5th lecture industry & competitive analysis mahmood ahmed
TRANSCRIPT
STRATEGIC ANALYSIS STRATEGIC ANALYSIS
1.1. Industry & Competitive AnalysisIndustry & Competitive Analysis2.2. Situation AnalysisSituation Analysis
Evaluating Company Resources and Competitive Evaluating Company Resources and Competitive CapabilitiesCapabilities
Strategic Analysis is the critical Strategic Analysis is the critical starting point of strategic thinking. starting point of strategic thinking.
— Kenichi Ohmae— Kenichi Ohmae
1.1. Strategic Analysis Strategic Analysis
2.2. Industry and Competitive AnalysisIndustry and Competitive Analysis
3.3. Seven QuestionsSeven Questions1.1. Industry’s Economic TraitsIndustry’s Economic Traits
2.2. Industry’s Competitive ForcesIndustry’s Competitive Forces
3.3. Drivers of Industry ChangeDrivers of Industry Change
4.4. Competitive Positions of RivalsCompetitive Positions of Rivals
5.5. Competitive Moves of Rivals Competitive Moves of Rivals
6.6. Key Success FactorsKey Success Factors
7.7. Conclusions: Overall Industry AttractivenessConclusions: Overall Industry Attractiveness
SEQUENCESEQUENCE
1.1. Strategic AnalysisStrategic Analysis
What Is Strategic AnalysisWhat Is Strategic Analysis??
Organization’sOrganization’s External EnvironmentExternal Environment– Industry and Competitive ConditionsIndustry and Competitive Conditions
Organization’s Organization’s Internal EnvironmentInternal Environment – Competencies, Capabilities, Resource Competencies, Capabilities, Resource
Strengths and Weaknesses, and Strengths and Weaknesses, and CompetitivenessCompetitiveness
Strategic Analysis Leads to Strategic Analysis Leads to Strategic ChoicesStrategic Choices
1. Industry’s dominant economic traits2. Nature of competition & strength of
competitive forces3. Drivers of industry change4. Competitive position of rivals5. Strategic moves of rivals6. Key success factors7. Conclusions about industry attractiveness
Assess Industry & Competitive Conditions
1. Assessment of company’s present strategy2. Resource strengths and weaknesses,
market opportunities, and external threats3. Company’s costs compared to rivals4. Strength of company’s competitive position5. Strategic issues that need to be addressed
Assess Company Situation
IdentifyStrategic Optionsfor the
Company
Select the Best Strategyfor the
Company
2.2. Industry & Competitive Industry & Competitive AnalysisAnalysis
Learning from the Strengths Learning from the Strengths and Weaknesses of Othersand Weaknesses of Others
External EnvironmentExternal Environment
Legislation and
Regulation
Societal Values
and LifestylesPopulatio
n
Demographics
Technology
The Economy at Large
COMPANY
Suppliers Substitutes
Buyers
NewEntrants
Rival Firms
IMMEDIATE INDUSTRY
AND COMPETITIVE ENVIRONMENT
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
PORTER’S FIVE FORCES MODEL OF COMPETITIONPORTER’S FIVE FORCES
MODEL OF COMPETITION
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Bargaining Power of Buyers
Bargaining Power of Buyers
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Threat of Substitute Products
Threat of Substitute Products
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Bargaining Power of Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Threat of Substitute Products
Threat of Substitute Products
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Rivalry Among Competing Firms
in Industry
Rivalry Among Competing Firms
in Industry
Bargaining Power of Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Five-Forces AnalysisFive-Forces Analysis
Five-Forces Analysis is a framework forFive-Forces Analysis is a framework for analyzing a particular industry.analyzing a particular industry.
The five forces are environmental forces that The five forces are environmental forces that impact on a company’s ability to compete in impact on a company’s ability to compete in a given market.a given market.
The purpose of five-forces analysis is to The purpose of five-forces analysis is to diagnose the principal competitive pressures diagnose the principal competitive pressures in a market and assess how strong and in a market and assess how strong and important each one is.important each one is.
