swot analysis and michael porter five forces

48
Lecture 2 – SWOT Analysis & Lecture 2 – SWOT Analysis & Porter’s Five Forces Model Porter’s Five Forces Model Steve Montgomery Steve Montgomery

Upload: vince-dez

Post on 04-Nov-2014

149 views

Category:

Documents


4 download

DESCRIPTION

SWOT Descripton and Michael Porter five forces model

TRANSCRIPT

Page 1: SWOT Analysis and Michael Porter five forces

Lecture 2 – SWOT Analysis & Lecture 2 – SWOT Analysis & Porter’s Five Forces Model Porter’s Five Forces Model

Steve MontgomerySteve Montgomery

Page 2: SWOT Analysis and Michael Porter five forces

04/08/23 2

StrategyStrategy● Overview of competitive strategy: What are the high level Overview of competitive strategy: What are the high level

goals of any company?goals of any company?• DifferentiationDifferentiation and and pricing powerpricing power

• SurvivalSurvival and and profitabilityprofitability

● Porter’s Five Forces ModelPorter’s Five Forces Model• How to assess the landscape of your marketHow to assess the landscape of your market

● ““Blue Ocean” Strategy*Blue Ocean” Strategy*• A toolkit to identify areas to explore – creating a competition-free A toolkit to identify areas to explore – creating a competition-free

zone to reach the above objectiveszone to reach the above objectives

*Kim, W.C. and Mauborgne, R., 2005, *Kim, W.C. and Mauborgne, R., 2005, Blue Ocean Strategy – How To Create Uncontested Market Space and Make Blue Ocean Strategy – How To Create Uncontested Market Space and Make the Competition Irrelevantthe Competition Irrelevant, HBS Press. (We’ll also be using their HBR articles for brevity), HBS Press. (We’ll also be using their HBR articles for brevity)

End goal: End goal: Understanding your business allows you to Understanding your business allows you to

pick smart projectspick smart projects

End goal: End goal: Understanding your business allows you to Understanding your business allows you to

pick smart projectspick smart projects

Page 3: SWOT Analysis and Michael Porter five forces

04/08/23 3

Lecture 2: SWOT & Porter’s 5 Lecture 2: SWOT & Porter’s 5 Forces ModelForces Model● Business strategy overview:Business strategy overview:• Strengths, weaknesses, opportunities & threats Strengths, weaknesses, opportunities & threats

(SWOT)(SWOT)

• Porter’s five forces modelPorter’s five forces model

● Class discussion: Microsoft’s market Class discussion: Microsoft’s market position and future options/opportunities position and future options/opportunities (freeform SWOT analysis + application of (freeform SWOT analysis + application of Porter’s)Porter’s)

Page 4: SWOT Analysis and Michael Porter five forces

Introduction To SWOTIntroduction To SWOT

Page 5: SWOT Analysis and Michael Porter five forces

04/08/23 5

SWOT Analysis: Thinking SWOT Analysis: Thinking StrategicallyStrategically● SStrengthstrengths

• What aspects of a firm are its strengths? What aspects of a firm are its strengths? – Can be structural, market based, IP, etc.Can be structural, market based, IP, etc.

– What gives a firm its competitive advantages?What gives a firm its competitive advantages?

● WWeaknesseseaknesses• What aspects of a firm are weak?What aspects of a firm are weak?

– Can be structural, legal, market based, etc.Can be structural, legal, market based, etc.

– What hinders a firm from competing well?What hinders a firm from competing well?

● OOpportunitiespportunities• What areas/markets are there that a firm can grow into?What areas/markets are there that a firm can grow into?

• Do the above strengths contribute, or do new capabilities need to be created?Do the above strengths contribute, or do new capabilities need to be created?

● TThreatshreats• What will stop a firm from growing into new spaces?What will stop a firm from growing into new spaces?

• What out there threatens a firm’s existing market share and product line?What out there threatens a firm’s existing market share and product line?

• What is the nature of this threat? What is the nature of this threat? – Competition? Competition?

– Political environment? Something else?Political environment? Something else?

Page 6: SWOT Analysis and Michael Porter five forces

04/08/23 6

SWOT ScorecardSWOT ScorecardStrengths: Threats:Threats:

Weaknesses: Opportunities:Opportunities:

Page 7: SWOT Analysis and Michael Porter five forces

04/08/23 7

Steve’s Organization: An Applied Steve’s Organization: An Applied StrategyStrategy

(Steve’s Boss)(Steve’s Boss)33

I/O GuyI/O Guy

(Steve’s Boss)(Steve’s Boss)22

I/O GuyI/O Guy

Steve’s BossSteve’s BossI/O GuyI/O Guy

Big GroupBig GroupIn MassIn Mass

10+ I/O guys10+ I/O guys

Bob’s Team Bob’s Team in Oregonin Oregon12 I/O Guys12 I/O Guys

Staff Arch 1 Staff Arch 1 (Needs help)(Needs help)

