MODULE 3MODULE 3

INDUSTRY AND INDUSTRY AND

COMPETITIVECOMPETITIVE

ANALYSISANALYSIS

MODULE OUTLINEMODULE OUTLINE

Role of Situation Analysis in Strategy-Making Methods of industry & Role of Situation Analysis in Strategy-Making Methods of industry & CompetitiveCompetitive

Analysis Analysis Profiling industry’s Dominant Economic Profiling industry’s Dominant Economic Trails Trails Analyzing industry’s Competitive Analyzing industry’s Competitive

ForcesForces Analyzing Drivers of industry ChangeAnalyzing Drivers of industry Change

Assessing Competitive Positions of RivalsAssessing Competitive Positions of Rivals Predicting Competitive Moves of RivalsPredicting Competitive Moves of Rivals

Pinpointing Key Success FactorsPinpointing Key Success Factors Drawing Conclusions About Overall Industry Drawing Conclusions About Overall Industry AttractivenessAttractiveness

Conducting an Industry & Competitive AnalysisConducting an Industry & Competitive Analysis

WHY DO A SITUATION WHY DO A SITUATION ANALYSISANALYSIS

Objective

Identify features in a firm’s external & internal environment which frames its window of

STRATEGIC OPTIONSOPPORTUNITIES

Focuses on two considerations :EXTERNAL factors : MACRO environment( industry & competitive conditions)INTERNAL factors : MICRO environment

( firm’s internal situation & competitive position)

How Strategic Thinking and How Strategic Thinking and Analysis Lead Good ChoicesAnalysis Lead Good Choices

Thinking Strategically About Industry And competitive

conditions

Thinking Strategically About Industry And competitive

conditions

Identifying Strategic Options

Open to the Company

Choice of The Best Strategy

KEY QUESTIONS REGARDING KEY QUESTIONS REGARDING EXTERNAL ENVIRONMENTEXTERNAL ENVIRONMENT

Industry’s dominate economic traits Industry’s dominate economic traits Competitive forces at work in industry & strengthCompetitive forces at work in industry & strengthDrivers of change in industryDrivers of change in industryFirms in strongest/weakest competitive Firms in strongest/weakest competitive positionspositionsCompetitive moves of rivalsCompetitive moves of rivalsKey factors determining competitive Key factors determining competitive Success or failure in industrySuccess or failure in industryAttractiveness of industryAttractiveness of industry

INDUSTRY ECONOMIC INDUSTRY ECONOMIC TRAITSTRAITSConcept

An industry’s economic Characteristics impose boundaries

On the kinds of strategic approaches a Company can pursue!

IDENTIFYING AN INDUSTRY’S IDENTIFYING AN INDUSTRY’S DOMINANT ECONOMIC TRAITSDOMINANT ECONOMIC TRAITS

Market size & growth rate/stage in life cycle Scope of competitive rivalryNumber of competitors & relative sizesPrevalence of backward/forward integrationEntry/exit barriersNature & pace of technological changeProduct & customer characteristicsScale economies & experience curve effectsCapacity utilization & capital requirementsIndustry profitability

EXPERIENCEEXPERIENCE CURVE EFFECTSCURVE EFFECTS

An experience curve exists when unit costs declineAs cumulative production volume increase due to

Increased KNOWLEDGE about orFAMILARITY with the process

The bigger the experience curve effect, the bigger the cost advantage of the firm with Largest CUMULATIVE production volume

Comparison of Experience Curve Comparison of Experience Curve EffectsEffects

Cost per Unit

$1

$19080

70

81

6449

72.9

51.2

34.3

10% costReduction

20% costReduction

30% cost Reduction

1Million

Units

2MillionUnits

4MillionUnits

8MillionUnits

EXPERIENCE CURVE EFFECTSEXPERIENCE CURVE EFFECTS

Basic Concept

When a strong learning/experience curveEffect causes unit costs to declineSubstantially as cumulative productionVolume builds, a strategy to become the Largest volume manufacturer can offer theCOMPETITIVE ADVANTAGE o being the industry’s LOWEST-COST production

ANALYSIS OF COMPETITIVE FORCESANALYSIS OF COMPETITIVE FORCES

Objective

To identifyMain SOURCES of competitive forces and STRENGTH of these pressure

COMPETITIVE FORCES MATTER BECAUSE :To be successful, strategy must be designed to

cope effectively with competitive pressure Objective must be to build a strong, market

Position based on competitive advantage!