COMPETITOR ANALYSISCOMPETITOR ANALYSIS
The follow-up to Industry Analysis is The follow-up to Industry Analysis is effective analysis of a firm’s effective analysis of a firm’s CompetitorsCompetitors
CompetitiveCompetitiveEnvironmentEnvironment
Industry Environment
Industry Environment
COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE
Overriding objective behind Strategic Planning is Overriding objective behind Strategic Planning is achieving Sustainable Competitive Advantage.achieving Sustainable Competitive Advantage.
Competitive Advantage refers to some aspect of Competitive Advantage refers to some aspect of organization performed better than competitors.organization performed better than competitors.– Having a Having a Lower CostLower Cost base base– Providing a Providing a Better ProductBetter Product– Doing Doing BothBoth at the same time at the same time
Even ‘not for profit’ sector compete for limited Even ‘not for profit’ sector compete for limited resources resources
WHAT IS COMPETITIVE ANALYSISWHAT IS COMPETITIVE ANALYSIS??
Competitive AnalysisCompetitive Analysis– A set of methods for getting ideas from your A set of methods for getting ideas from your
competitorscompetitors
Also known as: Comparative AnalysisAlso known as: Comparative Analysis
COMPETITOR ANALYSISCOMPETITOR ANALYSISAssumptionsAssumptions
What assumptions do our competitors hold about the future of industry and themselves?
Current StrategyCurrent StrategyDoes our current strategy support changes in the competitive environment?
Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?
CapabilitiesCapabilitiesHow do our capabilities compare to our competitors?
ResponseResponseWhat will our competitors do in the future?
What will our competitors do in the future?
Where do we have a competitive advantage?
Where do we have a competitive advantage?
How will this change our relationship with our competition?
How will this change our relationship with our competition?
Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?
How do our goals compare to our competitors’ goals?Where will emphasis be placed in the future?Where will emphasis be placed in the future?
What is the attitude toward risk?What is the attitude toward risk?
What Drives the competitor?
COMPETITOR ANALYSISCOMPETITOR ANALYSIS
What is the competitor doing?
What can the competitor do?
Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?
How do our goals compare to our competitors’ goals?Where will emphasis be placed in the future?Where will emphasis be placed in the future?
What is the attitude toward risk?What is the attitude toward risk?
Current StrategyCurrent StrategyHow are we currently competing?How are we currently competing?
Does this strategy support changes in the competitive structure?
Does this strategy support changes in the competitive structure?
COMPETITOR ANALYSISCOMPETITOR ANALYSIS
What does the competitor believe about itself and the industry?
Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?
How do our goals compare to our competitors’ goals?Where will emphasis be placed in the future?Where will emphasis be placed in the future?
What is the attitude toward risk?What is the attitude toward risk?
Current StrategyCurrent StrategyHow are we currently competing?How are we currently competing?
Does this strategy support changes in the competition structure?
Does this strategy support changes in the competition structure?
Do we assume the future will be volatile?Do we assume the future will be volatile?
Are we assuming stable competitive conditions?Are we assuming stable competitive conditions?
What assumptions do our competitors hold about the industry and themselves?
What assumptions do our competitors hold about the industry and themselves?
AssumptionsAssumptions
COMPETITOR ANALYSISCOMPETITOR ANALYSIS
What are the competitor’s capabilities?
Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?
How do our goals compare to our competitors’ goals?Where will emphasis be placed in the future?Where will emphasis be placed in the future?
What is the attitude toward risk?What is the attitude toward risk?
Current StrategyCurrent StrategyHow are we currently competing?How are we currently competing?
Does this strategy support changes in the competition structure?
Does this strategy support changes in the competition structure?
Do we assume the future will be volatile?Do we assume the future will be volatile?
Are we operating under a status quo?Are we operating under a status quo?
What assumptions do our competitors hold about the industry and themselves?
What assumptions do our competitors hold about the industry and themselves?
AssumptionsAssumptions
What are my competitors’ strengths and weaknesses?What are my competitors’ strengths and weaknesses?
How do our capabilities compare to our competitors?