Steve’s TeamSteve’s Team in WAin WA

4 Power 4 Power Circuit GuysCircuit Guys

Staff Arch 2Staff Arch 2(Straddling(Straddling

Fence)Fence)

Staff Arch 3Staff Arch 3(Out of Favor)(Out of Favor)

Jim’s Team in SCJim’s Team in SC7 I/O Chip Guys7 I/O Chip Guys

Staff Arch 4, Staff Arch 4, Wants to WorkWants to Work

on SOCson SOCs

Page 8: SWOT Analysis and Michael Porter five forces

04/08/23 8

Some Background:Some Background:

● Steve’s team: Just coming off a successful Steve’s team: Just coming off a successful project. 100% functional on 1project. 100% functional on 1stst design spin. design spin. Product team decided not to do it. Product team decided not to do it.• Steve’s boss: “You need to put that behind Steve’s boss: “You need to put that behind

you. Work on this other stuff.”you. Work on this other stuff.”

● The environment: Cost-cutting has The environment: Cost-cutting has everyone nervous. Headcount is under everyone nervous. Headcount is under pressure. Everyone is looking over their pressure. Everyone is looking over their shoulders.shoulders.

Page 9: SWOT Analysis and Michael Porter five forces

04/08/23 9

The Cast of CharactersThe Cast of Characters● The staff: Years and years of doing I/O The staff: Years and years of doing I/O (USB and PCIe (USB and PCIe

invented here)invented here)• Big team: Has a culture of “I win, you lose”. Is at a remote site that Big team: Has a culture of “I win, you lose”. Is at a remote site that

is out of the mainstreamis out of the mainstream

• Jim’s team: Doing a chip, on its 3Jim’s team: Doing a chip, on its 3rdrd or 4 or 4thth design revision design revision

• Bob’s team: Doing spec-related work. Has a big lab, but doesn’t Bob’s team: Doing spec-related work. Has a big lab, but doesn’t have silicon expertise.have silicon expertise.

• Staff Arch 1: Overworked and needs helpStaff Arch 1: Overworked and needs help

• Staff Arch 2: Waffles between Big and Steve’s team (tries to Staff Arch 2: Waffles between Big and Steve’s team (tries to please everybody)please everybody)

• Staff Arch 3: Was Steve’s main advocate, told by Steve’s Boss to Staff Arch 3: Was Steve’s main advocate, told by Steve’s Boss to find something else to do (laid off)find something else to do (laid off)

• Staff Arch 4: Was working on SOCs (big growth area for the Staff Arch 4: Was working on SOCs (big growth area for the company), but told not do anything about itcompany), but told not do anything about it

Page 10: SWOT Analysis and Michael Porter five forces

04/08/23 10

What Should Steve Do?What Should Steve Do?

● So how should this be handled?So how should this be handled?• Some topics of leading technical people in the Some topics of leading technical people in the

next class in the program!next class in the program!

Page 11: SWOT Analysis and Michael Porter five forces

04/08/23 11

SWOT Scorecard: Steve’s TeamSWOT Scorecard: Steve’s TeamStrengths:

●Best silicon guys, understand it better than anyone in org.

●Understand relationship building

●Team very cross-trained

●Flexible, independent, respond well to ambiguity and uncertainty

Threats:Threats:

●Big Group would love to minimize Big Group would love to minimize Steve’s teamSteve’s team

●Steve’s Boss (es) looking to lay low, Steve’s Boss (es) looking to lay low, not take any risks (might cut not take any risks (might cut headcount – who needs a team of 4-headcount – who needs a team of 4-5?)5?)

●Team hates new work, might quitTeam hates new work, might quit

Weaknesses:

●Angry and upset about product snub

●Perceived as junior power delivery guys & politically unpopular with bosses

●Main staff advocate going away

●Trying to play new game for first time, going against veterans

●No lab, so no motivation to spend money in WA

●Old network doesn’t apply here

Opportunities:Opportunities:

●Big Group on East Coast, far from Big Group on East Coast, far from action. Doesn’t work well with others. action. Doesn’t work well with others. Also doesn’t own anything (but thinks Also doesn’t own anything (but thinks it does).it does).

●Staff Arch 1 owns lots of stuff and Staff Arch 1 owns lots of stuff and needs help badly. Has boss’ ear.needs help badly. Has boss’ ear.

●Bob’s team has limited expertise but Bob’s team has limited expertise but a great lab. Also has boss’ ear.a great lab. Also has boss’ ear.

●Staff Arch 4 knows about growth Staff Arch 4 knows about growth areaarea

Page 12: SWOT Analysis and Michael Porter five forces

04/08/23 12

SWOTSWOT

● Can be applied at all levels – Can be applied at all levels – • Your careerYour career

• Your teamYour team

• Your businessYour business

• Your industryYour industry

Page 13: SWOT Analysis and Michael Porter five forces

04/08/23 13

Firm Example: AutomobilesFirm Example: Automobiles

● Question: How can the new GM compete Question: How can the new GM compete against Toyota, Ford, et al. post-bailout?against Toyota, Ford, et al. post-bailout?

