University of Cagliari, Faculty of Economics, 2011-12
Business Strategy and Policy
A course within the II level degree in
Managerial Economics
year II, semester I, 9 credits
Lecturer:
Dr Alberto Asquer
aasquer@unica.it
Phone: 070 6753399
Introduction
0. Evaluating a company's strategic environment
1. The dominant features of the industry
2. The strength of the competitive forces
3. The forces that drive industry change
4. The market positions of the competitors
5. The strategic moves of the competitors
6. The key factors for future competitive success
7. The outlook for the future
------------8. Summary
0. Evaluating a company's strategic environment
Macro-environment is all relevant factors and influences outside the
company's boundaries
1. The dominant features of the industry
We should assess:
1. Market size and growth rate (i.e., stage of industry life cycle)
2. Number of rivals (i.e., fragmentation, consolidation trend)
3. Scope of competitive rivalry (i.e., geographical scope, internationalisation)
4. Number of buyers (i.e., bargaining power)
5. Degree of product differentiation (i.e., replication, copyright protection)
6. Product innovation (i.e., duration of product life cycle, R&D)
7. Demand-supply conditions (i.e., excess capacity)
8. Pace of technological change (i.e., obsolescence)
9. Vertical integration (i.e., down- or up-stream cost advantages)
10. Economies of scale
11. Learning/experience curve effects
1. The dominant features of the industry
Example: assess the features of the automotive industry
1. Market size and growth rate (i.e., stage of industry life cycle)
2. Number of rivals (i.e., fragmentation, consolidation trend)
3. Scope of competitive rivalry (i.e., geographical scope, internationalisation)
4. Number of buyers (i.e., bargaining power)
5. Degree of product differentiation (i.e., replication, copyright protection)
6. Product innovation (i.e., duration of product life cycle, R&D)
7. Demand-supply conditions (i.e., excess capacity)
8. Pace of technological change (i.e., obsolescence)
9. Vertical integration (i.e., down- or up-stream cost advantages)
10. Economies of scale
11. Learning/experience curve effects
Etc...
2. The strength of the competitive forces
M. Porter (1980), Competitive Strategy.
2. The strength of the competitive forces
Factors that increase internal rivalry:
Fresh marketing moves
Slow demand growth
Fluctuations of demand and excess capacity
Ease of market entry
Lower switching costs
More standardisation of products
Use of price cuts and boost of production
Search for new market position
Heterogeneity of beliefs and behaviour
Entry of firms from other industries (M&A)
Success of a few firms
Increased industry concentration
2. The strength of the competitive forces
Factors that elicit more market entry:
Moves into other segments or geographical areas
Economies of scale
Learning or experience curves
Low brand preference and customer loyalty
Low capital requirements
Low barriers to distribution channels
Low regulatory restrictions
Low tariffs or other international trade impediments
Low reactiveness of incumbents
2. The strength of the competitive forces
Factors that elicit aggressiveness of substitute products:
Already available products at low cost
Buyers consider the substitute product comparable
Low switching costs
2. The strength of the competitive forces
Factors that enhance the bargaining power of suppliers:
The item being supplied is not a commodity
The item being supplied is provided by a few firms only
The firms incurs high switching costs if purchasing from another source
The item being supplied is in short supply
Some suppliers provide items that produce high differentiation
Some suppliers provide items that produce high cost savings
Some suppliers provide items that account for most of the costs within the industry
The firm cannot easily integrate backwards and self-produce the item
2. The strength of the competitive forces
Factors that enhance the bargaining power of customers:
The switching costs for customers is relatively low
Buyers are relatively a few or a buyer is very important for the seller
Demand is weak
Buyers have good information about prices and costs and quality
Buyers can threat to integrate backwards
Buyers may not need the item
2. The strength of the competitive forces
Example: assess the attractiveness of the automotive industry
3. The forces that drive industry change
Driving forces: the major underlying causes of changing industry and
competitive conditions
Change in industry's long term growth rate
Increasing globalisation
Emerging new technologies – Internet capabilities and applications
Changes in who buys the product and how they use it
Product innovation
Technological change and manufacturing process innovation
Marketing innovations
Entry or exit of major firms
Diffusion of technical know-how across more companies
Changes in cost and efficiency
Growing preferences for differentiated products
Reductions in uncertainty and business risk
Regulatory influences and government policy changes
Changing societal concerns, attitudes, and lifestyles
4. The market positions of the competitors
Strategic group: industry members with similar competitive approaches
and positions in the markets
Building a strategic group map includes:
1) identify the features that differentiate firms (price, quality, geographic
coverage, vertical integration, product-line breath, distribution
channels, type of service, etc.)
2) group together firms along two or more dimensions
3) draw circles!
4. The market positions of the competitors
Example: strategic group map of the automotive industry
4. The market positions of the competitors
Example: strategic group map of the automotive industry
More distance =
less rivalry
4. The market positions of the competitors
Example: strategic group map of the automotive industry
Different position
= different competitive
pressures, different
strategies, different
profit potential
5. The strategic moves of the competitors
Competitive intelligence = timely, precise, and relevant information
about the conduct of competitors
6. The key factors for future competitive success
Key Success Factors (KSF) = the product attributes, competences,
competitive capabilities, and market achievements with the greatest
impact on future competitive success in the marketplace
7. The outlook for the future
Overall assessment of the future industry prospects = attractive or not
for a business firm to enter or stay within the industry?
8. Summary
Main points
The analysis of the external environment is mainly intended to assess
what are the features of the industry, what are the main competitive
forces, and whether it is attractive or not for a business firm to enter or
to stay in the industry.
The assessment of the main competitive forces is often done through
the framework of the 'five forces' (M. Porter, Competitive Strategy,
1980).
Detailed knowledge of the position and behaviour of the competitors is
needed in order to assess the strategic groups within the industry.
Apart from the current state of the industry, it is also important to
assess the future developments of the industry.