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ENGR 193 A/293 A: INDUSTRY ANALYSIS IN THE TELECOM/IT SPACE. Week 3: October 12, 2010. Tonight’s Schedule . Any issues to discuss? Library lecture Finish Porter analysis – Smartphones Brief introduction to SWOT analysis Project teams assigned. Any Questions So Far?.

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tonight s schedule
Tonight’s Schedule
  • Any issues to discuss?
  • Library lecture
  • Finish Porter analysis – Smartphones
  • Brief introduction to SWOT analysis
  • Project teams assigned
any questions so far
Any Questions So Far?
  • Thoughts on RightScale presentation last week?
  • Finding materials on Harvard Online?
  • Anything else to discuss?
beverly ryan economics librarian
Beverly Ryan – Economics Librarian

Introduction

Presentation

Questions

Thank you!

Link to guide: http://guides.library.ucsb.edu/Industry_Analysis

porter 5 forces model
Porter 5 Forces Model
  • Review Framework
  • Smartphone/Mobile Phone (device) application of framework
porter s five forces model
Porter’s Five Forces Model

Developed by Michael Porter in 1979/1980

Considered a classic industry analysis tool

Provides a framework for perspective on multiple competitive factors affecting your company and industry

Five basic competitive forces whose “collective strength” determines the long-run profit potential of an industry

the five forces
The Five Forces

Threat of New Entrants/ Barriers to Entry

Rivalry Among Existing Competitors

Bargaining Power of Suppliers

Bargaining Power of Customers

Threat of Substitutes

Sources for this section: Michael E. Porter, Understanding Industry Structure, Revised 2007 and How Competitive Forces Shape Strategy, Harvard Business Review, 1979

threat of new entrants barriers to entry
Threat of New Entrants/ Barriers to Entry

Threat of potential entrants determined by:

Attractiveness of industry

Height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.)

Customer switching costs (high fixed costs involved in switching to another supplier)

Capital requirements (e.g., very high in gas exploration)

Incumbency advantages independent of size (e.g., proprietary technology, patents)

Unequal access to distribution channels (how much have existing competitors tied up distribution channels)

Restrictive government policy

bargaining power of suppliers
Bargaining Power of Suppliers

Strength of suppliers determined by:

Number of suppliers and their degree of differentiation

Portion of a firm’s inputs obtained from a particular supplier

Portion of a supplier’s sales sold to a particular firm

Switching costs

Potential for vertical integration

bargaining power of suppliers10
Bargaining Power of Suppliers

A supplier group is powerful if:

It is more concentrated than the industry it sells to (e.g., Microsoft: near-monopoly in operating systems, with fragmentation among PC-making customers)

Industry participants face high switching costs when changing suppliers

Differentiated products offered by suppliers

No substitutes for what the supplier group offers

Supplier group does not depend heavily on a particular industry

power of customers
Power of Customers

Power of customers determined by:

Number of buyers

Firm’s degree of differentiation

Portion of a firm’s inputs sold to a particular buyer

Portion of a buyer’s purchases bought from a particular firm

Switching costs

Potential for vertical integration

threat of substitutes
Threat of Substitutes

A substitute performs the same function as an industry’s product or service, but by a different means

Determined by the number of potential substitutes, their closeness in function and relative price

Not just another product: sometimes the substitute is to “do without” the product or to do it themselves

Long distance phone service providers vs. VoIP providers (Skype and Vonage)

Mobile phone as primary phone vs. landline

rivalry among existing competitors
Rivalry Among Existing Competitors

Rivalry determined by number of firms, relative size, degree of differentiation between firms, demand conditions and barriers to exit

Competition among rivals is greatest when:

There are many competitors, nearly equal in size or power

Slow industry growth

High barriers to exit

rivalry among existing competitors14
Rivalry Among Existing Competitors

Industry competition is based on price when:

There is low differentiation and/or low switching costs between competitors

Fixed costs are high, but marginal costs are low

Capacity must be expanded in large increments, disrupting the supply and demand balance

The product is perishable (groceries, airline seats, information)

smartphone application
Smartphone Application
  • Article review
  • Background of Smartphones
  • List of competitors
  • Porter’s Five Forces analysis
background of smartphones
Background of Smartphones
  • Simon designed by IBM in 1992
  • Palm started the concept/evolved from PDAs (non-wireless context)
  • Advanced productivity tools (calendars, emails, etc.)
  • High cost/high end devices
  • Look and feel of a mini PC
  • Perceived sense of increased efficiency
  • Ability to expand and add-on to augment the user experience
  • Started primarily for business- expanded to consumers/entertainment
smartphone competitors
Smartphone Definition:

Many functions other than a regular cellular phone

Mini computer inside a “normal” cell phone

Can upload applications

Revolutionary phone, media flare and internet access

Competitors:

RIM

Apple

LG

Samsung

Motorola

HTC

Nokia

Operating systems:

Apple

Android

Microsoft Windows Phone 7

Facebook?

