Analyzing the Strategic Position
A Framework for Strategic Analysis
Strategy formulation
Industry
Environment
Stakeholders
analysis
Strategic
position
Internal
R&C
Alternative
Strategies
Implementation plan
Execution
Strategy implementation
Monitoring
Feedback
Analyzing the Industry
Environment
“External” analysis
Analyzing the Industry Environment
 The objectives of industry analysis
 Analysis of macro environmental factors
 PESTEL, trends
 Analysis of competitive forces
 Five Forces, Strategic Groups
 Competitors Analysis
 Market segmentation
 Key Success Factors per main segment
 Scenarios
What we need to KNOW about
the industry environment?
The Objectives of Industry Analysis
 To understand how industry structure drives



competition, hence industry profitability
To assess industry attractiveness
Identify attractive segments, under served
 And Key Success Factors in main segments
To think how we can change industry structure to
make it more attractive
 Be active rather than passive
Macroenvironment – PESTEL (1)
Political
Legal
Economic
The Industry
(sector)
Environmental
Sociocultural
Technological
 What environmental factors are affecting the industry?
 Which of these are the most important at the present time? In
the next few years?
Key Aspects of PESTEL Analysis
 Need to understand key drivers of change
and their impact on the industry (sector)
 Not just a comprehensive list of influences
 Focus is on future impact of key factors
 Isolated factors and
 factors combined
 Combined effect of some of the factors is likely to
be most important
Different sectors /industries have different
average levels of profitability ….
Why?
Profitability of US Sectors, 1985-97
Sector
Drugs
Food and kindred products
--of which Tobacco products
Instruments and related products
Electrical, and electronic equipment
Rubber and misc. plastics products
Printing and publishing
Fabricated metal products
Aircraft, guided missiles, and parts
Petroleum and coal products
Retail trade corporations
Paper and allied products
Textile mill products
Wholesale trade corporations
Stone, glass and clay products
Machinery, exc. electrical
Nonferrous metals
Motor vehicles and equipment
Iron and Steel
Mining corporations
Airlines
Return on Equity (1985-'97)
20.3
14.8
19.6
11.2
11.0
10.7
10.6
9.9
9.7
9.6
8.9
8.5
7.6
6.5
6.8
6.0
5.6
5.5
2.6
2.7
1.1
The Determinants of Industry
Profitability
 3 key influences:
 The value of the product to customers
 The intensity of competition
 Relative bargaining power at different levels
within the value chain
 Plus “cycles”
The Five Forces: industry
Potential
Entrants
Threat of entry
Suppliers
Bargaining
Power
Competitive
Rivalry
Buyers
Bargaining
Power
Threat of substitutes
Substitutes
Source: Adapted from M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors © 1980,.
Five Forces: Key questions
 Are some industries more attractive than others?



(weaker forces)
What are the underlying changes in the industry
structure and competitive forces?
What is the position of key competitors in relation
to the competitive forces? (depend on their activities
in the value chain)
Can we influence the environment through
collective and individual actions? (e.g. make
agreements)
How can we change industry
structure?
 Increase scale, built market share, e.g. through




