Why Do Structures

Differ? Size
Size

How the size of an organization affects its

structure. As an organization grows larger, it
becomes more mechanistic.
Characteristics
Characteristicsof
oflarge
large
organizations:
organizations:
More
Morespecialization
specialization
More
Morevertical
verticallevels
levels
More
Morerules
rulesand
andregulations
regulations

2005 Prentice Hall Inc. All rights reserved.

Why Do Structures Differ?

Technology
Technology
How an organization transfers its inputs into
outputs.
Characteristics
Characteristicsof
ofroutineness
routineness(standardized
(standardizedor
or
customized)
customized)in
inactivities:
activities:
Routine
Routinetechnologies
technologiesare
areassociated
associatedwith
withtall,
tall,
departmentalized
departmentalizedstructures
structuresand
and
formalization
formalizationin
inorganizations.
organizations.
Routine
Routinetechnologies
technologieslead
leadto
tocentralization
centralization
when
whenformalization
formalizationis
islow.
low.
Nonroutine
Nonroutinetechnologies
technologiesare
areassociated
associatedwith
with
delegated
delegateddecision
decisionauthority.
authority.
2005 Prentice Hall Inc. All rights reserved.

Why Do Structures Differ?

Environment
Environment
Institutions or forces outside the organization
that potentially affect the organizations
performance.
Key
KeyDimensionsDimensions Capacity:
Capacity:the
thedegree
degreeto
towhich
whichan
an
environment
environmentcan
cansupport
supportgrowth.
growth.
Volatility:
Volatility:the
thedegree
degreeof
ofinstability
instabilityin
inthe
the
environment.
environment.
Complexity:
Complexity:the
thedegree
degreeof
ofheterogeneity
heterogeneityand
and
concentration
concentrationamong
amongenvironmental
environmental
elements.
elements.
2005 Prentice Hall Inc. All rights reserved.

8.5 Changing Structural Characteristics (Table 8.3)

Changing Structural
Characteristics of Modern
Corporation
Old Organizational Design

New Organizational Design

One large corporation

relationships

Mini-business units & cooperative

Vertical communication

Horizontal communication

Centralized top-down decision making

Decentralized participative decision making

Vertical integration

Outsourcing & virtual organizations

Work/quality teams

Autonomous work teams

Functional work teams

Cross-functional work teams

Minimal training

Extensive training

Specialized job design focused on individual

Value-chain team-focused job design

Source:Adapted from B. Macy and H. Izumi, Organizational Change, Design, and Work Innovation: A MetaAnalysis of 131 North American Field Studies19611991, Research in Organizational Change and
Development, Vol. 7, JAI Press (1993), p. 298. Reprinted with permission.

Prentice Hall, 2000

Chapter 8

Question 1: What are the

Industrys Dominant Economic Traits?

Market size and growth rate

Scope of competitive rivalry
Number of competitors and their relative sizes
Prevalence of backward/forward integration
Entry/exit barriers
Product and Nature and pace of technological
change
customer characteristics
Scale economies and experience curve effects
Capacity utilization and resource requirements
Industry profitability

Table 3.2: Relevance of

Key Economic Features
Economic
Feature
Market Size
Market growth
rate
Capacity
surpluses/shorta
ges
Industry
profitability
Entry/exit
barriers
Product is bigticket item for
buyers
Standard
products
Rapid
technological
change
Capital
requirements
Vertical
integration
Economies of
scale
Rapid product
innovation

Strategic Importance
Small markets dont tend to attract new firms; large markets
attract firms looking to acquire rivals with established positions
in attractive industries
Fast growth breeds new entry; slow growth spawns increased
rivalry & shake-out of weak rivals
Surpluses push prices & profit margins down; shortages pull
them up
High-profit industries attract new entrants; depressed conditions
lead to exit
High barriers protect positions and profits of existing firms; low
barriers make existing firms vulnerable to entry
More buyers will shop for lowest price
Buyers have more power because its easier to switch from seller
to seller
Raises risk; investments in technology facilities/equipment may
become obsolete before they wear out
Big requirements make investment decisions critical; timing
becomes important; creates a barrier to entry and exit
Raises capital requirements; often creates competitive & cost
differences among fully vs. partially vs. non-integrated firms
Increases volume & market share needed to be cost competitive
Shortens product life cycle; increases risk because of
opportunities for leapfrogging

Question 2: What Is Competition Like and

How Strong Are the Competitive Forces?

