and industry buyers/suppliers Determine the treat of substitutes between groups

Evaluate the degree of rivalry between groups

Undertake Five Force analysis of groups to determinerelative competitive position


21/24

Step 4: Understand companies strategy with

reference to groups interaction

Recognize groups strengths and weaknesses

Identify the strategic group that representsthe greatest opportunity


22/24

Step 5:Identify next step

Create a new group

Move to a better group

Strengthen the existing group Strengthen companys position within existing

group

Move to a new group and make it better


23/24

Strategic Group Analysis Summary

Depends on highly qualitative inputs and

analysts judgment

Does not require a lot of resources

Can be used for current and dynamic strategy

planning

Can be performed in short period of time


24/24

Competitive Intelligence

Future Objectives

Goal Comparisons

Future Emphasis

Attitude towards risk

Current Strategy

How are we currently

competing?

Does the strategy support

changes in the competitivestructure?

Assumptions

Is the future volatile?

Are we operating under a

status quo?

What assumptions do the

competitors hold about the

industry and themselves?

Capabilities

Strengths/weaknessesRating compared to

competitors

Response

Competitors future actions

Future competitive advantage

How will the relationship change

Documents

Business Policy & Strategy