How do our capabilities compare to our competitors?
CapabilitiesCapabilities
COMPETITOR ANALYSISCOMPETITOR ANALYSIS
Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?
How do our goals compare to our competitors’ goals?Where will emphasis be placed in the future?Where will emphasis be placed in the future?
What is the attitude toward risk?What is the attitude toward risk?
Current StrategyCurrent StrategyHow are we currently competing?How are we currently competing?
Does this strategy support changes in the competition structure?
Does this strategy support changes in the competition structure?
Do we assume the future will be volatile?Do we assume the future will be volatile?
Are we operating under a status quo?Are we operating under a status quo?
What assumptions do our competitors hold about the industry and themselves?
What assumptions do our competitors hold about the industry and themselves?
AssumptionsAssumptions
ResponseResponseWhat will our competitors do in the future?What will our competitors do in the future?
Where do we have a competitive advantage?Where do we have a competitive advantage?
How will this change our relationship with our competition?
How will this change our relationship with our competition?
CapabilitiesCapabilities
What are my competitors’ strengths and weaknesses?What are my competitors’ strengths and weaknesses?
How do our capabilities compare to our competitors?
How do our capabilities compare to our competitors?
COMPETITOR ANALYSISCOMPETITOR ANALYSIS
3.3. Seven QuestionsSeven Questions
Industry and Competitive Analysis – Industry and Competitive Analysis – Seven QuestionsSeven Questions
1.1. Industry’s Economic TraitsIndustry’s Economic Traits
2.2. Industry’s Competitive ForcesIndustry’s Competitive Forces
3.3. Drivers of Industry ChangeDrivers of Industry Change
4.4. Competitive Positions of RivalsCompetitive Positions of Rivals
5.5. Competitive Moves of Rivals Competitive Moves of Rivals
6.6. Key Success FactorsKey Success Factors
7.7. Conclusions: Overall Industry AttractivenessConclusions: Overall Industry Attractiveness
Industry and Competitive EnvironmentIndustry and Competitive Environment
Industry’s economic traits
Competitive forces and strength of each force
Drivers of change in the industry
Competitor analysis
Key success factors
Conclusions: Industry attractiveness
1. Industry’s Economic Traits1. Industry’s Economic Traits
1. 1. What are the industry’s dominant What are the industry’s dominant economic features?economic features?
Industries differ significantly on such factors as: Industries differ significantly on such factors as: – Market Size and Growth Rate, Market Size and Growth Rate, – Geographic Scope of Competitive Rivalry, Geographic Scope of Competitive Rivalry, – Number and Relative Sizes of Both Buyers and Sellers, Number and Relative Sizes of Both Buyers and Sellers, – Ease of Entry and Exit,Ease of Entry and Exit,– Whether Sellers are Vertically Integrated, Whether Sellers are Vertically Integrated, – How Fast Basic Technology is Changing,How Fast Basic Technology is Changing,– Extent of Scale Economies and Experience Curve Effects, Extent of Scale Economies and Experience Curve Effects, – Whether Products of Rival Sellers are Standardized or Differentiated, Whether Products of Rival Sellers are Standardized or Differentiated, – Overall Profitability. Overall Profitability.
An industry’s economic characteristics are important because An industry’s economic characteristics are important because of the implications they have for crafting strategy.of the implications they have for crafting strategy.
