Strategy and Industry analysis
What is Strategy?
“to fight and conquer is not supreme excellence . . ;
. . . supreme excellence consists in breaking the enemy’s
resistance without fighting . . . ” Art of War - Sun Tzu Bingfa (350 BC)
“Strategy can be defined as the determination of the basic longterm goals and objectives of an enterprise, and the adoption of
course of action and the allocation of resources necessary for
carrying out these goals.”
Chandler, 1962,
What is Strategy?
(Porter, M.E. (1996), “What is Strategy,” Harvard Business Review,
74(12): 61-78.
• Rivals can easily copy your improvement in quality and efficiency. But
they shouldn’t be able to copy your strategic positioning--what
distinguishes your company from all the rest.
• Strategy is the creation of a unique and valuable position, involving a
different set of activities.
• Strategy require you to make trade-offs in competing--to chose what
not to do.
• Strategy involves creating “fit” among a company’s activities.
Operational Effectiveness
is not Strategy
• What is operational effectiveness?
• Why is it not strategy?
• Why both operational effectiveness and strategy are
important?
Operational Effectiveness is not
Strategy
•
high
performing similar activities better
Productivity Frontier
(state of best practice)
Non-price buyer value delivered
Operational effectiveness means
than rivals perform them.
•
Strategic positioning means
performing different activities from
rivals’ or performing similar
activities in different ways.
•
low
Operational effectiveness and
strategy are both essential to superior
high
Relative cost position
low
performance, which is the primary
goal of any enterprise.
Operational Effectiveness Tools
•
Total quality management (360 Degrees)
•
Benchmarking
•
Outsourcing
•
Partnering
•
Reengineering
•
Change management
Strategy Rest on Unique Activities
Competitive strategy is about being different.
• What are the sources of differentiation?
•
How valuable is the differentiation to the buyer?
•
How much of this differentiation is tactical , how much is strategic?
• What is the buyer’s reservation price for this difference?
• How much of this difference is “jnd”
Sources of Strategic Positions
Art of War
• Variety-based positioning
“a clever combatant imposes his will
• Needs-based positioning
• Access-based positioning
on the enemy but does not allow the
enemy’s will to be imposed on him”
Create focal points that make
dominant strategies yield maximum
payoffs
Strategy is about Being Different
• Air Deccan
– Low Price
– Short / Medium
Routes
– No frills
• Jet Airways
– Premium Price
– Short & Long
routes
– Frills (Jet kids
pack for kids etc..)
Defining the Business
Customer Groups
Customer Needs
Technology
Reference: Abell, 1980
Variety-based positioning
- Different types of soaps for
different women groups
Beauty
Working
Skin
Customer Groups
Dove
Non Working
Customer Needs
Technology
Reference: Abell, 1980
Needs-based positioning
Customer Groups
Television screens are
29inch , 25 inch and 14 inch
for different drawing room
dimensions
Technology
Customer Needs
Reference: Abell, 1980
Access-based positioning
Mainframes require
different processing speed
as compared to a personal
PC
Customer Groups
Customer Needs
Technology
Reference: Abell, 1980
Strategic Management & SWOT
Values
of
Managers
Drivers
STRATEGY
Objectives
Opportunities
&
Threats
External
Environment
Internal
Environment
Strengths
&
Weaknesses
Values
of
Shareholders
References: Andrews, 1971; Hofer and Schendel, 1978
Strategic Management Tasks
Task 1
Task 2
Task 3
Task 4
Task 5
Develop a
Strategic
Vision
and
Mission
Set
Objectives
Craft a
Strategy
to Achieve
Objectives
Implement
and
Execute
Strategy
Monitor,
Evaluate,
and Take
Corrective
Action
Revise as
Needed
Revise as
Needed
Improve/
Change
Improve/
Change
Recycle
as Needed
Redefining the Value Chain
The Traditional Value Chain
Start with Assets, Core Competencies
Assets/
Core
Competencies
Inputs, Raw
Material
Product/
Service
Offering
The
Customer
Channels
The Modern Value Chain
Start with the Customer
Customer
Priorities
Channels
Offering
Inputs, Raw
Material
Assets/
Core
Competencies
(Slywotzky, Morrison, 1997)
The Modern Value Chain
Truly Understanding the
Customer
Purchase Criteria
Customer Anger(against existing products)
Preferences
Power over decision
Decision-Making Process
Customer
Priorities
Channels
Offering
Inputs,
Raw
Material
Assets/ Core
Competencies
Purchase Occasion
Buyer Behavior
Functional Needs
(Slywotzky, Morrison, 1997)
Porter’s (1980) Five Forces
Model of Competition
Threat
Threat of New
ofEntrants
New
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Competing Firms in
Industry
Threat of
Substitute
Products
Bargaining
Power of
Buyers
Intensity of Rivalry Among Existing
Competitors
Cutthroat competition is more likely to occur when:



Numerous or equally balanced competitors
Slow growth industry

High fixed costs
High storage costs

Lack of differentiation or switching costs


Capacity added in large increments
Diverse competitors

High strategic stakes

High exit barriers
Intensity of Rivalry Among Existing
Competitors
High Exit Barriers are economic, strategic and emotional
factors which cause companies to remain in an industry
even when future profitability is questionable.

Specialized assets

Fixed cost of exit (e.g., labour agreements)

Strategic interrelationships

Emotional barriers

Government restrictions
Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Suppliers exert power in
the industry by:
 Threatening to raise
prices or to reduce quality
Powerful suppliers can
squeeze industry
profitability if firms are
unable to recover cost
increases
 Supplier industry is dominated by a few firms
 Suppliers’ products have few substitutes
 Buyer is not an important customer to
supplier
 Suppliers’ product is an important input to
buyers’ product
 Suppliers’ products are differentiated
 Suppliers’ products have high switching costs
 Supplier poses credible threat of forward
integration
Threat of New Entrants
Economies of Scale
Barriers to
Entry
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent
of Scale
Government Policy
Expected Retaliation
Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
 Buyers are concentrated or purchases are large
relative to seller’s sales
 Purchase accounts for a significant fraction of
supplier’s sales
 Products are undifferentiated
Buyers compete
with the supplying
industry by:
 Buyers face few switching costs
 Buyers’ industry earns low profits
 Buyer presents a credible threat of backward
integration
 Product unimportant to quality
 Buyer has full information
 Bargaining down prices
 Forcing higher quality
 Playing firms off of
each other
Threat of Substitute Products
Keys to evaluate substitute products:
Products
with similar
function
limit the
prices firms
can charge

Products with improving
price/performance tradeoffs relative to
present industry products
For Example:
Electronic security systems in place of security
guards
Fax machines in place of overnight mail delivery
5 Forces correlation
• Power of forces are mutually exclusive of each other-
(Any collinearity occurring should be excluded for
purposes of calculation)
• Their combined power inverses the power of the
business
Business
power
• Their probability of occurrence and power the power
of their impact change over time (By function they are
Power of the
Five forces
hetroscedastic )
• They determine the relative bargaining power of the
business and the businesses ability to augment its
market share and or its profitability
Effects of Entry Barriers and Exit Barriers
on Industry Profits
Exit Barriers
Low
Low
High
Low, Stable Returns
Low, Risky Returns
High, Stable Returns
High, Risky Returns
Entry
Barriers
High
Competitor Analysis
Future Objectives
How do our goals compare to
our competitors’ goals?
Where will emphasis be
placed in the future?
What is the attitude toward
risk?
What Drives the competitor?
Competitor Analysis
Current Strategy
How are we currently
competing?
Does this strategy support
changes in the competitive
structure?
What is the competitor doing?
What can the competitor do?
Competitor Analysis
What does the competitor believe about
itself and the industry?
Assumptions
Do we assume the future
will be volatile?
What assumptions do our
competitors hold about the
industry and themselves?
Are we assuming stable
competitive conditions?
Competitor Analysis
What are the competitor’s
capabilities?
Capabilities
What are my competitors’
strengths and weaknesses?
How do our capabilities
compare to our
competitors?
Competitor Analysis
Future Objectives
How do our goals compare to
our competitors’ goals?
Where willCurrent
emphasis be
Strategy
placed in How
the future?
are we currently
What is the
attitude toward
competing?
Assumptions
risk?
Does thisDo
strategy
support
we assume
the future
changes in
the
will
becompetition
volatile?
structure?
What assumptions do our
competitors Capabilities
hold about the
industry and themselves?
What are my competitors’
Are we operating under a
strengths and weaknesses?
status quo?
How do our capabilities
compare to our competitors?
Response
What will our competitors do
in the future?
Where do we have a
competitive advantage?
How will this change our
relationship with our
competition?
End of Deck