The Five Forced Model of Competition:The Five Forced Model of Competition:A Key Analytical ToolA Key Analytical Tool

SubstituteProducts

RivalryAmong

CompetingSellers

PotentialNew

Entrant

Suppliers Buyers

THE FIVE COMPETITIVE FORCESTHE FIVE COMPETITIVE FORCES

RIVALRY among competing sellers in an RIVALRY among competing sellers in an

IndustryIndustry

SUBSTITUTE PRODUCTSSUBSTITUTE PRODUCTS offered by offered by firms in OTHER industriesfirms in OTHER industries

Potential Potential ENTRYENTRY of new competitors of new competitors

Bargaining power of Bargaining power of SUPPLIERSSUPPLIERS

Bargaining power of Bargaining power of BUYERSBUYERS

PROCEDURE: ANALYZING THE FIVEPROCEDURE: ANALYZING THE FIVECOMPETITIVE FORCESCOMPETITIVE FORCES

Identify main sources of competitive pressures Identify main sources of competitive pressures Rivalry among competitorsRivalry among competitorsSubstitute productsSubstitute productsPotential entryPotential entryBargaining power of suppliersBargaining power of suppliersBargaining power of buyersBargaining power of buyers

Assess strength of each competitive forceAssess strength of each competitive forceStrong? 1-5 : 1= weak; 5= strongStrong? 1-5 : 1= weak; 5= strong

Explain how each competitive force works & its role Explain how each competitive force works & its role in overall competitive picturein overall competitive picture

RIVALRY AMONG RIVALRY AMONG COMPETING SELLERSCOMPETING SELLERS

Usually the MOST POWERFUL of the five competitive forcesUsually the MOST POWERFUL of the five competitive forcesWeapons of COMPETITIVE RIVALRYWeapons of COMPETITIVE RIVALRY

PRICEPRICEQualityQualityPerformance features offeredPerformance features offeredCustomer serviceCustomer serviceWarranties and guaranteesWarranties and guarantees Advertising & special promotionsAdvertising & special promotions Dealer networksDealer networks Product innovationProduct innovation

PRINCIPLES OF PRINCIPLES OF COMPETITIVE RIVALRYCOMPETITIVE RIVALRY

A powerful competitive strategy Launched by one firm INTENSIFIES

Competitive pressures on rivals!

Use of various competitive weapons by rivals to out Maneuver one another shapes Rules

of competition &Requirements for competitive success

PRINCIPLE OF PRINCIPLE OF COMPETITIVE MARKETSCOMPETITIVE MARKETS

Competitive jockeying among rival firms is a Competitive jockeying among rival firms is a dynamic process as firms initiate new dynamic process as firms initiate new offensive & defensive movesoffensive & defensive moves

Emphasis swings from one mix of Emphasis swings from one mix of competitive weapons to anothercompetitive weapons to another

WHAT CAUSES RIVALRY WHAT CAUSES RIVALRY TO BE STRONGER?TO BE STRONGER?

Lots of firms, equal in size and capability,Lots of firms, equal in size and capability,exit exit Demand for product growing slowlyDemand for product growing slowlyIndustry conditions tempt firms to use competitive Industry conditions tempt firms to use competitive weapons to boost volumeweapons to boost volumeSwitching costs incurred by customers are lowSwitching costs incurred by customers are lowA firm initiates moves to bolster its standing at expense A firm initiates moves to bolster its standing at expense of rivalsof rivalsA successful strategic move carries a big payoff A successful strategic move carries a big payoff Costs more to get of business than to stay in Firms have Costs more to get of business than to stay in Firms have divers strategies, corporate priorities, resources, & divers strategies, corporate priorities, resources, & countries of origincountries of origin