mergers and acquisitions
Build product differentiation to avoid competition
Build entry barriers (through collective strategizing)
Make agreements
 With suppliers /buyers
 With competitors against suppliers
But be aware of collusive practices!!!
Are barriers effective?
 Generally, you can keep out new firms but
not giants moving in from other industries
 see the record of diversifications of giants
 But even if you are small, you can
circumvent barriers with clever strategies
 In value chain, e.g. how Dell bypassed dealers
 Through innovation
 Through networking / agreements
How is surplus divided between
sellers and buyers?
 According to their relative economic power
 You may circumvent weakness with
appropriate strategies
 E.g. log term agreements
 Jointed actions and developments
Is there anything missing from
the 5-forces model?
More forces
Complements that provide further
value offerings
 E.g. which complements that provide further
value to ink-jet printers?
 ink-cartridges …
Five Forces or Six? Introducing
Complements
SUPPLIERS
Bargaining power of suppliers
INDUSTRY
COMPETITORS
POTENTIAL
ENTRANTS
The suppliers of
complements
can exercise
bargaining power
COMPLEMENTS
Threat of
new entrants
Threat of
Rivalry among
existing firms
Bargaining power of buyers
BUYERS
SUBSTITUTES
substitutes
Strategic Group Analysis
 A strategic group is a group of firms in an
industry with certain similar characteristics
 They may face similar conditions, and are likely
to follow the same or similar strategy
 Identifying strategic groups:
 Select important strategic variables which
distinguish firms
 Position each firm in relation to these variables
 Identify groups / clusters.
Strategic Groups in the World
Automobile Industry
Broad
PRODUCT
RANGE
GLOBAL, BROAD-LINE
PRODUCERS
e.g., GM, Ford, Toyota,
Nissan, Honda, VW
REGIONALLYFOCUSED BROADLINE PRODUCERS
e.g. Fiat, PSA, Renault
GLOBAL SUPPLIERS
OF NARROW MODEL
RANGE e.g., Volvo,
Subaru, Suzuki, Saab,
NATIONALLY FOCUSED,
INTERMEDIATE LINE
PRODUCERS
e.g. Tofas, Kia, Proton,
Maruti
LUXURY CAR
MANUFACTURERS
NATIONALLY- FOCUSED,
SMALL, SPECIALIST
PRODUCERS e.g.,
Classic Roadsters (U.S.),
Morgan (U.K.)
Narrow
National
e.g., Jaguar, Rolls
Royce, BMW
PERFORMANCE
CAR PRODUCERS
e.g., Porsche,
Maserati, Lotus
GEOGRAPHICAL SCOPE
Global
Competitors Analysis
OBJECTIVES
What are each competitors current
goals and performance?
How are its goals likely to change?
STRATEGY
How are they competing?
ASSUMPTIONS
What assumptions does the competitor
hold about the industry and itself?
RESOURCES & CAPABILITIES
What are the competitors’ key
strengths and weaknesses?
PREDICTIONS
 What strategy changes will
the competitor initiate?
 How will the competitor
respond to our strategic
initiatives?
Segmentation analysis - Why?
 For identifying attractive markets or submarkets
 unexploited opportunities
 Segmentation is especially useful when the
nature of competition, attractiveness and
CSFs vary among different sub-markets
Segmenting the World Automobile
Market
US&
Canada
Luxury Cars
Full-size sedans
Mid-size sedans
Small sedans
Station wagons
Passenger
minivans
Sports cars
Sport-utility
Pick-up trucks
W.Europe
E.Europe Asia
Lat
America
Australia
Africa
Segmenting the European Metal Can
Industry
Food
Steel 3-piece
Fruit
Juice
Pet
food
Soft
drink
France
Beer
Oil
Germany
Spain/Port
Italy
Steel 2-piece
Aluminum 2piece
General cans
Composite cans
Aerosol cans
Key Success Factors per segment in
the Bicycle Industry
Segment
Key Success Factors
Low price bicycles
Low-costs through global sourcing of
components & low-wage assembly
Supply contract with major retailers
Medium-priced
bicycles
Cost efficiency through large scale operation
and either low wages or automated
manufacturing
Reputation for quality (durability, reliability)
International marketing & distribution
High-priced
bicycles
Quality of components and assembly
Innovation in design
Reputation, effective brand management
Strong dealer relations
Children’s bicycles
Similar to low-price bicycle segment.
CONCLUSIONS
 Changes in industry structure drive competition and