Page 14: SWOT Analysis and Michael Porter five forces

04/08/23 14

SWOT Scorecard: The New SWOT Scorecard: The New GMGMStrengths:

●Partially owned by taxpayers and the gov’t●More nimble than before●Starting to build some better vehicles●Have a jump on electric vehicles, flex fuel●Still have strong brand recognition

Threats:Threats:●Backlash against bailoutsBacklash against bailouts●Perception of weak qualityPerception of weak quality●Strong product offerings from competitorsStrong product offerings from competitors●Brand damaged by bankruptcyBrand damaged by bankruptcy●Culture not really understanding of issues Culture not really understanding of issues (same people still running the show)(same people still running the show)

Weaknesses:●Partially owned by the taxpayers and the gov’t●Union owns significant % of company●Badly damaged brand image and reputation for poor quality●Operations damaged by restructuring (have to take time to do this right)

Opportunities:Opportunities:●Can load unproductive divisions/assets Can load unproductive divisions/assets into liquidation company and unloadinto liquidation company and unload●Can use gov.’t ties to influence flex fuel Can use gov.’t ties to influence flex fuel regulations, EPA standards, etc. to get regulations, EPA standards, etc. to get aheadahead●Can launch new ad blitz to re-introduce Can launch new ad blitz to re-introduce themselvesthemselves●Can re-boot dealer networkCan re-boot dealer network

Page 15: SWOT Analysis and Michael Porter five forces

04/08/23 15

What Should GM Do?What Should GM Do?

Page 16: SWOT Analysis and Michael Porter five forces

04/08/23 16

One Opinion:One Opinion:

● More marketing dollars to Chevy:More marketing dollars to Chevy:● Chevy has near 100% brand Chevy has near 100% brand

recognition – very hard to achieve – recognition – very hard to achieve – capitalizecapitalize

● Chevy ~70% of GM’s salesChevy ~70% of GM’s sales• 16 of GM’s 33 models16 of GM’s 33 models

• Spread offerings around all market Spread offerings around all market segmentssegments

• Make Buick, Cadillac, GMC niche Make Buick, Cadillac, GMC niche brandsbrands

● Chevy has near 100% brand Chevy has near 100% brand recognition – very hard to achieverecognition – very hard to achieve

Page 17: SWOT Analysis and Michael Porter five forces

04/08/23 17

Another Opinion:Another Opinion:

● Bankruptcy and Bankruptcy and restructuring could restructuring could take yearstake years

● Build politically Build politically unpopular carsunpopular cars

● Still have too much Still have too much capacity and capacity and restrictive labor restrictive labor agreementsagreements

Page 18: SWOT Analysis and Michael Porter five forces

04/08/23 18

SWOT SummarySWOT Summary

● Is a good technique to get the strategy discussion Is a good technique to get the strategy discussion goinggoing – puts a lot of high-level information in – puts a lot of high-level information in contextcontext

● Use it to assess situations and think more deeply Use it to assess situations and think more deeply about tactical movesabout tactical moves

● If the SWOT picture looks really misaligned with If the SWOT picture looks really misaligned with the market/your firm, can tell you that your overall the market/your firm, can tell you that your overall strategy should be reassessed strategy should be reassessed

● Is only as good as the thinking that went into itIs only as good as the thinking that went into it

Page 19: SWOT Analysis and Michael Porter five forces

04/08/23 19

Porter’s Five Forces ModelPorter’s Five Forces Model● Five Forces Model: A framework for shaping competitive Five Forces Model: A framework for shaping competitive

strategystrategy

● Like SWOT, gives a repeatable set of criteria to judge a Like SWOT, gives a repeatable set of criteria to judge a situation bysituation by

Page 20: SWOT Analysis and Michael Porter five forces

04/08/23 20

Goal of Any Business – Goal of Any Business –

● Identify external threats and undue Identify external threats and undue influenceinfluence

● Maximize own influenceMaximize own influence

● Minimize negative influencesMinimize negative influences

● Create differentiationCreate differentiation

● By maximizing/minimizing influence, and By maximizing/minimizing influence, and creating differentiation you get pricing creating differentiation you get pricing power (assuming there is a market)power (assuming there is a market)

Page 21: SWOT Analysis and Michael Porter five forces

04/08/23 21

Threat Of New EntrantsThreat Of New Entrants

● AKA, “Barriers to Entry”AKA, “Barriers to Entry”● Essentially: How hard is it for other firms to enter your Essentially: How hard is it for other firms to enter your

business?business?• Do you have IP protection, trade secrets, etc. that everyone else Do you have IP protection, trade secrets, etc. that everyone else

doesn’t have?doesn’t have?

• Is there significant cost associated with entering your market?Is there significant cost associated with entering your market?

• Are there regulatory barriers?Are there regulatory barriers?

• Branding, marketing, advertising?Branding, marketing, advertising?

