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Analysis is the critical starting point of strategic thinking.
Kenichi Ohmae
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or
Macro Level
Economic
MACROENVIRONMENT
Demographic
Competitors Social
Industry
Substitutes Political/Legal
Socio-cultural segment
Women in the workplace Workforce diversity Attitudes about quality of worklife Concerns about environment Shifts in work and career preferences Shifts in product and service preferences
Political/Legal Segment
Antitrust laws Taxation laws Deregulation philosophies Labor training laws Educational philosophies and policies
3
Economic segment
Inflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product Product innovations Applications of knowledge Focus of private and government-supported R&D expenditures New communication technologies
Technological Segment
Global Segment
Important political events Critical global markets Newly industrialize countries Different cultural and institutional attributes
Demographic
Population size Age structure Geographic distribution Ethnic mix Income distribution
5
Industry
Health Care Baby products
Positive
Neutral
Negative
Threat of Substitutes
Bargaining Power of Suppliers
Buyers
Rivalry among competitors Substitute products Potential entry Bargaining power of suppliers Bargaining power of buyers
q q
Explain how each force acts to create competitive pressure Decide whether overall competition is brutal, fierce, strong, normal/moderate, or weak
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Usually the most powerful of the five forces Check which weapons of competitive rivalry are most actively used by rivals in jockeying for position
Price Quality Performance features offered Customer service Warranties/guarantees Advertising/promotions Dealer networks Product innovation
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Lots of firms, more equal in size and capability Slow market growth Industry conditions tempt some firms to go on the offensive to boost volume and market share Customers have low costs in switching brands One or more firms initiates moves to bolster their standing at expense of rivals A successful strategic move carries a big payoff Costs more to get out of business than to stay in Firms have diverse strategies, corporate priorities, resources, and countries of origin
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Newcomers confront obstacles Economic factors put potential entrant at a disadvantage relative to incumbent firms
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Economies of scale Inability to gain access to specialized technology Existence of learning/experience curve effects Strong brand preferences and customer loyalty Capital requirements and/or other specialized resource requirements Cost disadvantages independent of size Access to distribution channels Regulatory policies, tariffs, trade restrictions
12
Sales of substitutes are growing rapidly Producers of substitutes are planning to add new capacity Substitutes profits are up
Readily available Attractively priced Believed to have comparable or better performance features Customer switching costs are low
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vs. Contact Lens MD vs. DPM vs. DC Plastic vs. Glass vs. Metal
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Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product quality It is costly for buyers to switch suppliers They have good reputations and growing demand They can supply a component cheaper than industry members can make it themselves They do not have to contend with substitutes Buying firms are not important customers
Suppliers are a stronger force the more they can exercise power over: Prices charged Quality/performance of items supplied Amounts and delivery times
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They are large and purchase a sizable percentage of industrys product They buy in volume quantities They can integrate backward Industrys product is standardized Their costs in switching to substitutes or other brands are low They can purchase from several sellers Product purchased does not save buyer money
Buyers are a stronger competitive force the more they have leverage to bargain over: Price or Quality or Service Other terms and conditions of sale
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Rivalry is strong Entry barriers are low Competition from substitutes is strong Suppliers and customers have considerable bargaining power Rivalry is moderate Entry barriers are high Good substitutes do not exist Suppliers and customers are in a weak bargaining position
Stakeholder Analysis
Stakeholder A
Focal Firm
Stakeholder B
Stakeholder C
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Identifying stakeholders is one way of sizing up the internal and external constituents that influence the firm.
Stakeholders are individuals and groups who can affect and are affected by a firms strategic outcomes and who have enforceable claims on its performance Stakeholders include individuals, groups, and other organizations who have an interest in the actions of an organization and who have the ability to influence it
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Managing down Relationships with subordinates Managing up Relationships with bosses and corporate staff Managing out Relationships with customers and suppliers Managing across Relationships with peers
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Stakeholder Analysis
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stakeholders
stakeholders
stakeholders
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Organizations have dependency relationships with stakeholders Firms are not equally dependent on all stakeholders and not every stakeholder has the same level of influence An effective organization strategy requires consensus from a plurality of key stakeholders about what it should be doing and how these things should be done
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KSFs or CSFs are competitive elements that most affect every strategic group members ability to prosper in the marketplace:
Specific strategy elements Product attributes Resources or Competencies Competitive capabilities Profit and loss Competitive success or failure
Optimize Performance
KSF 3
KSF 2
A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor!
