StrategyA View From

The Top

Prentice Hall

4-1Copyright © 2009 Pearson Education, Inc.Publishing as Prentice Hall

Chapter Four

Analyzing an Industry

Cornelis A. de Kluyver

and

John A. Pearce II

Third Edition

In Every Industry There are Deeply Held Orthodoxies…Orthodoxies are the broadly shared beliefs about what drives success within “theindustry.” These beliefs form the “dominant industry logic”:

Who is the customer/end userThe type of interface/interaction with the

customer/end userHow benefit is defined and value is deliveredHow product/service functionality is definedWhat form the product/service should takeHow processes are structured and managedThe “ideal” cost and pricing structure… “the way things are done here”

Why Orthodoxies Must Be Challenged…

“There is no reason anyone would want a computer in their home.”

- Ken Olson, President, Chairman and Founder of Digital Equipment Corp., 1977

Why Orthodoxies Must Be Challenged…

“640K ought to be enough for anybody.”

- Bill Gates, 1981

Challenging Orthodoxies Allows You to Redefine the Boundaries of Competition

Business Practices

Core Platforms

Core Competencies

Product Functionality

Culture and Values

Price/PerformanceLevels

Benefits Sought andDelivered

Served Markets

Challenging Orthodoxies Also Helps You to Identify Your Own Weaknesses...

Blindness to new opportunitiesArrogance/elitismNeed for controlUnwillingness to learnInability to create benefits through

collaborationFollowing the herdUnwillingness to admit what we don’t knowLittle real innovation in strategy over the last

______ years

Homogeneity in Thinking Can Make Change Difficult...

Many firms are caught in an “Attraction-Selection-Attrition” (ASA) cycle that tend to promote homogeneity in managerial thinking.

Organizations can overcome the dangers of like-minded thinking in at least two ways.Give greater attention to “contrarian

voices.”They are most likely to see aspects of changing

industry environments that are ignored by top managers.

Encourage greater turnover among top management ranks.If not, top managers risk becoming more and

more committed to the status quo.

Industry Influences Can Limit Organizational Change

Industry norms and standards (the so-called “common body of knowledge”) can blind managers to new opportunities, technologies, and potential competitors.

Very difficult to formulate and implement totally new strategy in the face of pressures to maintain the status quo.

New entrants almost always have something that is totally different from industry norms.

Changes in the Industry Environment: Porter’s Five Forces Model

Suppliers

PotentialEntrants

Buyers

Substitutes

Industry Competitors

RivalryAmongExisting

Firms

Threat of substituteproducts or services

Bargaining powerof suppliers

Bargaining powerof buyers

Threat of new entrants

Threat of Entry; Barriers to Entry

Threat: Whether real or not depends on

What barriers to entry exist How entrenched competitors are likely to react

Barriers to Entry: Factors Economies of scale Product differentiation (brand equity) Capital requirements Cost advantages of independent size Access to distribution channels Government regulations

Powerful Suppliers; Buyers

Suppliers are more powerful when There are few dominant companies and they are

concentrated on the industry they serve A differentiated product offering makes switching

among suppliers difficult There are few substitutes Suppliers can integrate forward The industry is a small portion of suppliers revenue

base

Buyers have power when There are few of them and they buy in large volume The product is not differentiated making it easier to

switch The buyer’s purchase represents a substantial portion

of sellers revenue Buyers can integrate backwards

Substitutes and Complements

Substitute products that deserve the closest scrutiny are those that

Show improvements in price-performance relative to industry average

Are produced by industry with deep pockets

Complementary products and services may play an important role

Hardware vs. software Distribution capabilities vs. content

Rivalry Among Participants

Rivalry is stronger when There are a large number of competitors and

they are of similar size and power The industry is growing slowly There are high fixed costs or the products/

services are perishable There are high exit barriers

Note:The Internet can exacerbate or mitigate the relative influences of the different forces

Industry Structures Evolve Over Time; Sometimes in Complex Ways

From vertical to horizontal structuresThrough industry consolidation As an industry maturesThrough technology

Phase 1: Competition on the basis of ideas, product concepts, technology choices and building core competency base; Phase 2: Competition focused on building a viable coalition of partners; Phase 3: Battle for market share for end products & profits

Core activities

Cor

e A

sset

s

Threatened Not Threatened

Not

thre

aten

ed

Thr

eate

ned Radical Creative

Change Change (Travel agencies) (Movie studios)

Intermediating Progressive Change Change (Museums) (Trucking)

Trajectories of Industry Change

Product Life Cycle Analysis

Sales

Characteristics & Strategies

Introduction GrowthCompetitiveTurbulence Maturity Decline

Issues: What Is the Appropriate Unit of Analysis? What is a product? Category? Industry? Industry segment? Strategy should lead to growth instead of growth leading to strategy

Strategic Segmentation

Focuses on finding out which segment(s) of the industry have the best prospects for the long term

Considers long term defensibility of different segments

Segmentation, Targeting and Positioning

1. Identify

Segmentation

3. Evaluate Segment Attractiveness

5. Identify Possible Positionings

2. Develop Segment

Profiles

4. Select Target Segment(s)

6. Select, Develop

Positioning

Segmentation Targeting Positioning

Competitive Analysis: Key QuestionsWho Are Our

Competitors?

How Have TheyBehaved In The Past?

What are Their

Major Strengths?

How Might TheyBehave in the

Future?

How Will This AffectUs?

Competitor Roles - Leaders,Challengers, Followers, and

Nichers

Market Leader

40%

MarketChallenger

30%

MarketFollower

20%

MarketNicher

10%

Hypothetical Market Structure

Strategic PositioningMarket Leaders

Focus on expanding total demand Defending market share is important May not wish to aggressively take more market

share from rivals

Market Challengers Concentrate on a single target. Attacking the

leader

Market Followers Compete with modest strategic objective Often use innovative imitation Compete in selective few segments

Market Nichers Focus on narrow slice of the market

StrategyA View From

The Top

Prentice Hall

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