• Network effects? (More on this in a minute)Network effects? (More on this in a minute)

• Does one firm enjoy a production cost advantage?Does one firm enjoy a production cost advantage?

• High switching costs?High switching costs?

Page 22: SWOT Analysis and Michael Porter five forces

04/08/23 22

Barriers to Entry - ExamplesBarriers to Entry - Examples● Microprocessors: Large capital $$$$ required to build a fabMicroprocessors: Large capital $$$$ required to build a fab

• NOT true anymore! NOT true anymore!

• More companies going fabless, more quality competition from foundriesMore companies going fabless, more quality competition from foundries

● Pharmaceuticals: FDA approval required for sale of new drugs + patent Pharmaceuticals: FDA approval required for sale of new drugs + patent protectionprotection• Lengthy process, thousands of pages of documents + multiphase clinical trials = Lengthy process, thousands of pages of documents + multiphase clinical trials =

massive non recurring costsmassive non recurring costs

● Automobiles: Big 3 + foreign firms have extensive relationships with Automobiles: Big 3 + foreign firms have extensive relationships with suppliers and large, modern factoriessuppliers and large, modern factories• Extensive regulatory protectionExtensive regulatory protection

• Collective bargaining: UAW in play (gets great deal from Big 3)Collective bargaining: UAW in play (gets great deal from Big 3)

• Is this still true? New electric car firms popping up to take advantage of ‘green’ Is this still true? New electric car firms popping up to take advantage of ‘green’ shiftshift

● Back-office software: High switching costs keep existing IT infrastructures in Back-office software: High switching costs keep existing IT infrastructures in placeplace

● WARNING: Today’s barrier to entry could be a liability tomorrow!WARNING: Today’s barrier to entry could be a liability tomorrow!

Page 23: SWOT Analysis and Michael Porter five forces

04/08/23 23

Barriers to Entry – cont.Barriers to Entry – cont.

● Network effects: Arise when your product is used Network effects: Arise when your product is used by a large group of users…by a large group of users…• ……and the value of the product increases the more and the value of the product increases the more

people who use itpeople who use it– Examples: Telephone, iPod, MySpace, Facebook (and all Examples: Telephone, iPod, MySpace, Facebook (and all

social networking media & content), Windows, MS Office, Xbox social networking media & content), Windows, MS Office, Xbox Live!, Live!,

● Network effects can be an extremely powerful Network effects can be an extremely powerful barrier to entrybarrier to entry• Your entry forces other people to change their Your entry forces other people to change their

behavior. VERY tough to do!behavior. VERY tough to do!

Page 24: SWOT Analysis and Michael Porter five forces

04/08/23 24

Barriers to Entry, cont.Barriers to Entry, cont.● One more thought on network effects:One more thought on network effects:

• Network effects often determine winner and losers, even if the loser Network effects often determine winner and losers, even if the loser is the superior product.is the superior product.

● Example: Network effect loserExample: Network effect loser• Sony BetamaxSony Betamax

– Better picture quality than VHS, better sound, smaller tape sizeBetter picture quality than VHS, better sound, smaller tape size– But JVC opened up the VHS standard and allowed it proliferate in the market, But JVC opened up the VHS standard and allowed it proliferate in the market,

sacrificing high prices for volumesacrificing high prices for volume– End result? Consumers snapped up cheap VHS VCRs.End result? Consumers snapped up cheap VHS VCRs.

● Example: Network effect winnerExample: Network effect winner• Apple’s iPodApple’s iPod

– Dozens of MP3 players on market + millions of songsDozens of MP3 players on market + millions of songs– Apple launches iPod using MPEG-4 encoding (.mp4)Apple launches iPod using MPEG-4 encoding (.mp4)– Co-launched iTunes as a complementary product. Users could easily buy a full Co-launched iTunes as a complementary product. Users could easily buy a full

album or 1 song at a time legally from central pointalbum or 1 song at a time legally from central point– iPod/iTunes sales took off, dominating market (Apple now world’s largest music iPod/iTunes sales took off, dominating market (Apple now world’s largest music

retailer)retailer)

Page 25: SWOT Analysis and Michael Porter five forces

04/08/23 25

Power Of SuppliersPower Of Suppliers

● Put simply: How much influence do Put simply: How much influence do suppliers have over your business?suppliers have over your business?• Are you dependent on a component to Are you dependent on a component to

succeed?succeed?

• Are people buying your product because it Are people buying your product because it contains x or y from another supplier?contains x or y from another supplier?

• Are there high switching costs to use another Are there high switching costs to use another firm?firm?

• Are there any substitutes?Are there any substitutes?

Page 26: SWOT Analysis and Michael Porter five forces

04/08/23 26

Power Of Suppliers - ExamplesPower Of Suppliers - Examples

● (High power example) (High power example) • PC Business: Intel >>> Dell, Compaq, etc. for PC Business: Intel >>> Dell, Compaq, etc. for

computers (buying decision was Intel Inside)computers (buying decision was Intel Inside)

● (Low power example)(Low power example)• Dell computer: Dell is ruthless at keeping parts Dell computer: Dell is ruthless at keeping parts

costs low. (Also Apple)costs low. (Also Apple)

• US Auto industry: Parts suppliers dependent US Auto industry: Parts suppliers dependent on Big 3 for large orders (changing. Why?)on Big 3 for large orders (changing. Why?)