COMPETITIVE FORCE COMPETITIVE FORCE OF POTENTIAL ENTRYOF POTENTIAL ENTRY

New entrants boost competitive pressures New entrants boost competitive pressures By bringing new production capacity into play By bringing new production capacity into play Through actions to build market share Through actions to build market share

Seriousness of threat of entry depends on Seriousness of threat of entry depends on BARRIERS TO entryBARRIERS TO entryExpected REACTION of existing firms to Expected REACTION of existing firms to

entryentryBarriers to entry exist WHENBarriers to entry exist WHEN

It is difficult for newcomers to enter marketIt is difficult for newcomers to enter marketA new entrant’s small sales volume puts it a A new entrant’s small sales volume puts it a price/cost disadvantageprice/cost disadvantage

COMMON BARRIERS TO ENTRYCOMMON BARRIERS TO ENTRY

Economies of scaleEconomies of scaleInability to gain access to specialized technologyInability to gain access to specialized technologyExistence of learning/experience curve effectsExistence of learning/experience curve effectsBrand preferences and customer loyaltyBrand preferences and customer loyaltyCapital requirementsCapital requirementsCost disadvantages independent of sizeCost disadvantages independent of sizeAccess to distribution channelsAccess to distribution channelsRegulatory policiesRegulatory policiesTariffs & international trade restrictionsTariffs & international trade restrictions

REACTION OF EXISTING FIRMS REACTION OF EXISTING FIRMS CAN BE AN ENTRY BARRIERCAN BE AN ENTRY BARRIER

WHEN existing firmsWHEN existing firmsIndicate they’ll aggressively defend theirIndicate they’ll aggressively defend theirposition position Have substantial resources to wage defense Have substantial resources to wage defense Can use leverage with customers to be Can use leverage with customers to be

discouraged bydiscouraged byProspects of a costly struggle Prospects of a costly struggle Strong threat of competitive retaliationStrong threat of competitive retaliation

WHICH makes entry barriers HIGHERWHICH makes entry barriers HIGHER

WHEN IS POTENTIAL ENTRY A WHEN IS POTENTIAL ENTRY A STRONG COMPETITIVE FORCE?STRONG COMPETITIVE FORCE?

Competitive threat of outsiders enteringCompetitive threat of outsiders entering

a market is stronger when a market is stronger when

Entry barriers are lowEntry barriers are low

Incumbent firms do not vigorouslyIncumbent firms do not vigorously

fight newcomerfight newcomer

Newcomer can expect to earn Newcomer can expect to earn attractive attractive

profitsprofits

COMPETITIVE FORCE OF COMPETITIVE FORCE OF SUBSTITUTE PRODUCTSSUBSTITUTE PRODUCTS

Concept

SUBSTITUTES matter when products of firms in another Industry enter the market picture

Examples

Eyeglasses vs. Contact LensSugar vs. Artificial SweetenersPlastic Containers vs. Glass vs. Tin vs. AluminumAspirin vs. Other Types of Pain Relievers

WHY SUBSTITUTE WHY SUBSTITUTE ORODUCTS MATTERORODUCTS MATTER

Competitively priced substitutes can placeCompetitively priced substitutes can placeCEILING ON PRICES industry can charge for its CEILING ON PRICES industry can charge for its

product product Price ceiling can place Price ceiling can place LID ON PROFITSLID ON PROFITSIndustry members can earnIndustry members can earnAvailability of substitutes invites customers to make Availability of substitutes invites customers to make

QUALITY & PERFORMANCEQUALITY & PERFORMANCE Comparisons as well as Comparisons as well as PRICEPRICE comparisons comparisons The lower the SWITCHING COSTS, easier it is for The lower the SWITCHING COSTS, easier it is for Customers to shift to substitute productsCustomers to shift to substitute products

INDICATORS OF STRENGTHINDICATORS OF STRENGTHOF SUBSTITUTE PRODUCTSOF SUBSTITUTE PRODUCTS

Growth rate of sales of substitutes Growth rate of sales of substitutes

Market inroads of substitutes to Market inroads of substitutes to expand expand capacitycapacity

