Intro to Strategy & Industry Analysis
Chapter 1: Introduction to Strategy
Defining a Companies Strategies:
Competitive moves & business approaches used my management to run the company.
Goal of these moves & approaches is to achieve long-term competing advantage &
superior performance.
Think strategically the 3 big questions:
1. Where are we now?
analysis of current situation (internal & external)
2. Where do we want to go?
business to be in, customer group to serve, direction to head
3. How will we get there?
companies strategy
Strategic plans and marketing plans evolve over time in response to results and changes.
The central Goal:
To achieve super long-term performance (typically profit; not always).
Economy of scale: a lot of people using the product.
Competitive advantage: gap btw prices buyers will pay for its products/services and costs it
incurs - this gap is wider than the gap its competitors have achieved.
Are able to charge to charge more than competitors??
Sustainable competitive advantage (SCA): competitive advantage of a company cannot
easily be matched its competitors.
This is what most companies want to have to become a really strong company.
What leads to SCA?
1. Understanding your customer
Nokia vs Android
2. Superior Product
MySpace vs Facebook
3. Ongoing innovation
Atari vs Nitendo
Strategic approach that lead to SCA:
1. Develop cost-based advantage
2. Develop a differentiation-based advantage
3. Focus on a narrow market niche
And also need to develop competitively important resources and capabilities.
Strategies evolve over time because the firm’s env. Changes
Changed regulation
New tech possibilites
Customer preferences change
Competitors’ move
Strategy formulation is cyclical, starting with current strategy, examining results & changes
and exploring options for a better strategy.
We need to keep on evaluating and adapting/changing strategies.
Actual strategies often differ from plans.
Planning is important not the plans as real world we often have to change what we had
planned.
For viable strategy, companies must have viable business model:
1. Compelling value proposition
2. Favourable economics (revenue, costs+profits)
3. Superior execution (resources+capabilities)
Chapter 3: External (Industry) Analysis
Many characteristics of a company’s external environment are relevant to strategy
decisions.
Macro environment: ??
Micro environment: immediate industry & competitive env
This is what matters the most.
Analyzing the Industry
1. What are the industry’s dominant Econ traits?
1. Buyers: size (number, $), scope, growth
2. Rivals: how many?, scope of rivalry, vertical integration (diff steps in getting product to
buyers)
3. Products: differentiation, innovation, pace of tech change
4. Costs: economies of scale, learning effects, other cost advantages
Not about coming up with these materials but many reports might exist already.
1. What are the nature and strength of industry’s competitive forces?
Five forces model:
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horizontal must be kept intact, vertically what’s on top or bottom does not matter (to
the prof)
Biggest flaw is not being consistent, you need to define industry and stick to
function of the chain; cannot move around (i.e move from manufacturer to
supplier of ingredients)
Use of 5 force model:
To assess the nature & strength of industry's competitive forces.
Steps of 5 force analysis
1. Define industry
2. Identify the players
3. Assess the strength of each forces
1. Can be done with a numerical scale (1-5)
2. Can be done with categorical scale (low, medium, high)
Don’t get stuck making everything into the avg (3/medium) then it doesn’t really tell
you anything of value.
5 forces analysis and its catagories impact?
1. Higher buyer power means: you have to charge lower prices.
2. Higher supplier power means: you pay more for things.
3. Close substitutes can reduce the value of what you sell
1. Lower the price that buyers will pay.
4. Entrants (new competitions) can take away money from incumbents.
5. Intense rivalry can drive prices down (&/or force quality up)
What are powerful entry barriers?
Importance of economics of scale
Experience/learning curve disadvantages
Strong brand preference & high degree of customer loyalty
High capital requirements
Restricted access to distribution channels
Restrictive regulatory policies
Tarriffs & international trade restrictions
Threat of retaliation by incumbents
Does it make sense to work with a firm who wants to enter into the industry you are active in?
Not always barns and nobles and walmart.
When is rivalry among existing competitors (sellers) stronger?
Common pitfall of 5-forces analysis:
1. Using the firm as the level of analysis, Use the industry
2. Giving equal weight to all forces. Some will dominate.
3. Failing to define the industry clearly
1. Confusing substitutes & rivals
2. Firms in multiple industries (they work in different industry even if firm does both)
4. Are you in the industry and doing the industry or outside the industry (differs how you
analyze something)
5. Ignoring full range of substitutes
boxes of chocolate can sub for cut flowers
6. What forces are driving industry change?
Driving forces are powerful external influences reshaping the industry landscape &
altering competing conditions.
Identify forces likely to reshape industry competition within next 1-3 years.
Assess impact of driving forces on industry attractiveness
Cause demand to increase or decrease for product
Making competition more or less intense
lead to higher or lower industry profitability
Determine what strategy changes are needed to prepare for impact of driving forces
7. What market position do industry rivals occupy?
Strategic Group Map describes the competitive positions of competitors. ??(how it work)
Driving forces & competitive pressure often favour some strategic groups & hurt others
Competitive pressure may cause profit potential of different strategic groups to vary
8. What strategic moves are rivals likely to make next?
Need to know your competitors well.
Moves of rivals depend on:
Leadership style of top executives (aggressive, cautious)
Past patterns of new product launches & marketing campaigns
Incentives to make new move & their abilities to pull it off
They are likely to expand geographically
They are likely to expand product offering
9. What are the key success factors (KSS) of the industry?
What all companies in this industry have to do well to stay in the game and be
successful?
3 questions to ask?
1. On what basis do buyers choose btw brands?
Past project success, experience, relationship, price
2. What resources are needed to compete successfully?
Experienced employees with differentiated skills
3. What shortcomings are likely to put a company at competitive loss?
Lack of expertise
Not high manpower
High costs
10. Does the industry outlook offer good prospects for profitability?
question is summary of prev 6 analyses
Industry’s growth potential
Intensity of competition
Threat of 5 competitive forces is LOW, industry average profits are likely to be high
Impact of driving forces likely to be positive or negative?
Company’s competitive positions in industry relative to rivals
How well company performs industry’s key success factors?