Page 27: SWOT Analysis and Michael Porter five forces

04/08/23 27

Power Of BuyersPower Of Buyers

● Flip side of supplier powerFlip side of supplier power● Put simply: How much influence do buyers/customers Put simply: How much influence do buyers/customers

have over your business?have over your business?• Are you a commodity? (Customers can get what you have from Are you a commodity? (Customers can get what you have from

anywhere)anywhere)

• Do buyers of your product have significant negotiating leverage?Do buyers of your product have significant negotiating leverage?

• Are you dependent on 1 or 2 buyers for the majority of your Are you dependent on 1 or 2 buyers for the majority of your business?business?

• Are you developing a standard product? Are you developing a standard product?

• Low switching costs to go to something else?Low switching costs to go to something else?

• Can your buyer threaten to produce your product themselves?Can your buyer threaten to produce your product themselves?

• Where are the end-users eyeballs?Where are the end-users eyeballs?

Page 28: SWOT Analysis and Michael Porter five forces

04/08/23 28

Power of Buyers - ExamplesPower of Buyers - Examples

● PC Memory vendors – Prices set on open PC Memory vendors – Prices set on open market, designs driven by JEDEC, so no ability to market, designs driven by JEDEC, so no ability to differentiate or charge moredifferentiate or charge more

● Suppliers to MSFT – MSFT has enough Suppliers to MSFT – MSFT has enough resources to work-around most software inputsresources to work-around most software inputs

● Apple’s iPhone – Customers head to AT&T Apple’s iPhone – Customers head to AT&T wireless to buy the phone, not the servicewireless to buy the phone, not the service

● Orange sellers to TropicanaOrange sellers to Tropicana● Lettuce to Subway or McDonald’sLettuce to Subway or McDonald’s

Page 29: SWOT Analysis and Michael Porter five forces

04/08/23 29

Threat Of SubstitutesThreat Of Substitutes● Put simply: Is there something else out there Put simply: Is there something else out there

similar to your product that’s “Good Enough”?similar to your product that’s “Good Enough”?• Interwoven with power of buyers/suppliersInterwoven with power of buyers/suppliers

• Undifferentiated products never earn high profits – Undifferentiated products never earn high profits – market mechanisms (supply and demand) take overmarket mechanisms (supply and demand) take over

• When there is an acceptable substitute out there, you When there is an acceptable substitute out there, you will require another edge (marketing, branding, will require another edge (marketing, branding, regulatory edge, etc.)regulatory edge, etc.)

• New technologies can make products obsoleteNew technologies can make products obsolete

● Sometimes economic conditions come into play, Sometimes economic conditions come into play, making other substitutes more attractivemaking other substitutes more attractive

Page 30: SWOT Analysis and Michael Porter five forces

04/08/23 30

Threat Of Substitutes - ExamplesThreat Of Substitutes - Examples

● Land lines vs. cell phonesLand lines vs. cell phones● DSL vs. FIOS vs. Cable InternetDSL vs. FIOS vs. Cable Internet

• Steve very happy with his new Cable internet serviceSteve very happy with his new Cable internet service

● Cable TV vs. SatelliteCable TV vs. Satellite● New technology displacing old:New technology displacing old:

• Zip Drives Zip Drives Killed by CDR’s Killed by CDR’s Killed by Flash Killed by Flash Killed by net backup Killed by net backup

● Economic conditions: (In this case, the weak dollar)Economic conditions: (In this case, the weak dollar)• Rising aluminum prices makes carbon fiber more competitiveRising aluminum prices makes carbon fiber more competitive

• Biodiesel vs. Regular dieselBiodiesel vs. Regular diesel

● Sometimes, substitutes can cross industry lines (we’ll see this when Sometimes, substitutes can cross industry lines (we’ll see this when we look at Southwest Air next time) – key is proper frame of we look at Southwest Air next time) – key is proper frame of reference (in this case, the *travel* industry)reference (in this case, the *travel* industry)

Page 31: SWOT Analysis and Michael Porter five forces

04/08/23 31

Rivalry Among CompetitorsRivalry Among Competitors● The more energy you put into fighting off competition, the less you The more energy you put into fighting off competition, the less you

have for profitabilityhave for profitability• Potential for price wars (everyone loses) – subject of game theoryPotential for price wars (everyone loses) – subject of game theory

• Increased expenditures for marketing, ads, etc.Increased expenditures for marketing, ads, etc.