profitability
 Basis for forecasting future Industry Profitability
 Past profitability a poor indicator of future profitability
Select attractive segments
 With appropriate segmentation, assess CSF for main
segments
 Assess if we can change conditions in the future
 Identify what structural variables depress profitability
 Assess if they can be changed by individual or collective
strategies
 Define Industry Boundaries
 Think how to expand “borders”
Using Scenarios
Important in the crisis…
Scenarios: views of the future
 Different views of the future environment
 plausible states of the future
 defined on key environmental factors about
which there is a high level of uncertainty
 Uses:
 to think about uncertainty
 to check if strategies are acceptable under
different evolutions of business environment
 to check the robustness of strategic decisions e.g.
investments
Typical Scenarios
 In the past, usually three:
 Business as usual (existing trends)
 An optimistic (e.g. rosy skies)
 Pessimistic (e.g. world of contradictions, growth restraint)
 Today at least two:

continuation of trends
pessimistic, worsening conditions, late recovery

 Contingent scenarios also for important events
 E.g. emergency situations, catastrophic evens
Naming Scenarios
 Attractive “names” can have communication value




Ostrich scenario
Lame Duck scenario
Icarus scenario
Flamingos scenario
(Van der Heijden (1996), The Art of Strategic Conversation, J. Wiley)
 Set the ‘tone’ of each scenario
 e.g. Shell’s ‘new frontiers’ (‘formerly ‘the sustainable
world) and ‘barricades’, or BA’s ‘wild gardens’ and
‘new structures’.
Building scenarios
 Step 1:
 Select key environmental factors
 Select those with high impact and high uncertainty
 Step 2:
 Combine factors as to produces plausible future pictures of
the world
Form two or more pictures to show the range of changes

 Step 3:
 Assess impact under each scenario, to the sector and the firm
 Use scenarios in strategy process and decision taking
Identifying high impact, high
uncertainty factors
High
A
B
C D
Potential
Impact
Low
Low
What do we mean by uncertainty?
Uncertainty
High
Step 1
Scenario planning: Step 1
 From the PEST, 5 forces analysis , competitor

Step 1
analysis identify high uncertainty / high impact
factors
 Examine possible range of change and impact
Consider the interconnectedness of the factors and
the driving forces which influence these factors.
Scenarios – e.g. range of change / impact
Factor
High uncertainty
High Impact
Political
Change of government leads
to environmental tax
Very high – very significant
implications for cost
Social
Adverse media campaign
Bad publicity, costly
Technological
New technology makes our
products obsolete
Disastrous
Market growth
Rate of decline
More quick than our response
5 forces - rivalry
Competitors acquire new
tech.
We are shut out of growth segments
of the industry
Entrants
New entrants enter with new
business model offering
extra value
Significant revenue is lost to new
entrants
Substitutes
Price advantage of
substitutes increases
significantly
Significant revenue is lost to
substitutes. We are hit hardest
Competitive
Merger between No 2 and 3
in the industry
Will intensify competitive rivalry
significantly
Scenario planning: Step 2
 Build 2 or 3 scenarios, plausible outcomes, based

on different configurations of the selected factors
 The same factors in each scenario
 To express plausible states, not impossible to occur
What pictures of the future each scenario gives?
 Set the ‘tone’ of the scenarios e.g. optimistic,

Step 2
pessimistic future or dominant themes
Flesh out the story behind the scenario
Scenario planning: Step 3
 Examine the implications of each scenario
 for the sector and for the firm
 Use the scenarios in strategy making and taking
important decisions
 Strategy:

Step 3
 How strategy stands under each scenario.
 Can the strategy stand even under the worse scenario?
 Would other alternative strategies stand better?
Decisions:
 How robust are the decisions?
 Can e.g. an investment stand under the worse scenario?
Using Scenarios: main points
 Build scenarios on external factors, not on
company decisions
 Evaluate the range for possible outcomes, the “risk”
involved
 Assess possible outcomes under each scenario
 Implications for the sector and the firm
 Evaluate how robust a given strategy is
 Does it stand even under the worst scenario?
 Revise strategy with a view of risks involved