Profits of firms producing substitutesProfits of firms producing substitutes

PRINCIPLE OFPRINCIPLE OF COMPETITIVE MARKETS COMPETITIVE MARKETS

Competitive threat of substitute Competitive threat of substitute products is strong whenproducts is strong when

Prices of substitutes are viewedPrices of substitutes are viewed attractive by buyersattractive by buyers

Buyers’ costs of switching toBuyers’ costs of switching to substitutes are lowsubstitutes are low

Buyers view substitutes as having Buyers view substitutes as having Equal or better performance featuresEqual or better performance features

COMPETITIVE FORCE OF COMPETITIVE FORCE OF SUPPLIERSSUPPLIERS

Suppliers are a strong competitive force when Suppliers are a strong competitive force when Item makes up large portion of costs of Item makes up large portion of costs of product, is crucial to product, is crucial to

production process, production process, and/or significantly affects products and/or significantly affects products quality quality It is costly for buyers to switch suppliersIt is costly for buyers to switch suppliersThey have good reputations & growing They have good reputations & growing demand for their productdemand for their product They can supply a component cheaper than They can supply a component cheaper than industry industry

members can make it themselves members can make it themselves They do not have to contend with substitutes They do not have to contend with substitutes Buying firms are not important customers Buying firms are not important customers

PRINCIPLE OF COMPETITIVE PRINCIPLE OF COMPETITIVE MARKETSMARKETS

Whether suppliers are a strong or weak Whether suppliers are a strong or weak competitive force depends on if they have competitive force depends on if they have

bargaining power to put rivals at a bargaining power to put rivals at a competitive disadvantage based on : competitive disadvantage based on :

Prices they can commandPrices they can command

Quality & performance of items Quality & performance of items suppliedsupplied

Reliability of deliveriesReliability of deliveries

Other terms & conditions of supplyOther terms & conditions of supply

COMPETITIVE FORCE OF BUYERSCOMPETITIVE FORCE OF BUYERSBuyers are a strong competitive force when Buyers are a strong competitive force when

They are large & purchase a sizable They are large & purchase a sizable percentage of percentage of industry’s productindustry’s product

They buy in volume quantitiesThey buy in volume quantitiesThey incur low costs in switching to They incur low costs in switching to substitutessubstitutes They have flexibility to purchase fromThey have flexibility to purchase from several sellers several sellers Selling industry’s product is standardizedSelling industry’s product is standardized They can integrate backwardThey can integrate backward Product being purchased does NOT save Product being purchased does NOT save

buyer money or has low value to buyerbuyer money or has low value to buyer

PRINCIPLE OFPRINCIPLE OFCOMPETITIVE MARKETSCOMPETITIVE MARKETS

Buyer become a Buyer become a strongerstronger competitive competitiveforce the more they can exerciseforce the more they can exercise

bargaining leverage over bargaining leverage over PricePriceQualityQualityServiceServiceOther terms & conditions of saleOther terms & conditions of sale

STRATEGIC IMPLICATIONS OF STRATEGIC IMPLICATIONS OF THE FIVE COMPETITIVE FORCESTHE FIVE COMPETITIVE FORCES

Competitive environment is unattractive Competitive environment is unattractive when :when :

Rivalry is very strongRivalry is very strongEntry barriers are lowEntry barriers are lowCompetition from substitutes is Competition from substitutes is

strongstrongSuppliers & customers have Suppliers & customers have

considerable bargaining considerable bargaining power power

STRATEGIC IMPLICATIONS OF STRATEGIC IMPLICATIONS OF THE FIVE COMPETITIVE FORCESTHE FIVE COMPETITIVE FORCES

Competitive environment is ideal when :Rivalry is only moderate Entry barriers relatively highThere are no good substitutes Suppliers & customers are in a weakbargaining position

Principle

The weaker the competitive forces, the GREATER an

Industry’s PROFITS!

CONCEPT WITH THE CONCEPT WITH THE FIVE COMPETITIVE FORCESFIVE COMPETITIVE FORCES

Concept

A company whose strategy and market position Provide a GOOD DEFENSE against the five forces can Earn above – average profits even when some or all of the Five forces are strong!