● Intensity increases where there are:Intensity increases where there are:• Mature, slow growth industries ($$$ pie is fixed)Mature, slow growth industries ($$$ pie is fixed)

• Participants enjoy roughly same amount of powerParticipants enjoy roughly same amount of power

• Products and services are indistinguishableProducts and services are indistinguishable

• Fixed costs are high, marginal costs lowFixed costs are high, marginal costs low

● Rivalry can be good for all:Rivalry can be good for all:• For average consumer, competition tends to lower prices and drive new For average consumer, competition tends to lower prices and drive new

offerings to marketofferings to market

• For market participants, competition leads to better products and For market participants, competition leads to better products and profitable market segmentation (Blue Ocean Strategy module – profitable market segmentation (Blue Ocean Strategy module – Toyota example)Toyota example)

Page 32: SWOT Analysis and Michael Porter five forces

04/08/23 32

Rivalry - ExamplesRivalry - Examples● Airlines:Airlines:

• Fare cuts and price wars are commonFare cuts and price wars are common

● Cell phones:Cell phones:• Warring rate plans and feature offeringsWarring rate plans and feature offerings

● Boeing/AirbusBoeing/Airbus● Intel/AMDIntel/AMD● Microsoft/GoogleMicrosoft/Google● Fox/MSNBC/CNNFox/MSNBC/CNN● Automotive IndustryAutomotive Industry

• Interesting one: Different types of competition across different market Interesting one: Different types of competition across different market segmentssegments– Who makes the highest MPG car?Who makes the highest MPG car?– Who makes the toughest truck?Who makes the toughest truck?– Who makes the fastest sports car?Who makes the fastest sports car?

Page 33: SWOT Analysis and Michael Porter five forces

04/08/23 33

Rivalry - ExamplesRivalry - Examples● Steve’s friend Sean in grad school:Steve’s friend Sean in grad school:• Every 2 months, would get a call from a long distance phone Every 2 months, would get a call from a long distance phone

providerprovider– ““Hi, this is ---- from Sprint and we have a deal for you! Would you be Hi, this is ---- from Sprint and we have a deal for you! Would you be

willing to switch your long distance service?”willing to switch your long distance service?”

– Sean: Sean: “Sure. What are you offering?”“Sure. What are you offering?”

• The next month, he’d get a call from AT&T asking why he leftThe next month, he’d get a call from AT&T asking why he left

• Needless to say, Sean was a nightmare customerNeedless to say, Sean was a nightmare customer– He wheedled better and better deals out of all of his suitors every other He wheedled better and better deals out of all of his suitors every other

monthmonth

– Also had a way to get “free” electronics from TargetAlso had a way to get “free” electronics from Target

● Example of rivalry leading to better deal for end user. Example of rivalry leading to better deal for end user. Of Of course, in the end, no phone company ever made any course, in the end, no phone company ever made any money off of Seanmoney off of Sean..

Page 34: SWOT Analysis and Michael Porter five forces

04/08/23 34

Five Forces SummaryFive Forces Summary● Is a good Is a good genericgeneric framework; is as detailed as you make it framework; is as detailed as you make it● Curious treatment of the government – should there be a 6Curious treatment of the government – should there be a 6 thth force? force?● Complementary products can make or break an offering –Complementary products can make or break an offering –

• iPod exampleiPod example

• Cars are pretty useless without roads or gas stationsCars are pretty useless without roads or gas stations

• Airlines irrelevant without airportsAirlines irrelevant without airports

● Does not tell you how to exploit a market, just helps ID the forces Does not tell you how to exploit a market, just helps ID the forces driving itdriving it• There are other strategies for thatThere are other strategies for that

● Industry structure changes: Another item to watch forIndustry structure changes: Another item to watch for• Example: Newspapers. News is available 24/7 on the web. Is print dead?Example: Newspapers. News is available 24/7 on the web. Is print dead?

• Does it make sense for big city newspapers to have foreign bureaus? Does it make sense for big city newspapers to have foreign bureaus?

● Like other tools, is applicable up and down the chainLike other tools, is applicable up and down the chain

Page 35: SWOT Analysis and Michael Porter five forces

04/08/23 35

How These Tools Relate To YouHow These Tools Relate To You

● Using SWOT and Five Forces in tandem allows you to:Using SWOT and Five Forces in tandem allows you to:• Identify the strategic environmentIdentify the strategic environment

• Make an assessment of your strength relative to other playersMake an assessment of your strength relative to other players

• If you’re thorough in gathering information and disciplined in its If you’re thorough in gathering information and disciplined in its presentation, the right answer can leap off the pagepresentation, the right answer can leap off the page

● Apply these tools to:Apply these tools to:• Your companyYour company

• Your business unitYour business unit

• Your organizationYour organization

• Your teamYour team

• YouYou

● Strategy is a mindsetStrategy is a mindset

Page 36: SWOT Analysis and Michael Porter five forces

Class Discussion: Microsoft vs. Class Discussion: Microsoft vs. GoogleGoogle

Page 37: SWOT Analysis and Michael Porter five forces

04/08/23 37

Intro And The PlayersIntro And The Players

● Who are the players?Who are the players?

● What’s MSFT’s motivation in pursuing What’s MSFT’s motivation in pursuing search?search?