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Answers to three questions pinpoint KSFs On what basis do customers choose between competing brands or offerings of sellers? What must a seller/provider do to be competitively successful -- what resources and competitive capabilities does it need? What does it take for sellers/providers to achieve a sustainable competitive advantage? KSFs consist of the 3 - 5 really major determinants of financial and competitive success in a strategic group.
(Recall our discussion on developing objectives?)
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Technologyrelated
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High numbers of procedures, which is a component of price, experience, and service. Low rate of complications and high rate of success (20/20) Positive word-of-mouth and reputation
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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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One technique for revealing the different competitive positions of industry rivals is strategic group mapping A strategic group consists of those rivals with similar competitive approaches in an industry
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Firms in same strategic group have two or more competitive characteristics in common . . .
Sell in same price/quality range Cover same geographic areas Be vertically integrated to same degree Have comparable product line breadth Emphasize same types of distribution channels Offer buyers similar services Use identical technological approaches
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II I III IV
Low
Resource Similarity
High
Market Commonality
q
the number of markets with which a firm and a competitor are jointly involved the degree of importance of the individual markets to each competitor
Multi-market competition
Resource Similarity
q
Resource similarity
the extent to which the firms tangible and intangible resources are comparable to a competitors in terms of both type and amount
Assessing resource similarity can be difficult if critical resources are intangible rather than tangible
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Medium
National Jewelry Chains Chains Local Jewelers Credit Jewelers Catalog Showrooms Off-Price Retailers Discounters
Low
Specialty Jewelers
Full-line Jewelers
Limited-category Retailers
Broad-category Retailers
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Variables selected as axes should not be highly correlated Variables chosen as axes should expose big differences in how rivals compete Variables do not have to be either quantitative or continuous Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group If more than two good competitive variables can be used, several maps can be drawn
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Driving forces and competitive pressures often favor some strategic groups and hurt others such recognition may be the key to developing a competitive advantage. Profit potential of different strategic groups varies due to strengths and weaknesses in each groups market position. Important niches may be identified that are not currently being filled by competitors. The closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be (Organizations most like yours are the most dangerous.)
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Medium
Price
High
Strategic Groups Within the World Petroleum Industry Strategic Groups Within the World Petroleum Industry
INTERNATIONAL UPSTREAM Premier Apache COMPANIES Oil Kuwait Petroleum PDVSA NATIONAL Iran PRODUCTION COMPANIES NOC Statoil Dana Petroleum INTEGRATED DOMESTIC OIL COMPANIES INTEGRATED OIL MAJORS INTERNATIONAL UPSTREAM, REGIONALLY FOCUSED DOWNSTREAM
Vertical Balance
1.5
2.0
Exxon -Mobil Chevron Pemex Petronas INTEGRATED Royal Dutch Texaco Lukoil PetroChina INTERNATIONAL -Shell Gp. Conoco Phillips Indian Oil Phillips MAJORS Petrobras ENI Elf-Fina-Total ENI Nippon Repsol YPF INTERNATIONAL Repsol DOWNSTREAM Valero Neste OIL COMPANIES Ashland Sunoco BP-Amoco
0
0
0.5
1.0
10
20
30
40
50
60
70
80
Geographical Scope
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Understanding their strategies Watching their actions Evaluating their vulnerability to driving forces and competitive pressures Sizing up their resource strengths and weaknesses and their capabilities Trying to anticipate rivals next moves
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Predicting rivals next moves involves: Analyzing their current competitive positions Examining public pronouncements about what it will take to be successful in industry Gathering information from grapevine about current activities and potential changes Studying past actions and leadership Determining who has flexibility to make major strategic changes and who is locked into pursuing same basic strategy
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Regional
National
Expansion via internal growth Expansion via acquisition Hold on to present share Give up present share to achieve shortterm profits
Multi-country
Global
ABC Co. 8/0.80 8/0.80 2/0.20 10/0.50 9/0.45 9/0.45 5/0.50 5/1.75 5/0.75
Rival 1 5/0.50 7/0.70 10/1.00 1/0.05 4/0.20 4/0.20 10/1.00 10/3.50 7/1.05
Rival 2 10/1.00 10/1.00 4/0.40 7/0.35 10/0.50 10/0.50 7/0.70 3/1.05 10/1.50
Rival 3 1/0.10 1/0.10 5/0.50 3/0.15 5/0.25 5/0.25 3/0.30 1/0.35 1/0.15
Rival 4 6/0.60 6/0.60 1/0.10 8/0.40 1/0.05 1/0.05 1/0.10 4/1.40 4/1.60