ba 469 lecture ch2 (2)
TRANSCRIPT
7/27/2019 BA 469 Lecture Ch2 (2)
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External Analysis:
The Identification of IndustryOpportunities and Threats
Chapter 2
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External Analysis
• Analyzing the dynamics of the industry in
which an organization competes to help
identify:
– Opportunities: conditions in the environment
that a company can take advantage of to
become more profitable
– Threats: conditions in the environment thatendanger the integrity and profitability of the
company’s business
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Defining an Industry
• Industry
– A group of companies offering products or
services that are close substitutes for each
other
• Competitors
– Rival companies that serve the same basic
customer needs
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Defining an Industry (cont’d)
• Sector
– A group of closely related industries
• Market segments – Distinct groups of customers within a market
that can be differentiated from each other
based on their distinct attributes and demands
• Changing industry boundaries
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The Computer Sector Example of a Sector on p.39
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The Computer Sector:
Industries and Segments
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The Computer Sector Where is the customer?
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Strategic Groups Within
Industries• Formed within an industry when some
companies follow the same basic productpositioning strategy, which is different
from that of other companies in other groups
• Companies can position their products interms of distribution channels, marketsegments, product quality, technologicalleadership, customer service, pricingpolicy, advertising policy, promotions
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Strategic Groups in the
Pharmaceutical Industry
Insert Figure 2.3
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Implications of Strategic Groups
• A company’s closest competitors are
those in its strategic group
• Each strategic group may face a different
set of opportunities and threats
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The Role of Mobility Barriers
• A company may decide to move from one
strategic group to another where the five
forces are weaker and higher profits are
possible
• Mobility barriers are similar to industry
entry and exit barriers and must be
weighed carefully
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Industry Analysis:Background
• Industrial economics: focus on “common
good” or competitive pricing
• Selected measures of competition (high, if)
– Level of concentration (low)
• Concentration – percent of total sales controlled by
largest 4, 8, 12 players in the industry
– Presence of economies of scale (high) – Product differentiation (low)
– Natural barriers, i.e. fixed supply (low)
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The Computer Sector:
Industries and Segments
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Porter’s Five Forces Model
Source: Adapted and reprinted by permission of Harvard Business Review. From “How Competitive
Forces Shape Strategy,” by Michael E. Porter, Harvard Business Review, March/April 1979 © by the
President and Fellows of Harvard College. All rights reserved.
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Porter’s Five Forces Model • An industry is competitive (if . . .)
– Risk of entry (high, low barriers)
– Intensity of Rivalry (high)
– Bargaining power of buyers (high)
– Bargaining power of suppliers (high)
– Presence of substitute products (yes)
• Complementors added later
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Risk of Entry • Natural barriers - oil fields, mines
• Barriers created over time –
– Brand loyalty (due to advertising, etc.)
– Cost advantage (due to cheap funds, controlof inputs, production)
– Economies of scale (production anddistribution susceptible to scale economies)
– Switching costs (microsoft to apple, oil to coal)
– Regulation
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Intensity of Rivalry:Industry characteristics
• Industry demand
– Is long-term demand growing? stagnant?
declining?
• Exit barriers
– Cost of shutting down business and/or movingto another.
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Intensity of Rivalry:Due to industry structure
• Fragmented (large number of competitors)
– retailing
• Consolidated (4, 8, 12 competitors control
80% of the industry)
– cement
• Monopoly
– AT&T before the break-up
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Power of Buyers:High if . . .
• Numerous participants selling to few
buyers
• Buyers purchase large quantities
• Participants depend on a set of buyers for
a large percent of their business
• Buyers have low switching costs• Buyers can purchase from more than one
• Buyers can threaten to enter the industry
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Power of Suppliers:High if . . .
• Product of suppliers few substitutes
• Profitability of supplier not dependent on
industry purchases
• Industry has switching cost problems if
they move to a new set of suppliers
• Suppliers can threaten to enter • Industry can not threaten to enter
suppliers’ industry
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Substitutes • Distinction between competing and
substitute products
– Coke and Pepsi are not substitutes; they are
close substitutes but not within this definition
– Coffee is a substitute for tea or caffeine drink
– Substitute for a car when going to Las Vegas?
San Francisco? – Substitute for a computer?
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Complementors • Adds value to an industry’s products
– Software industry and computer industry
• Others:
– Hotel and airlines
– Malls will group movies and restaurants in
same sector of the mall
– Mobile phones and developers of messagesto be texted
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Exercise:Strategy in Action 2.1 (p.44)
• What are the barriers to entry in the
Japanese brewing industry?
• What are the barriers to entry for an
American company?
• What would you recommend to an
American beer company seeking to sell its
products in Japan?
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Industry Life Cycle Analysis
• The strength and nature of the five forces
change as an industry evolves through its
life cycle
• Managers must anticipate how the forces
will change as the industry evolves and
formulate appropriate strategies
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Stages in the Industry Life Cycle
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Industry Life Cycle • Addresses industry demand (intensity of
rivalry)
• Emergence of industry standard normally
propels industry into growth phase
– At the development or embryonic phase,
different configurations compete
– As a standard emerges, industry demandgoes through a period of higher rate of growth
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Shakeout: Growth in Demand
and Capacity
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Limitations of Models for
Industry Analysis• Life cycle issues
– The embryonic stage can sometimes beskipped or short
– Industry growth can be revitalized – The time span of the stages can vary
• Innovation and change
– Innovation can unfreeze and reshape industrystructure
– An industry may be hypercompetitive, withpermanent and ongoing change
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Limitations of Models for
Industry Analysis (cont’d)
• Company differences
– The importance of company differences
within an industry or strategic group can
be underemphasized
– The individual resources and
capabilities of a company may be more
important in determining profitability
than the industry or strategic group
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Exercise:Strategy in Action 2.2 (p.47)
• Why was it necessary for pricing discipline
to emerge?
• Are consumers better off?
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The Role of the
Macroenvironment
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Rate of change? • Economic indicators – interest rates, etc.
• Technological changes
• Political/Regulatory• Demographic changes
• Social forces
• Are these in some order?
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The Global and National
Environments• Globalization of production and markets
– Lower barriers to cross-border trade andinvestment
– National differences in the cost and quality of factors of production
– “Home” and “foreign” markets andcompetitors are blurring
– Intensified rivalry – Intensified rate of innovation
– Many new markets are open
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Additional Thoughts • “Multi-nation” and “Global”
• Factor conditions, industry structure in other countries allow for innovation
• These innovation often travel across borders – The internet is obviously one reason
– Personal travel
– Companies finding limited growth options at home
• Entry barriers – Tariff
– Non-tariff