COPING WITH THE FIVE COPING WITH THE FIVE COMPETITIVE FORCESCOMPETITIVE FORCES

Objective is to craft a strategy that will Objective is to craft a strategy that will Insulate company from competitive Insulate company from competitive forces forces Influence industry’s competitive rulesInfluence industry’s competitive rulesin company’s favorin company’s favorProvide a strong position from which Provide a strong position from which “ “ to play the game “ of competition to play the game “ of competition Help create sustainable competitive Help create sustainable competitive

advantageadvantage

IDENTIFYING & ASSESSINGIDENTIFYING & ASSESSINGDRIVING FORCESDRIVING FORCES

Concept

Industry conditions change because EXTERNAL FORCESAre DRIVING industry participants to alter their actions

DRIVING FORCES are MAJOR UNDERLY CAUSES of changing industry & competitive conditions

IDENTIFYING & ASSESSING IDENTIFYING & ASSESSING DRIVING FORCESDRIVING FORCES

Role of driving forces analysis in strategy –Role of driving forces analysis in strategy –

makingmaking

Indicates EXTERNAL FACTORSIndicates EXTERNAL FACTORS

likely to have greatest impact on a likely to have greatest impact on a firm over next 1-3 yearsfirm over next 1-3 years

Must assess difference driving forces Must assess difference driving forces will make to be able to craft a strategy will make to be able to craft a strategy

responsive to emerging conditionsresponsive to emerging conditions

DRIVING FORCES ANALYSISDRIVING FORCES ANALYSIS

Analysis of driving forces has two steps Analysis of driving forces has two steps Identifying RELEVANT driving forces Identifying RELEVANT driving forces ASSESSING IMPACT they will have ASSESSING IMPACT they will have

Task of driving forces analysis is :Task of driving forces analysis is :SEPARATE MAJOR cause of industry SEPARATE MAJOR cause of industry change from MINOR ones change from MINOR ones IDENTIFY the THREE or FOURIDENTIFY the THREE or FOUR

driving forces likely to have greatestdriving forces likely to have greatest impact on a firm over next 1-3 yearsimpact on a firm over next 1-3 years

TYPES OF DRIVING FORCESTYPES OF DRIVING FORCES

Changes in long-term industry growth rateChanges in long-term industry growth rateChanges in who buys the product & how Changes in who buys the product & how they use itthey use itProduct innovationProduct innovationTechnological change/process innovation Technological change/process innovation Marketing innovation Marketing innovation Entry or exit of major firmsEntry or exit of major firmsDiffusion of technical knowledgeDiffusion of technical knowledge

TYPES OF DRIVING FORCESTYPES OF DRIVING FORCES

Increasing globalization of industryIncreasing globalization of industry

Changes in cost and efficiency Changes in cost and efficiency

Shifting from standardized to differentiatedShifting from standardized to differentiated

product (or vice versa )product (or vice versa )

Regulatory influences & government policy Regulatory influences & government policy

changeschanges

Changing societal concerns , attitudes, & lifestylesChanging societal concerns , attitudes, & lifestyles

Changes in degree of uncertainly & riskChanges in degree of uncertainly & risk

ENVIRONMENTAL SCANNINGENVIRONMENTAL SCANNING

Definition

A broad-ranging effort to monitor & interpret social,political, economic, ecological, & technologicalevents in an effort to spot budding trends & conditions that could eventually impact industry

Purpose

Raise consciousness of managers about potential Developments that could

Have important impact on industry conditionsPose new opportunities & threats

ASSESSING COMPETITIVEASSESSING COMPETITIVEPOSITIONS : STRATEGIC GROUPSPOSITIONS : STRATEGIC GROUPS

A STRATEGIC GROUPA STRATEGIC GROUP consists of consists of those Rival firms with similar those Rival firms with similar

Competitive approaches & positions in an Competitive approaches & positions in an industry industry