Page 38: SWOT Analysis and Michael Porter five forces

04/08/23 38

Case QuestionsCase Questions

● Questions to ponder for the MSFT case:Questions to ponder for the MSFT case:• What’s MSFT’s motivation in pursuing search?What’s MSFT’s motivation in pursuing search?

• Has Marc Andresson’s vision come true? How does this relate to Has Marc Andresson’s vision come true? How does this relate to Google’s overall strategy (you may need to Google Google’s strategy if Google’s overall strategy (you may need to Google Google’s strategy if you’re not familiar already.)? Have Gates’ fears come true?you’re not familiar already.)? Have Gates’ fears come true?

• How has MSFT fared historically in its strategic moves?How has MSFT fared historically in its strategic moves?

• What key insight about the search market did Yahoo! overlook and What key insight about the search market did Yahoo! overlook and Google exploit?Google exploit?

• Did Google rest on its search accomplishments, or did it branch out?Did Google rest on its search accomplishments, or did it branch out?– Can you see a pattern in the functions Google created?Can you see a pattern in the functions Google created?– In light of your answer above, does MSFT’s moves make sense? Why or why In light of your answer above, does MSFT’s moves make sense? Why or why

not?not?

• In the search market, outline Porter’s five forces for discussion. Use In the search market, outline Porter’s five forces for discussion. Use MSFT as your reference pointMSFT as your reference point

Page 39: SWOT Analysis and Michael Porter five forces

04/08/23 39

SWOT Scorecard - MSFTSWOT Scorecard - MSFTStrengths: Threats:Threats:

Weaknesses: Opportunities:Opportunities:

Page 40: SWOT Analysis and Michael Porter five forces

04/08/23 40

SWOT Scorecard - GOOGSWOT Scorecard - GOOGStrengths: Threats:Threats:

Weaknesses: Opportunities:Opportunities:

Page 41: SWOT Analysis and Michael Porter five forces

04/08/23 41

Steve’s SWOT Scorecard: MSFTSteve’s SWOT Scorecard: MSFTStrengths:●LOTS of cash. Can buy technology or companies if they need to●Own the world’s most popular OS, browser and have >>> hardware experience than rivals●#1 browser●Are excellent strategists (Linux)●Has extensive partner network w/MSN, Netflix, etc.

Threats:Threats:●Google’s domination of searchGoogle’s domination of search●Apple has the ‘cool’ factor and is harming Apple has the ‘cool’ factor and is harming MSFT’s brand with adsMSFT’s brand with ads●Caught looking the wrong way WRT Caught looking the wrong way WRT mobile devices - biz model compromisedmobile devices - biz model compromised

Weaknesses:●#3 in search●Considered to be Big Brother●Has run afoul of regulatory agencies before●Profitability depends on OS, Office sales – market trending away from these (and toward GOOG’s model)

Opportunities:Opportunities:●Can still buy Yahoo! Or Facebook.Can still buy Yahoo! Or Facebook.●IE is the internet portal of choice – can IE is the internet portal of choice – can interlink Bing into code and minimize interlink Bing into code and minimize GOOG– have enough infrastructure to GOOG– have enough infrastructure to negate GOOG’snegate GOOG’s●Can adopt new usage model and beat Can adopt new usage model and beat GOOG to online app gameGOOG to online app game●Can intertwine Bing with Xbox, MSN, etc. Can intertwine Bing with Xbox, MSN, etc. sites & partners – have an existing network sites & partners – have an existing network alreadyalready

Page 42: SWOT Analysis and Michael Porter five forces

04/08/23 42

Steve’s SWOT Scorecard: GoogleSteve’s SWOT Scorecard: GoogleStrengths:

●Invented the best search algorithm

●Is considered the ‘it’ company for the internet

●Quirky culture drives lots of innovation

●High stock price = ready access to capital

Threats:Threats:

●MSFT has cash and a will to winMSFT has cash and a will to win

●GOOG’s phone overshadowed by GOOG’s phone overshadowed by iPhoneiPhone

●No real hardware expertise; will No real hardware expertise; will need help from INTC need help from INTC

●Apple owns content, OS, devicesApple owns content, OS, devices

Weaknesses:

●Main product dependent on connection speed

●Security and privacy concerns among users

●Main source of content (YouTube) is constant focus of legal action – rivals have much more and better content

Opportunities:Opportunities:

●Can try to influence new regulatory Can try to influence new regulatory structure (Net Neutrality)structure (Net Neutrality)

●Market trend is towards mobile Market trend is towards mobile devices, supporting cloud computing devices, supporting cloud computing theorytheory

●Can draw on MSFT’s unpopularityCan draw on MSFT’s unpopularity

●Can cut into MSFT’s profits by Can cut into MSFT’s profits by launching more net appslaunching more net apps

Page 43: SWOT Analysis and Michael Porter five forces

04/08/23 43

Porter’s Five Forces Model: Porter’s Five Forces Model: SearchSearch● Threat of new entrants?Threat of new entrants?● Bargaining power of buyers?Bargaining power of buyers?● Threat of substitutes?Threat of substitutes?● Bargaining power of suppliers?Bargaining power of suppliers?● Rivalry?Rivalry?