Cost Advantages ofCost Advantages ofDifferent Experience Curve EffectsDifferent Experience Curve Effects
$1
$1 .90
.80
.70
.81
.64
.49
.729
.512
.343
10% CostReduction
20% CostReduction
30% CostReduction
1MillionUnits
2MillionUnits
4MillionUnits
8MillionUnits
Co
st p
er U
nit
Relevance of Key Economic FeaturesRelevance of Key Economic FeaturesEconomic
Feature
Market Size
Market growth rate
Capacity surpluses/shortages
Industry profitability
Entry/exit barriers
Product is big-ticket item for buyers
Standard products
Rapid technological change
Capital requirements
Vertical integration
Economies of scale
Rapid product innovation
Strategic Importance
Small markets don’t tend to attract new firms; large markets attract firms looking to acquire rivals with established positions in attractive industries
Fast growth breeds new entry; slow growth spawns increased rivalry & shake-out of weak rivals
Surpluses push prices & profit margins down; shortages pull them up
High-profit industries attract new entrants; depressed conditions lead to exit
High barriers protect positions and profits of existing firms; low barriers make existing firms vulnerable to entry
More buyers will shop for lowest price
Buyers have more power because it’s easier to switch from seller to seller
Raises risk; investments in technology facilities/equipment may become obsolete before they wear out
Big requirements make investment decisions critical; timing becomes important; creates a barrier to entry and exit
Raises capital requirements; often creates competitive & cost differences among fully vs. partially vs. non-integrated firms
Increases volume & market share needed to be cost competitive
Shortens product life cycle; increases risk because of opportunities for leapfrogging
2. Industry’s Competitive Forces2. Industry’s Competitive Forces
2. 2. What is competition like and how strong What is competition like and how strong are each of the five competitive forces?are each of the five competitive forces?
The strength of competition is a composite of five forces:The strength of competition is a composite of five forces:– Rivalry among competing sellers, Rivalry among competing sellers, – presence of attractive substitutes, presence of attractive substitutes, – potential for new entry, potential for new entry, – competitive pressures stemming from supplier–seller collaboration and competitive pressures stemming from supplier–seller collaboration and
bargaining, and bargaining, and – competitive pressures stemming from seller–buyer collaboration and competitive pressures stemming from seller–buyer collaboration and
bargaining. Tbargaining. T
Task of competition analysis is to understand the competitive Task of competition analysis is to understand the competitive pressures associated with each force;pressures associated with each force;– determine whether these pressures add up to a strong or weak determine whether these pressures add up to a strong or weak
competitive force in the marketplace, and then competitive force in the marketplace, and then – think strategically about what sort of competitive strategy, given the rules think strategically about what sort of competitive strategy, given the rules
of competition in the industry, the company will need to employ to of competition in the industry, the company will need to employ to insulate the firm as much as possible from the five competitive forces, insulate the firm as much as possible from the five competitive forces, influence the industry’s competitive rules in the company’s favor, andinfluence the industry’s competitive rules in the company’s favor, and gain a competitive edge.gain a competitive edge.
Five Forces Model of CompetitionFive Forces Model of Competition
Substitute Products(of firms in
other industries)
Suppliers of Key Inputs
Buyers
PotentialNew
Entrants
RivalryAmong
CompetingSellers
1. 1. Competitive RivalryCompetitive Rivalry
Competitive jockeying among rival Competitive jockeying among rival firms is firms is dynamicdynamic andand ever-ever-changingchanging
– As industry members initiate new As industry members initiate new offensive and defensive movesoffensive and defensive moves
– As emphasis swings from one mix As emphasis swings from one mix of competitive weapons to anotherof competitive weapons to another
2. 2. Potential New EntrantsPotential New Entrants
Threat of entry is stronger when: Entry barriers are low Sizable pool of entry candidates
exists Incumbents are unwilling or unable to
contest a newcomer’s entry efforts Newcomers can expect to earn
attractive profits
3. 3. Substitute ProductsSubstitute Products
Competitive threat of Competitive threat of substitutessubstitutes is is strongerstronger when they are: when they are:
– Readily available Readily available
– Attractively pricedAttractively priced
– Believed to have comparable or Believed to have comparable or better performance featuresbetter performance features
– Customer switching costs are lowCustomer switching costs are low
4. 4. Bargaining Power of SuppliersBargaining Power of Suppliers
SuppliersSuppliers are a are a strongerstronger force the force the more they can exercise power more they can exercise power over:over:
–Prices chargedPrices charged
–Quality and performance Quality and performance of items supplied of items supplied
–Reliability of deliveriesReliability of deliveries
4. 4. Bargaining Power of BuyersBargaining Power of Buyers
Whether seller-buyer relationships Whether seller-buyer relationships represent a represent a weakweak or or strongstrong competitive competitive force depends onforce depends on
– Whether buyers have sufficient bargaining Whether buyers have sufficient bargaining leverage to influence terms of sale in their leverage to influence terms of sale in their favorfavor
– Extent and competitive importance of Extent and competitive importance of collaborative partnerships between one or collaborative partnerships between one or more sellers and their customersmore sellers and their customers
3. Drivers of Industry Change3. Drivers of Industry Change
3. 3. What is causing the industry’s competitive What is causing the industry’s competitive structure and business environment to change?structure and business environment to change?
