Assessing a Company’s Industry and Competitive Environment: The Seven Key Questions to Answer

1. Assessing a Company’s Industry and Competitive Environment: The Seven Key Questions to Answer • What are the industry’s business and economic traits? • What are the nature and strength of competitive forces? • What forces are driving industry change? • What market positions do industry rivals occupy? • What strategic moves are rivals likely to make next? • What are the key factors of competitive success? • Does the industry outlook offer good prospects for profitability?

2. 1. Identifying the Industry’s Dominant Economic Features • Market size and growth rate • Number of rivals • Scope of competitive rivalry • Pace of technological change • Degree of vertical integration • Need for economies of scale • Learning and experience curve effects

3. 2. Porter’s Five Forces Model of Competition

4. When Is the BargainingPower of Buyers Stronger ? • Buyers are large and can demand concessions • Buyer switching costs for substitutes are low • The number of buyers is small • Buyer demand is weak or declining • Buyers are well-informed about sellers’ products, prices, and costs • Buyers threaten to integrate backward

5. When Is the CompetitionFrom Substitutes Stronger ? • There are many good substitutes that are readily available • Substitutes are attractively priced • Substitutes have comparable or better qualityand performance • End-users have low switching costs

6. When Is the Bargaining Power of Suppliers Stronger ? • Industry members incur high switching costs • Needed inputs are in short supply • Supplier provides a differentiated inputthat enhances the quality or performanceof sellers’ products • There are only a few suppliers of a specific input • Some suppliers threaten to integrate forward

7. When Is the Threat of Entry Stronger? • Industry growth is rapid and profit potential is high • Incumbents are unwilling or unable to contest a newcomer’s entry efforts • The pool of entry candidates is large • Entry barriers are low

8. What Causes Rivalry to Be Stronger ? • Competing sellers regularly launch fresh actions to boost market standing • Declining demand or slow market growth • The products or services offered by rivals are standardized or weakly differentiated • One or more industry rivals becomes dissatisfied with their market standing

9. What Causes Rivalry to Be Stronger ? • Number of rivals increases • Buyer costs to switch brands are low • Industry conditions tempt rivals use price cuts or other competitive weapons to boost volume • Outsiders have recently acquired weak firms in the industry and are trying to turn them into major market contenders

10. When the Five Competitive Forces Result in Attractive Market Conditions • An industry’s competitive environment tends to be attractive from a profit-making standpoint when • Rivalry is moderate • Entry barriers are highand no firm is likely to enter • Good substitutesdo not exist • Suppliers and customers arein a weak bargaining position thereby producing competitive pressures that are very weak!

11. When the Five Competitive Forces Result in Unattractive Market Conditions • An industry’s competitive environment tends to be unattractive from a profit-making standpoint when • Rivalry is strong • Entry barriers are lowand new competitors are likely to enter • Good substitutes exist • Suppliers and customers arein a strong bargaining position thereby producing competitive pressures that are very intense or fierce!

12. 3. Analyzing Driving Forces • Identify forces likely to reshape industry competitive conditions • Changes likely to take place within next 1 – 3 years • Usually no more than 3 - 4 factors qualify asreal drivers of change

13. Analyzing Driving Forces • Assess impact of driving forces on industry attractiveness • Are the driving forces causing demand for productto increase or decrease? • Are the driving forces acting to make competitionmore or less intense? • Will the driving forces lead to higher or lowerindustry profitability? • Determine what strategy changes are needed to prepare for impact of driving forces

14. External Environmental Factors Shaping A Company’s Choice of Strategy

15. Basic Driving Forces • Economic Conditions • Technological change • Demographics • Legislation and regulation • Social Values and Lifestyles

16. 4. Identifying the Market Positions of Rivals: Strategic Group Maps

17. What Can Be Learned from Strategic Group Maps • Driving forces and competitive pressures often favor some strategic groups and hurt others • Competitive pressures may cause the profit potential of different strategic groups to vary • Identification of competitive “white spaces” or “blue ocean” opportunities

18. 5. Predicting the Next StrategicMoves Rivals Are Likely to Make • Profiling key rivals involves gathering competitive intelligence about • Thinking and leadership styles of top executives • Identifying trends in the timing of new product launches and marketing promotions • Considering which rivals have the motivation and capability to make major strategy changes

19. 6. Pinpointing the Key Factorsfor Competitive Success • Key Success Factors(or KSFs) are competitive factors most affecting every industry member’s ability to prosper. • KSFs include: • Specific product attributes • Necessary resources, competencies, and capabilities • Specific intangible assets • Competitive capabilities

20. Three Questions to Ask in Identifying Industry Key Success Factors • On what basis do buyers choose between brands? • What resources are needed to compete successfully? • What shortcomings are almost certain to put a company at a competitive disadvantage?

21. Example: KSFs for the Beer Industry • Full utilization of brewing capacity -- to keep manufacturing costs low • Strong network of wholesale distributors -- to gain access to retail outlets • Clever advertising -- to induce beer drinkers to buy a particular brand

22. Example: KSFs for Apparel Manufacturing Industry • Appealing designs and color combinations -- to create buyer appeal • Low-cost manufacturing efficiency -- to keep selling prices competitive

23. Example: KSFs for Tin andAluminum Can Industry • Locating plants close to end-use customers -- to keep costs of shipping empty cans low • Ability to market plant output within economical shipping distances

24. 7. Deciding Whether the IndustryPresents an Attractive Opportunity • Involves assessing whether the industryand competitive environment is attractive or unattractive for earning good profits • Draws upon all the previous analysis • The industry’s growth potential • The intensity of competition • Whether the impacts of the driving forcesare positive or negative • The company’s competitive position in the industry relative to rivals • How well the company performs the industry’s key success factors