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EXTERNAL ANALYSIS, CHAPTER 2

EXTERNAL ANALYSIS, CHAPTER 2. Business 189 DR. MARK FRUIN Feb. 7, 2012. BEFORE DOING SWOT. INDUSTRY & SECTOR INDUSTRY DEFINITION TEXTBOOK VS. EMPIRICAL DEFINITION MARKET SEGMENTS DEFINITION TEXTBOOK VS EMPIRICAL DEFINITION EXAMPLE: FIGURE ON PAGE 41. CHANGING INDUSTRY BOUNDARIES.

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EXTERNAL ANALYSIS, CHAPTER 2

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  1. EXTERNAL ANALYSIS, CHAPTER 2 Business 189 DR. MARK FRUIN Feb. 7, 2012

  2. BEFORE DOING SWOT • INDUSTRY & SECTOR • INDUSTRY DEFINITION • TEXTBOOK VS. EMPIRICAL DEFINITION • MARKET SEGMENTS DEFINITION • TEXTBOOK VS EMPIRICAL DEFINITION • EXAMPLE: FIGURE ON PAGE 41

  3. CHANGING INDUSTRY BOUNDARIES • WHY DO INDUSTRY BOUNDARIES CHANGE? • TEXTBOOK SAYS • CHANGING CUSTOMER NEEDS • CHANGING/EVOLVING TECHNOLOGY • TYPICALLY, WE THINK TECHNOLOGIES DRIVE INDUSTRIES & CUSTOMERS DRIVE SEGMENTS • REAL LIFE ANSWERS • MARKET POWER • ECONOMIC CONDITIONS INFLATE OR DEFLATE RIVALRY & DEGREE OF COMPETITION • NEW, UNANTICIPATED COMPETITION AS GLOBALIZATION ADVANCES • INDUSTRY & SECTOR FORMATION IN EMERGING ECONOMIES NOT AS DEPENDENT ON “FREE-MARKET” FORCES

  4. SWOT FOR SJSU, 2012 • SWOT FOR SJSU • BY PROGRAM, BY LEVEL, BY LOCATION? • STRATEGIC GROUPS? • WHAT ARE THEY; WHAT DIFFERENCE DO THEY MAKE? • SEPARATE UNDERGRAD & GRADUATE PROGRAMS? • WHAT CAN & SHOULD BE DONE TO MOVE UP IN RANKINGS? • ROLE OF STRATEGIC INTENT • HOW FAR CAN ONE GO WITH SWOT?

  5. PORTERS 5 FORCES MODEL • 5 FORCES MODEL & GENERIC COMPETITIVE STRATEGIES MODEL ARE KEY/PIVOTAL PORTER MODELS • WHAT IS A MODEL AND HOW MUCH SHOULD WE EXPECT FROM ONE? • UNDERSTAND AND BE ABLE TO DIAGRAM BOTH • TEXTBOOK’S 5 FORCES FIGURE IS LESS ROBUST THAN USUAL MODEL THAT PROVIDES A LOT OF DETAILS/ITEMS FOR EACH FORCE/POINT IN DIAMOND

  6. DRIVERS OF 5 FORCES & GENERIC COMPETITIVE STRAT • RISK OF ENTRY BY COMPETITORS • THREAT OF SUBSTITUTES (NEW TECHNOLOGIES) • BARGAINING POWER OF SUPPLIERS • HOW MANY, BIG, RARE, LOCKED IN & INDEPENDENT • BARGAINING POWER OF BUYERS • HOW MANY, BIG, LOCKED IN & INDEPENDENT • RIVALRY (MIDDLE BOX) • 4Ss (ABSOLUTE & RELATIVE COST ADVANTAGES) • BRAND LOYALTY • SWITCHING COSTS • GOVERNMENT REGULATION • BARRIERS TO ENTRY (& TO EXIT)

  7. COMPLEMENTORS OR VALUE NET • PORTER’S MODEL IS INDUSTRY-SPECIFIC/FOCUSED ON ONE INDUSTRY • OFTEN, INDUSTRIES ARE INTERRELATED OR CONNECTED AT THE HIP • IN THIS CASE, THE TWO INDUSTRIES SHOULD BE ANALYZED TOGETHER • EXAMPLES: AUTO INDUSTRY VS COMPUTERS • AUTOS, TIRES, GLASS, PLASTICS • COMPUTERS, CHIPS, PERIPHERALS, SOFTWARE

  8. STRATEGIC GROUPS • GROUPS OF COMPANIES THAT PURSUE SIMILAR STRATEGIES WITHIN THE SAME INDUSTRY AND MARKET SEGMENTS • BUT AT ODDS WITH FIRMS THAT PURSUE DIFFERENT BUSINESS MODELS/MARKET SEGMENTS IN THE SAME INDUSTRY • MOBILITY BARRIERS = WITHIN-INDUSTRY FACTORS THAT INHIBIT ABILITY TO MOVE BETWEEN STRATEGIC GROUPS • EXAMPLES?