Industry and competitive conditions change because forces are Industry and competitive conditions change because forces are in motion that create incentives or pressures for change. in motion that create incentives or pressures for change. Common driving forces are:Common driving forces are:– Industry changes being wrought by the Internet and mushrooming e-Industry changes being wrought by the Internet and mushrooming e-
commerce transactions, commerce transactions, – Globalization of competition in the industry, Globalization of competition in the industry, – Changes in the long-term industry growth rate,Changes in the long-term industry growth rate,– Changes in buyer composition, Changes in buyer composition, – Product innovation, Product innovation, – Entry or exit of major firms, Entry or exit of major firms, – Changes in cost and efficiency, Changes in cost and efficiency, – Changing buyer preferences for standardized versus differentiated Changing buyer preferences for standardized versus differentiated
products, products, – Regulatory influences and government policy changes, Regulatory influences and government policy changes, – Changing societal and lifestyle factors, and Changing societal and lifestyle factors, and – Reductions in uncertainty and business risk. Reductions in uncertainty and business risk.
Sound analysis of driving forces and their implications for the Sound analysis of driving forces and their implications for the industry is a prerequisite to sound strategy making.industry is a prerequisite to sound strategy making.
Environmental ScanningEnvironmental Scanning
Monitoring and interpreting sweep of social, Monitoring and interpreting sweep of social, political, economic, ecological, and political, economic, ecological, and technological events to spot budding trends technological events to spot budding trends that could eventually impact industrythat could eventually impact industry
Definition
Environmental ScanningEnvironmental Scanning
Purpose
Raise consciousness of managers about potential developments that could
Have important impact on industry conditions Pose new opportunities and threats
4. Competitive Positions of 4. Competitive Positions of RivalsRivals
4. 4. Which companies are in the Which companies are in the strongest/ weakest positions?strongest/ weakest positions?
Strategic group mapping is a valuable, if not Strategic group mapping is a valuable, if not necessary, tool for understanding the necessary, tool for understanding the similarities, differences, strengths, and similarities, differences, strengths, and weaknesses inherent in the market positions weaknesses inherent in the market positions of rival companies. of rival companies.
Rivals in the same or nearby strategic groups Rivals in the same or nearby strategic groups are close competitors, whereas companies in are close competitors, whereas companies in distant strategic groups usually pose little or distant strategic groups usually pose little or no immediate threat.no immediate threat.
Strategic Group MappingStrategic Group MappingFirms in the Firms in the same strategic group same strategic group have have two or more competitive characteristics in two or more competitive characteristics in commoncommon– Sell in same price/quality rangeSell in same price/quality range– Cover same geographic areasCover same geographic areas– Be vertically integrated to same degreeBe vertically integrated to same degree– Have comparable product line breadthHave comparable product line breadth– Emphasize same types of distribution Emphasize same types of distribution
channelschannels– Offer buyers similar servicesOffer buyers similar services– Use identical technological approachesUse identical technological approaches
5. Competitive Moves of Rivals 5. Competitive Moves of Rivals
5. 5. What strategic moves are rivals What strategic moves are rivals likely to make next?likely to make next?
This analytical step involves: This analytical step involves: – Identifying competitors’ strategies, Identifying competitors’ strategies, – Deciding which rivals are likely to be strong contenders and which weak Deciding which rivals are likely to be strong contenders and which weak
contenders, contenders, – Evaluating their competitive options, and Evaluating their competitive options, and – Predicting what moves they are likely to make next. Predicting what moves they are likely to make next.
