Assessing a Company’s Industry and
Competitive Environment: The Seven
Key Questions to Answer
1.
What are the industry’s business and economic traits ?
2.
What are the nature and strength of competitive forces ?
3.
What forces are driving industry change ?
4.
What market positions do industry rivals occupy?
5.
What strategic moves are rivals likely to make next ?
6.
What are the key factors of competitive success ?
7.
Does the industry outlook offer good prospects for profitability?
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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
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2. Porter’s Five Forces Model of
Competition
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When Is the Bargaining
Power 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
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When Is the Competition
From Substitutes Stronger ?
 There are many good substitutes that are readily available
 Substitutes are attractively priced
 Substitutes have comparable or better quality and performance
 End-users have low switching costs
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When Is the Bargaining
Power of Suppliers Stronger ?
 Industry members incur high switching costs
 Needed inputs are in short supply
 Supplier provides a differentiated input that enhances the quality or performance of sellers’ products
 There are only a few suppliers of a specific input
 Some suppliers threaten to integrate forward
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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
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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
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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
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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 high and no firm is likely to enter
 Good substitutes do not exist
 Suppliers and customers are in a weak bargaining position thereby producing competitive pressures that are very weak!
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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 low and new competitors are likely to enter
 Good substitutes exist
 Suppliers and customers are in a strong bargaining position thereby producing competitive pressures that are very intense or fierce!
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1.
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 as real drivers of change
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2.
Assess impact of driving forces on industry attractiveness
 Are the driving forces causing demand for product to increase or decrease ?
 Are the driving forces acting to make competition more or less intense ?
 Will the driving forces lead to higher or lower industry profitability?
3.
Determine what strategy changes are needed to prepare for impact of driving forces
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External Environmental Factors
Shaping A Company’s Choice of
Strategy
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4. Identifying the Market Positions of
Rivals: Strategic Group Maps
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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
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5. Predicting the Next Strategic
Moves 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
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6. Pinpointing the Key Factors for 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
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Three Questions to Ask in
Identifying Industry Key Success
Factors
1.
On what basis do buyers choose between brands ?
2.
What resources are needed to compete successfully?
3.
What shortcomings are almost certain to put a company at a competitive disadvantage ?
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 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
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 Appealing designs and color combinations -- to create buyer appeal
 Low-cost manufacturing efficiency -- to keep selling prices competitive
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 Locating plants close to end-use customers -- to keep costs of shipping empty cans low
 Ability to market plant output within economical shipping distances
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7. Deciding Whether the Industry
Presents an Attractive Opportunity
 Involves assessing whether the industry and 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 forces are 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
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