  9. IMPLICATIONS OF STRATEGIC GROUPS • PRODUCTS IN THE SAME STRATEGIC GROUP ARE SEEN AS DIRECT SUBSTITUTES • RIVALRY IS HEIGHTENED • MARGINS MAY BE SQUEEZED • EACH STRATEGIC GROUP MAY FACE DIFFERENT OPPORTUNITIES & THREATS (IN SAME INDUSTRY) • “MOBILITY BARRIERS” INHIBIT MOVEMENT BETWEEN STRATEGIC GROUPS • SOME EXAMPLES OF MOBILITY BARRIERS IN AUTO & COMPUTER INDUSTRIES?

  10. INDUSTRY ANALYSIS • DISTINGUISH BETWEEN FRAGMENTED AND CONCENTRATED INDUSTRIES • INDUSTRY LIFE CYCLE MODEL IS FOR “CONCENTRATED” INDUSTRIES • WHAT DRIVES INDUSTRIES? • TECHNOLOGIES, MARKETS, GOV POLICIES? • DON’T BE FOOLED BY SMOOTH LINE/ CURVE OF THE STANDARD I.LC. MODEL

  11. INDUSTRY LIFE CYCLE ANALYSIS • EMBRYONIC • GROWTH • INDUSTRY SHAKEOUT • MATURE • DECLINE

  12. LIMITATIONS OF I.L.C. MODEL • LIFE CYCLE IS A GENERALIZATION • INNOVATIONS ARE OF VARIOUS SORTS • INNOVATIONS MAY TRANSFORM INDUSTRY DYNAMICS • MODEL OVEREMPHASIZES INDUSTRY EFFECTS • MODEL UNDEREMPHASIZES FIRM-LEVEL DIFFERENCES & STRATEGIC GROUP DIFFERENCES • HENCE, REAL I.L.C. IS NOT SUCH A PRETTY THING AS TEXTBOOK I.L.C.

  13. MACRO-ECONOMIC ENVIRONMENT • ILC EFFECTS & RIVALRIES TAKE PLACE WITHIN ECONOMIC & INSTITUTIONAL ENVIRONMENTS • ROLE OF MACROECONOMIC EFFECTS? • ROLE OF INSTITUTIONAL ENVIRONMENT? • WHAT IS AN INSTITUTION? • WHAT ARE INSTITUTIONAL EFFECTS? • OTHERS • DEMOGRAPHIC FORCES • GLOBAL COMPETITION • POLITICAL & LEGAL FORCES: CO-EVOLUTIONARY EFFECTS ON COMPETITION

  14. WHY BEER INDUSTRY SO CON-CENTRATED? CLOSING CASE pp.70-71 • IN NOV ‘08, InBev, A BELGIUM-BRAZILIAN COMPANY, BUYS BUDWEISER (ANHEUSER-BUSCH) W/ 50% U.S. MARKET SHARE • ANHEUSER BUSCH HAS ROIC OF BETWEEN 17-23% BETWEEN 1996 AND 2008; WHAT’S ROIC? HOW CALCULATE? PAGE C9. • BEER INDUSTRY, ALREADY CONCENTRATED, GETS MORE CONCENTRATED. WHY? • WHY DOESN’T DOJ CARE OR DOES IT? • DISTINGUISH BETWEEN MASS MARKET FOR BEER (@90%) & PREMIUM MARKET • WHY SO CONCENTRATED? • BEER CONSUMPTION FALLING; BREWERS COMPETE HARDER FOR SHRINKING MARKET; “FULL LINE” STRATEGY • ADVERTISING $$ UP, MAKING HARDER FOR SMALL BREWERS TO COMPETE • MINIMUM EFFICIENT SCALE GOING UP; FROM 8 MILLION BARRELS IN ‘70 TO 23 MILLION BARRELS IN 2000s • 13% MARKET SHARE REQUIRED TO TAKE ADVANTAGE OF MES

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