Scouting competitors well enough to anticipate their actions can Scouting competitors well enough to anticipate their actions can help a company prepare effective countermoves (perhaps even help a company prepare effective countermoves (perhaps even beat a rival to the punch) and allows managers to take rivals’ beat a rival to the punch) and allows managers to take rivals’ probable actions into account in designing their own company’s probable actions into account in designing their own company’s best course of action. best course of action. Managers who fail to study competitors closely risk being Managers who fail to study competitors closely risk being blindsided by surprise actions on the part of rivals. blindsided by surprise actions on the part of rivals. A company can’t expect to outmaneuver its rivals without A company can’t expect to outmaneuver its rivals without monitoring their actions and anticipating their next moves.monitoring their actions and anticipating their next moves.
Strategies of CompetitorsStrategies of CompetitorsCompetitive
ScopeStrategic
IntentMarket Share
ObjectiveCompetitive
PositionStrategic Posture
Competitive Strategy
• Local• Be dominant
leader
• Aggressive expansion via acquisition & internal growth
• Getting stronger; on the move
• Mostly offensive
• Regional• Overtake
industry leader
• Well-entrenched
• Mostly defensive
• National• Be among
industry leaders
• Expansion via internal growth
• Stuck in the middle of the pack
• Combination of offensive & defensive
• Multicountry• Move into
top 10
• Expansion via acquisition
• Going after a different position
• Aggressive risk-taker
• Global• Move up a
notch in rankings
• Hold on to present share
• Struggling; losing ground
• Conservative follower
• Maintain current position
• Give up present share to achieve short-term profits
• Retrenching to a position that can be defended• Just survive
• Striving for low-cost leadership
• Focusing on market niche
• Pursuing differentiation based on
QualityServiceTechnology
superiorityBreadth of
product lineImage &
reputationMore value
for the money
Other attributes
6. Industry’s Key Success Factors6. Industry’s Key Success Factors
6. 6. What are the key factors for What are the key factors for competitive successcompetitive success??
An industry’s key success factors (KSFs) are:An industry’s key success factors (KSFs) are:– The particular strategy elements, The particular strategy elements, – Product attributes, Product attributes, – Competitive capabilities, and Competitive capabilities, and – Business outcomes that spell the difference between profit and loss and, Business outcomes that spell the difference between profit and loss and,
ultimately, between competitive success or failure. ultimately, between competitive success or failure.
KSFs by their very nature are so important that KSFs by their very nature are so important that all firmsall firms in the in the industry must pay close attention to.industry must pay close attention to.KSFs are KSFs are the rulesthe rules that shape whether a company will be that shape whether a company will be financially and competitively successful. financially and competitively successful. Frequently, a company can gain sustainable competitive Frequently, a company can gain sustainable competitive advantage by training its strategy on industry KSFs and advantage by training its strategy on industry KSFs and devoting its energies to being distinctively better than rivals at devoting its energies to being distinctively better than rivals at succeeding on these factors. succeeding on these factors. Companies that only dimly or incompletely perceive what Companies that only dimly or incompletely perceive what factors are truly crucial to long-term competitive success are factors are truly crucial to long-term competitive success are less likely to have winning strategies.less likely to have winning strategies.
Industry’s Key Success FactorsIndustry’s Key Success Factors
Answers to three questions pinpoint Answers to three questions pinpoint KSFsKSFs1.1. On what basis do customers choose between On what basis do customers choose between
competing brands of sellers?competing brands of sellers?
2.2. What resources and competitive capabilities What resources and competitive capabilities does a seller need to have to be competitively does a seller need to have to be competitively successful?successful?
3.3. What does it take for sellers to achieve a What does it take for sellers to achieve a sustainable competitive advantage?sustainable competitive advantage?