Page 44: SWOT Analysis and Michael Porter five forces

04/08/23 44

MSFT’s Entry Into Search: Some MSFT’s Entry Into Search: Some CommentsComments● Google’s overall strategy = Make the internet the new PCGoogle’s overall strategy = Make the internet the new PC

• Reduce the PC to a old-style terminal (‘Green screen’ box hooked to a Reduce the PC to a old-style terminal (‘Green screen’ box hooked to a mainframe)mainframe)

• Eliminate the need for local OS (operating system) or apps – put them all Eliminate the need for local OS (operating system) or apps – put them all on the web. Offer net storage of data to eliminate need for local hard on the web. Offer net storage of data to eliminate need for local hard drives, etc.drives, etc.

• Maximize eyeballs to Google’s search engine and ad machines, which Maximize eyeballs to Google’s search engine and ad machines, which could then custom-tailor ad views to your contentcould then custom-tailor ad views to your content

• Willing to influence government to set regulations beneficial to GoogleWilling to influence government to set regulations beneficial to Google

● MSFT’s revenue in this scenario is compromised severelyMSFT’s revenue in this scenario is compromised severely• PC and OS combination would lose relevance – no need for local PC and OS combination would lose relevance – no need for local

performance or storage – big cash cow for MSFTperformance or storage – big cash cow for MSFT

• MSFT needs to rethink its business model somewhat to encompass MSFT needs to rethink its business model somewhat to encompass mobile devices – old model of high $$$$ OS is threatened by cheap mobile devices – old model of high $$$$ OS is threatened by cheap netbooks & smartphonesnetbooks & smartphones

Page 45: SWOT Analysis and Michael Porter five forces

04/08/23 45

MSFT’s Entry Into Search, cont.MSFT’s Entry Into Search, cont.

● MSFT has MSFT has no choiceno choice but to enter search, to affect GOOG but to enter search, to affect GOOG• They have a track recThey have a track rec

● Sometimes companies go against their image to get what they need:Sometimes companies go against their image to get what they need:• MSFT embraced Linux, found a way to protect business and make money MSFT embraced Linux, found a way to protect business and make money

while defusing threatwhile defusing threat

• Google creating lobbying effort and attempting to influence government Google creating lobbying effort and attempting to influence government despite despite

● Some hidden players: Cable companies, i.e. Comcast, AppleSome hidden players: Cable companies, i.e. Comcast, Apple• The internet is about content. Whoever has the content wins, no matter The internet is about content. Whoever has the content wins, no matter

the gatewaythe gateway– Comcast, Apple own significant chunks of online content. Comcast in reported Comcast, Apple own significant chunks of online content. Comcast in reported

talks to buy NBCtalks to buy NBC– MSFT has partnership with Netflix on Xbox and Windows MediaMSFT has partnership with Netflix on Xbox and Windows Media– Google’s content offerings consist of what its users supply (YouTube, etc.)Google’s content offerings consist of what its users supply (YouTube, etc.)

Page 46: SWOT Analysis and Michael Porter five forces

04/08/23 46

One OpinionOne Opinion

● Remember: Firms Remember: Firms respond to respond to incentivesincentives• Why shouldn’t Why shouldn’t

Google want to Google want to exploit the rules?exploit the rules?

• Google recently Google recently hired Sen. Dorgan’s hired Sen. Dorgan’s top staffer (who was top staffer (who was working on net working on net neutrality) for neutrality) for “Federal Policy “Federal Policy Outreach Manager” Outreach Manager” positionposition

Page 47: SWOT Analysis and Michael Porter five forces

04/08/23 47

Strategy TakeawaysStrategy Takeaways

● Sometimes the competition isn’t obviousSometimes the competition isn’t obvious● Pay attention to what people say and Pay attention to what people say and moremore attention to attention to

what people dowhat people do● Incentives matter!Incentives matter!● When you’re profitable, others will attempt to take it away. When you’re profitable, others will attempt to take it away.

No business model is permanentNo business model is permanent• Therefore, always look to defend your ability to differentiateTherefore, always look to defend your ability to differentiate

• Sometimes, it will mean throwing your strength against others’. Sometimes, it will mean throwing your strength against others’. Find ways to leverage yours in unexpected waysFind ways to leverage yours in unexpected ways

Page 48: SWOT Analysis and Michael Porter five forces

04/08/23 48

For Next Time: For Next Time:

● Blue Ocean StrategyBlue Ocean Strategy

● Read:Read:• Kim and Maubornge, “Blue Ocean Strategy”Kim and Maubornge, “Blue Ocean Strategy”

• (Either the paper or the book. You’ll get more (Either the paper or the book. You’ll get more out of the book)out of the book)

● At the end of the session, you’ll receive At the end of the session, you’ll receive your first HW assignment (and most your first HW assignment (and most important)important)