A A STRATEGIC GROUP MAPSTRATEGIC GROUP MAP displays displays different competitive positions that rival different competitive positions that rival

occupyoccupy

STRATEGIC GROUP MAPS STRATEGIC GROUP MAPS

Firms in same strategic group have one or more Firms in same strategic group have one or more competitive characteristics in common…competitive characteristics in common…

Sell in same price/quality range Sell in same price/quality range Cover same geographic areasCover same geographic areasBe vertically integrated to same degreeBe vertically integrated to same degreeHave comparable product line breadthHave comparable product line breadthEmphasize same types of distribution Emphasize same types of distribution channelschannelsOffer buyers similar servicesOffer buyers similar servicesUse identical technological approachesUse identical technological approaches

CONSTRUCTING A CONSTRUCTING A STRATEGIC GROUP MAPSTRATEGIC GROUP MAP

Identify competitive characteristics that Identify competitive characteristics that differentiate firms in an industry from one differentiate firms in an industry from one anotheranotherPlot firms on a two – variable map using pairs of Plot firms on a two – variable map using pairs of these differentiating characteristics these differentiating characteristics

Assign firms that fall in about the same strategy Assign firms that fall in about the same strategy space to same strategy groupspace to same strategy group

Draw circles around each strategic group, making Draw circles around each strategic group, making circles proportional to size of group’s respective circles proportional to size of group’s respective share of total industry salesshare of total industry sales

DUIDELINES: STRATEGICDUIDELINES: STRATEGICGROUP MAPSGROUP MAPS

Variables selected as axes should NOT be highly Variables selected as axes should NOT be highly correlatecorrelateVariable chosen as axes should expose BIGVariable chosen as axes should expose BIGdifferences in how rivals competedifferences in how rivals competeVariables do NOT have to be either quantitative or Variables do NOT have to be either quantitative or continuouscontinuousDrawing sizes of circles proportional to combined Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to sales of firms in each strategic group allows map to reflect relative sizes of each strategic group if more reflect relative sizes of each strategic group if more than two good competitive variables can be used, than two good competitive variables can be used, several maps can be drawnseveral maps can be drawn

INTERPRETING INTERPRETING STRATEGIC GROUP MAPSSTRATEGIC GROUP MAPSDriving forces & competitive pressures Driving forces & competitive pressures often favor some strategic groups & hurt often favor some strategic groups & hurt others profit potential of different strategic others profit potential of different strategic groups various due to strengths & groups various due to strengths & weaknesses in each group’s market weaknesses in each group’s market position position The closer strategic groups are on map, the The closer strategic groups are on map, the stronger the competitive rivalry among stronger the competitive rivalry among member firms tends to be.member firms tends to be.

COMPETITOR ANALYSISCOMPETITOR ANALYSIS

A firm’s strategic moves are affected by A firm’s strategic moves are affected by Current strategies of competitors Current strategies of competitors Actions competitors are likely to take Actions competitors are likely to take next next

profile of key competitors involves profile of key competitors involves studying:studying:Current position in industry Current position in industry Strategic objectives & recent actions Strategic objectives & recent actions Basic competitive approachesBasic competitive approaches

COMPETITOR ANALYSISCOMPETITOR ANALYSIS

Successful strategists take great pains in Successful strategists take great pains in scouting competitors byscouting competitors by

Understanding their strategiesUnderstanding their strategiesWatching their actionsWatching their actionsEvaluating their vulnerability to drivingEvaluating their vulnerability to drivingforces & competitive pressuresforces & competitive pressuresSizing up their strengths & weaknessesSizing up their strengths & weaknessesTrying to anticipate rivals’ next movesTrying to anticipate rivals’ next moves

PREDICTING MOVES OF PREDICTING MOVES OF RIVAL COMPETITORSRIVAL COMPETITORS

Predicting rivals’ next moves involves Predicting rivals’ next moves involves Analyzing current competitive positionsAnalyzing current competitive positionsExamining public pronouncements aboutExamining public pronouncements aboutwhat it will take to be successful in industry what it will take to be successful in industry Gathering information from grapevine about Gathering information from grapevine about current current

activities & potential changes activities & potential changes Studying past actions & leadershipStudying past actions & leadershipDetermining who has flexibility to make major Determining who has flexibility to make major strategic strategic

changes & who is locked into pursuing changes & who is locked into pursuing same basic strategysame basic strategy

PRINCIPLEPRINCIPLE

Managers who fail to study Competitors closely risk being

Blindsided by “ surprise” actionsOn the part of competitors!

