Strategy and Industry Analysis
GBUS 600
SWOT PEST and Strategy
What you have NOT thought
about will come back to haunt
you!
PEST
• Political factors include areas such as tax policy,
employment laws, environmental regulations, trade
restrictions and tariffs and political stability.
• Economic factors are growth, interest rates, foreign
conditions, exchange rates, and prices.
• Social factors often look at the cultural aspects and include
health consciousness, population growth rate, age
distribution, career attitudes and emphasis on safety.
• Technological factors include ecological and environmental
aspects. Technological factors look at elements such as R&D
activity, automation, technology incentives and the rate of
technological change.
SWOT
• Internal – This is company specific!
– Strengths
– Weaknesses
• External
– Opportunities
– Threats
Goal!
• To achieve AND sustain an above average rate
of return.
• HOW?
– Position your company where the industry is the
weakest. What do others NOT do?
– Exploit changes in the FORCEs.
– Rearrange the forces in you favor.
Industry (Porter) Overview!
• What forces are powerful and can reduce
profits and what forces are weak and can be
exploited.
• 5-forces
– Entry
– Buyer power
– Seller power
– Substitutes
– Rivalry
Entry
•
•
•
•
Supply-side: huge fixed costs (scale).
Demand-side: buyer loyalty (scale).
Switching costs.
Capital requirements
– Inventory
– Financing
• Distribution channels
• GOVERNMENT!
Supplier Power
• Switching costs
• Limited substitutes
• Forward integration
Who are your suppliers?
Buyer Power
• Few buyers
• Price sensitive (elasticity of demand)
– Large share of budget
– Limited income
– Quality does NOT matter much
– Easy substitutes
Rivalry
•
•
•
•
Numerous competitors
Slow growth
Difficult to exit
Homogeneity
Substitutes
•
•
•
•
There is a substitute for everything!
Definition of industry matters.
Switching costs?
Price-performance tradeoff.
Common Pitfalls*
• Defining the industry too broadly or too narrowly.
• Making lists instead of engaging in rigorous analysis.
• Paying equal attention to all of the forces rather than digging
deeply into the most important ones.
• Confusing effect (price sensitivity) with cause (buyer
economics).
• Using static analysis that ignores industry trends.
• Confusing cyclical or transient changes with true structural
changes.
• Using the framework to declare an industry attractive or
unattractive rather than using it to guide strategic choices.
*Porter, Michael E., “The Five Competitive Forces that Shape Strategy.” Harvard Business Review – reprint, January 2008, p.16.
STRATEGY
• Any good strategy starts with a statement of
where you are going! – a VISION!
• Mission – why we exist, what we do.
• Values – what we believe in (ethics, green, …)
• Vision – what we want to be!
Your Strategy
• If it is the same as any competitors, you do not
have one.
• GOALS – SMART
– Specific, measurable, assessable, reasonable, time
bound.
• Scope – whom do we serve?
• Benefits of a strategy?