Professional Documents
Culture Documents
OBJECTIVES
1 Explain the importance of the external context for strategy and firm performance
2 3 4 5 6 Use PESTEL to identify the macro characteristics of the external context Identify the major features of an industry and the forces that affect industry profitability Understand the dynamic characteristics of the external context Show how industry dynamics may redefine industries Use scenario planning to predict the future structure of the external context
1970
Kick Pepsi's can Diet Coke New Coke 1980
Pepsi Challenge
Foster entrepreneurial spirit of Pepsis people Jettison slow-growing businesses Diversify beyond soft-drinks
1990
2000
An internal analysis is
Internal
With fewer companies providing these services, the power of buyers will be impacted.
Cable Companies
Long Distance Telephone Companies As services are bundled, the cost to switch to another service provider will be greater.
Rubbermaid
Wal-Mart
Macro Environment Political, Economic, Sociocultural, Technological, Environmental, Legal Industry Environment Strategic Group
The Organization
What macro environmental conditions will have a material effect on our ability to implement our strategy successfully?
Homogeneous
customer needs
Favorable trade
policies
Interdependent
countries
Global customer
needs
Learning and
experience
Common
technological standards
Global
competitors
Global channels
Sourcing
efficiencies
Common
manufacturing and marketing regulations
Transferable
marketing approaches
Favorable
logistics
Arbitrage
opportunities
SOFT DRINK EXAMPLE Key success factor (KSF) Key asset or requisite skill that all firms in an industry must possess in order to be a viable competitor KSFs:
Ability to meet competitive pricing Extensive distribution Ability to raise consumer awareness
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Monopoly
Duopoly
Fragmented
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ENVIRONMENTAL TRENDS
Silent Generation
Baby Boomers
Generation X
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Complementors Number of complements Relative value added Barriers to complement entry Difficulty of engaging complements Buyer perception of complements Complement exclusivity
Industry value chain from raw materials and other inputs, to channel to end consumer
Supplier Power Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry
Degree of Rivalry Exit barriers Industry concentration Fixed costs/value added Industry growth Intermittent overcapacity Product differences Switching costs Brand identity Diversity of rivals Corporate stakes
Buyer Power (Channel and End consumer) Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs. industry Substitutes available Buyers incentives
Source:
Threat of Substitutes Switching costs Buyer inclination to substitute Price-performance tradeoff of substitutes Varity of substitutes Necessity of product or service Adapted from M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980)
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CAUSES OF RIVALRY
Barriers to Entry Barriers to Exit In addition to entry and exit barriers, many factors drive rivalry
Market growth
Strong brands Proprietary technology Start-up costs Etc.,
Etc.
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15
SUPPLIER POWER
Diamond Retailers
Others
50
When firms in the supply industry can dictate terms, they can extract greater profits
DeBeers
50
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BUYER POWER
Industry A Suppliers Buyers Industry B Suppliers Buyers
ILLUSTRATIVE
Profits
Profits
In industries characterized with many suppliers and few buyers, buyers often capture a greater share of profits
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THREAT OF SUBSTITUTES
Soft drinks Movie rentals
Block buster Coke Pepsi
Hollywood video
Bottled water
Cable TV
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IMPACT OF COMPLEMENTOR
Complementor: Any factor that makes it more attractive for suppliers to supply an industry on favorable terms or that makes it more attractive for buyers to purchase products or services from an industry at prices higher than it would pay absent the complementor Three Examples Hot dogs + Buns Music + MPS player Delta plane orders + American Airlines plane orders
19
More sales
COMPETITIVE INTELLIGENCE
Competitive intelligence is a method whereby firms are able to gather information about their competitors.
1. Understand their objectives 2. Determine competitors current strategies 3. Identify the competitors assumptions about the industry and of itself 4. Determine the competitors key strengths and weaknesses
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Market Size
Time Embryonic Niche market selected products for selected markets Growing Market expands beyond niche Mature Proliferation of products and markets served In Decline Product/market contraction
Adapted from K. Rangan and G. Bowman, Beating the Commodity Magnet, Industrial Marketing Management 21 (1992), 215-224; P. Kotler, Managing Products through their Product Life Cycle, in Marketing Management: Planning, Implementation, and Control, 7 th ed (Upper Saddle River, NJ: Prentice Hall, 1991)
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Social Trends
Demand
Lifecycles:
R&D Trends
Innovation/Long Wave
TECHNOLOGICAL DISCONTINUITIES
Example Product-related In disk-drive industry, virtually every new generation of technology led to demise of market leader
Discontinuities
Process-related
Southwest airlines radically changed the airline business model by adopting new processes (e.g., a point-to-point model)
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HYPERCOMPETITION
Market stability is threatened by short product life cycles, short product design cycles, new technologies, frequent entry by unexpected outsiders, repositioning by incumbents, and tactical redefinitions of market boundaries as diverse industries emerge.
Richard DAveni
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