PINPOINTING INDUSTRY PINPOINTING INDUSTRY KEY SUCCESS FACTORS KEY SUCCESS FACTORS

Basic Concept

Key SUCCESS FACTORS ( KSFs) spellDifference between

Profit & LossCompetitive success or failure

A KEY SUCCESS FACTOR can be Specific skill or talentCompetitive capabilitySomething a firm must do to satisfycustomers

PINPOINTING INDUSTRY PINPOINTING INDUSTRY KEY SUCCESS FACTORS KEY SUCCESS FACTORS

Identifying KSFs is top priority as they are good Cornerstones of a firm’s strategy

Winning hinges on being distinctivelybetter than rivals at one or more of the KSFs

KSFs consist of the 3-5 really major determinants of financial & competitive success in industry

EXAMPLE : INDUSTRYEXAMPLE : INDUSTRYKEY SUCCESS FACTORSKEY SUCCESS FACTORS

Beer/brewing Industry

Utilization of brewing capacity- to keep manufacturingCosts low.

Developing a strong network of wholesale distributors-to gain access to retail outlets

Clever advertising-to induce beer drinkers to buy a Particular brand

EXAMPLE : INDUSTRYEXAMPLE : INDUSTRYKEY SUCCESS FACTORSKEY SUCCESS FACTORS

Apparel Manufacturing Industry

Fashion design – to create buyer appeal

Low-cost manufacturing efficiency- to keep selling Prices competitive

EXAMPLE : INDUSTRYEXAMPLE : INDUSTRYKEY SUCCESS FACTORSKEY SUCCESS FACTORS

Tin & Aluminum Can Industry

Locating plants close to end-use customers- to keep costs Of shipping empty cans low

Ability to market plant output within economicalshipping distances

STRATEGIC MANAGEMENT STRATEGIC MANAGEMENT PRINCIPLEPRINCIPLE

A Sound strategy incorporates industryKey success factors!

CONCLUSION : OVERALL CONCLUSION : OVERALL INDUSTRY ATTRACTIVENESSINDUSTRY ATTRACTIVENESS

Objective

To review overall situation & develop conclusions about relative attractiveness or unattractiveness of the industry, both near- and long-term

PrincipleA firm uniquely well-suited in an otherwise unattractive industry can, under certain Circumstances, still earn unusually good profits

ASSESSING OVERALL ASSESSING OVERALL INDUSTRY ATTRACTIVENESSINDUSTRY ATTRACTIVENESS

Industry market size & growth potential Industry market size & growth potential Whether industry will be favorably or unfavorably Whether industry will be favorably or unfavorably impacted by driving forcesimpacted by driving forcesPotential for entry/exit of major firmsPotential for entry/exit of major firmsStability/dependability of demandStability/dependability of demandWill competitive forces become stronger orWill competitive forces become stronger orweaker weaker Severity of problems facing industry Severity of problems facing industry Degree of risk & uncertainty in industry’s futureDegree of risk & uncertainty in industry’s futureWhether competitive conditions are conductive toWhether competitive conditions are conductive torisking/falling industry profitabilityrisking/falling industry profitability

CONDUCTING AN INDUSTRY &CONDUCTING AN INDUSTRY &COMPETITIVE SITUATION COMPETITIVE SITUATION

ANALYSISANALYSIS Two things to consider:Two things to consider:

Task of analyzing a firm’s Task of analyzing a firm’s EXTERNALEXTERNAL situation cannot be situation cannot be reduced to a formula-like exercisereduced to a formula-like exercise

Sweeping industry & competitive Sweeping industry & competitive analyses need to done every 1 to 3 analyses need to done every 1 to 3

yearsyears