Smartphone Competitors
threat of new entrants barriers to entry18
Threat of New Entrants/ Barriers to Entry
  • For continued discussion:
  • Knowledge barrier
  • Brand recognition
  • Carrier relationship
  • Highly fragmented
  • Exclusive technology?
  • Operating system: high barrier to entry/open source?
  • Device: lower manufacturing barriers to entry
power of suppliers
Power of Suppliers
  • Who are they:
    • Chip mfrs, circuit boards, cameras, touch screen (raw materials) - mixed
    • Carriers – traditionally carriers had power; Apple now has changed this
    • Distribution channels – carrier store, big box retailer – carriers primarily
    • Software/operating system – shifting toward OS?
power of customers20
Power of Customers
  • Who are they:
    • Consumer – power on a group/demographic level; trend seekers
    • Enterprise – can choose device; longer term view
    • Carriers – very powerful
threat of substitutes21
Threat of Substitutes
  • Email
  • Skype/Gizmo/VoIP
  • iPad – notebook/computer
  • Regular old cell phone
  • Landlines
  • Visit in person
  • No mobile device
rivalry among existing competitors22
Rivalry Among Existing Competitors
  • Huge
  • Very fast moving/phones becoming obsolete
conclusions
Conclusions
  • Very strong, but lots of competition
  • Quickly changing
  • Innovation is key
  • Huge opportunity for growth – upside
  • Carrier dependent
our recommendations
Our Recommendations
  • Form good relationship with carrier
  • Innovate
  • Operating system
  • Don’t forget voice
swot analysis
SWOT Analysis

Strengths: capabilities that enable your company to perform well (how can they be leveraged) (Internal)

Weaknesses: characteristics that prohibit your company from performing well (that need to be addressed) (Internal)

Opportunities: trends, forces, events and ideas that could be important in the future of your company (External)

Threats: possible events/forces outside of the company’s control that the company needs to plan for (External)

Source for section: Harvard Business School Press, excerpted from Strategy: Create and Implement the Best Strategy for Your Business, 2005, Harvard Business School Publishing Corporation

swot analysis in week 4
SWOT Analysis in Week 4

We’ll apply SWOT analysis in Week 4

Class to pick a smartphone company - or, we can use a different industry and competitor

We will examine LG as a smartphone device company

industry analysis project29
Industry Analysis Project
  • Team structure:
    • Small teams of students – work throughout quarter to complete
    • Topic: Cloud computing
  • UCSB Faculty Project Partner
    • Dr. Ben Zhao: Dept. of Computer Science
  • Industry Partner
    • Betsy Zikakis – CEO, RightScale
  • Final presentation – Week 9
presentation details
Presentation Details
  • PowerPoint Format
  • 15 – 20 minutes
  • Approximately 15 slides
  • Oral presentation, and hand in your slides
  • Panel will provide comments and feedback
what to include in your report for your industry
What to Include in Your Report: For Your Industry
  • Clearly define your industry/segment. Provide a detailed description
  • Porter 5 Forces analysis of the industry/segment
  • Discussion of technical standards: Is there a current standard? How is this likely to evolve?
  • Highlight what you think are the key issues/challenges for the industry/segment
  • Top competitors
  • Key ratios, financials in this industry/segment (and why you think these are relevant). If possible, by competitor
  • Market share information, if available
  • Any other relevant information
what to include in your report for your company
What to Include in Your Report: For Your Company
  • SWOT analysis of your company
  • An assessment of how your company compares to the competition:
    • Use ratios, market share, qualitative information and any other information you’ve discovered from your research that will give a sense of your company versus its competition
what to include in your report key questions to answer
What to Include in Your Report: Key Questions to Answer
  • What will this industry/segment look like in 5 years?
  • What should your company do to be the dominant player in the next 5 to 10 years in this industry/ segment?
  • What key strategic advice would you give to this company?
    • Partner with another player? Who?
    • Exit this industry/segment? Why?
    • Acquire a new technology? Which one? Why?
    • Sell to a larger company? Why?
  • Why would you give this advice?
what to include in your report project assessment
What to Include in Your Report: Project Assessment
  • What sources did you use to complete this project?
  • Which sources were most valuable? Why?
  • What other information do you wish you had available in order to complete this analysis?
  • What was the most challenging part of this project?
  • What would you do differently next time?
for next week s class
For Next Week’s Class
  • Read “SWOT Analysis I: Looking Outside for Threats and Opportunities” (5528BC-PDF-ENG)
  • Read “SWOT Analysis II: Looking Inside for Strengths and Weaknesses” (5535BC-PDF-ENG)
  • Begin working with your team!!
  • Check course website for any updates:

www.tmp.ucsb.edu/classpages/ENGR193A/index.html

www.tmp.ucsb.edu/classpages/ENGR293A/index.html