KSFsKSFs consist of consist of majormajor determinants of determinants of financial and competitive success in an financial and competitive success in an industryindustry
Types of Key Success FactorsTypes of Key Success Factors
Distribution-related
Marketing-related
Skills-related
Organizational capability
Other types
Technology-related
Manufacturing-related
Scientific research expertise; Product innovation capability; Expertise in a given technology; Capability to use Internet to conduct various business activities
Low-cost production efficiency; Quality of manufacture; High use of fixed assets; Low-cost plant locations; High labor productivity; Low-cost product design; Flexibility to make a range of products
Strong network of wholesale distributors/dealers; Gaining ample space on retailer shelves; Having company-owned retail outlets; Low distribution costs; Fast delivery
Fast, accurate technical assistance; Courteous customer service; Accurate filling of orders; Breadth of product line; Merchandising skills; Attractive styling; Customer guarantees; Clever advertising
Superior workforce talent; Quality control know-how; Design expertise; Expertise in a particular technology; Ability to develop innovative products; Ability to get new products to market quickly
Superior information systems; Ability to respond quickly to shifting market conditions; Superior ability to employ Internet to conduct business; More experience & managerial know-how
Favorable image/reputation with buyers; Overall low-cost; Convenient locations; Pleasant, courteous employees; Access to financial capital; Patent protection
Strategic Management PrincipleStrategic Management Principle
A sound strategy A sound strategy
incorporates efforts to be incorporates efforts to be
competent on all competent on all industry key industry key
success factors and to success factors and to excel excel
on at least one on at least one factor!factor!
7. Conclusions: 7. Conclusions: Overall Industry AttractivenessOverall Industry Attractiveness
7. 7. Is the industry attractive and what are its Is the industry attractive and what are its prospects for above-average profitability?prospects for above-average profitability?
The answer to this question is a major driver of company The answer to this question is a major driver of company strategy. An assessment that the industry and competitive strategy. An assessment that the industry and competitive environment is attractive suggests employing a strategy environment is attractive suggests employing a strategy calculated to build a stronger competitive position, expanding calculated to build a stronger competitive position, expanding sales efforts and investing in additional facilities and equipment sales efforts and investing in additional facilities and equipment as needed. as needed. If the industry is relatively unattractive, outsiders considering If the industry is relatively unattractive, outsiders considering entry may decide against it and weak companies in the industry entry may decide against it and weak companies in the industry may merge with or be acquired by a rival, and strong may merge with or be acquired by a rival, and strong companies may restrict further investments and employ cost-companies may restrict further investments and employ cost-reduction strategies or product innovation strategies to boost reduction strategies or product innovation strategies to boost long-term competitiveness and protect their profitability. long-term competitiveness and protect their profitability. On occasion, an industry that is unattractive overall is still very On occasion, an industry that is unattractive overall is still very attractive to a favorably situated company with the skills and attractive to a favorably situated company with the skills and resources to take business away from weaker rivals.resources to take business away from weaker rivals.
Assessing Industry AttractivenessAssessing Industry Attractiveness
Industry’s market size and growth potentialIndustry’s market size and growth potential
Whether competitive conditions are Whether competitive conditions are conducive to rising/ falling industry conducive to rising/ falling industry profitabilityprofitability
Will competitive forces become stronger or Will competitive forces become stronger or weaker? weaker?
Whether industry will be favorably or Whether industry will be favorably or unfavorably impacted by driving forcesunfavorably impacted by driving forces
Potential for entry/ exit of major firmsPotential for entry/ exit of major firms
Stability/ dependability of demandStability/ dependability of demand
Severity of problems facing industrySeverity of problems facing industry
Degree of risk and uncertainty in industry’s Degree of risk and uncertainty in industry’s futurefuture
CONCLUSIONCONCLUSION
Good industry and competitive analysis is a Good industry and competitive analysis is a prerequisite to good strategy making. prerequisite to good strategy making.
A competently done industry and competitive A competently done industry and competitive analysis tells a clear, easily understood story analysis tells a clear, easily understood story about the company’s external environment. about the company’s external environment.
It provides the understanding of a company’s It provides the understanding of a company’s macro-environment needed for shrewdly macro-environment needed for shrewdly matching strategy to the company’s external matching strategy to the company’s external situation.situation.
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