Objective
To

identify
Main sources of
competitive forces
Strength of these forces
Key analytical tool
Five Forces Model
of Competition

Figure 3-4: Five Forces

Model of Competition

Substitute Products
(of firms in
other industries)

Suppliers
of Key
Inputs

Rivalry
Among
Competing
Sellers

Potential
New
Entrants

Buyers

Analyzing the Five Competitive Forces: How to Do

It

Assess strength of each of the five competitive

forces (Strong? Moderate? Weak? )
Rivalry among competitors
Competition from substitute products
Competitive threat from potential entrants
Bargaining power of suppliers and
supplier-seller collaboration
Bargaining power of buyers and
buyer-seller collaboration

Explain how each force acts to create competitive

pressureWhat are the factors that cause each
force to be strong or weak?
Decide whether overall competition (the
combined effect of all five competitive forces)
is brutal, fierce, strong, normal/moderate, or weak

Rivalry Among Competing

Sellers

Usually the most powerful of the five forces

The big factor determining the strength of
rivalry is how actively and aggressively are
rivals employing the various weapons of
competition in jockeying for a stronger market
position and seeking bigger sales
Is price competition vigorous?
Active efforts to improve quality?
Are rivals racing to offer better

performance features?
Are rivals racing to offer better
customer service?
Lots of advertising/sales promotions?
Active efforts to build a stronger
dealer network?
Active product innovation?
Active use of other weapons of rivalry?

What Causes Rivalry to be Stronger?

Active jockeying for position among rivals and

frequent launches of new offensives to gain sales
and market share
One or more firms initiates moves to bolster their
standing at expense of rivals
Lots of firms that are relatively 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 to rival
brands
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

Factors That Affect the Strength

of Rivalry
The Weapons
of Competitive
Rivalry
Lower prices
More appealing
features
Better product
performance
Higher quality
Strong brand
image and appeal
Better customer
service
capabilities
Wider product
selection
Bigger/better
dealer network
Stronger product
innovation
capabilities
Longer
warranties
Higher levels of
advertising

Rivalry is generally stronger

when:

Rivalry
among
Competing
Sellers
Efforts of
rivals to
gain
better
market
position,
higher
sales and
market
share,
and
competitive
advantage

Rivals are active in making fresh moves

to increase sales and market share
Buyer demand is growing slowly
The number of rivals ranges from at
least 5 to upwards of 12 or more
Rivals are of roughly equal size and
capability
Buyer costs to switch brands are low
One or more rivals is dissatisfied with
their current position and market share
and make aggressive moves to improve
their market prospects
When rivals have diverse strategies and
objectives and are located in different
countries
When one or two rivals have powerful
strategies and other rivals are
Rivalry
is generally weaker when:
scrambling to stay in the game
Rivals move only infrequently or in a
non-aggressive manner to draw sales
and market share away from rivals
Buyer demand is growing rapidly
Buyer costs to switch brands are high

Principle of Competitive
Markets
Competitive jockeying among
rival firms is dynamic and everchanging
As industry members
initiate new offensive and
defensive moves
As emphasis swings from
one mix of competitive
weapons to another

Competitive Force of
Potential Entry

Seriousness

of threat depends on
Barriers to entry
Reaction of existing firms to
entry
Barriers exist when
Newcomers confront
obstacles
Economic factors put potential
entrant at a disadvantage
relative to incumbent firms

Factors Affecting the Threat

of Entry
Entry threats are
stronger when

Entry threats are

weaker when

The pool of entry

candidates is small
Entry barriers are
high
Existing
competitors are
struggling to earn
good profits
The industrys
outlook is risky or
uncertain
Buyer demand is
growing slowly or is
stagnant

The Rivalry
Among
Competing
Sellers
Competitive pressures
coming
from the threat of entry
of new rivals

Potential New
Entrants

The pool of entry

candidates is large
Entry barriers are
low or can be readily
hurdled by the likely
entry candidates
When existing
industry members are
looking to expand
their market reach by
entering product
segments or
geographic areas
where they currently
do not have a
presence
Industry members
are earning attractive
profits
Buyer demand is

Common Barriers to
Entry
Sizable economies of scale

Inability to gain access to specialized

technology
Existence of strong learning/experience
curve effects
Strong brand preferences and customer loyalty
Large capital requirements and/or other
specialized resource requirements
Cost disadvantages independent of size
Difficulties in gaining access to distribution
channels
Regulatory policies, tariffs, trade

restrictions

Principle of Competitive
Markets
Threat of entry is stronger when:
Entry barriers are low
Sizable pool of entry
candidates exists
Incumbents are unwilling or
unable to contest a
newcomers entry efforts
Newcomers can expect to earn
attractive profits

Competitive Force of
Substitute Products

Concept
Substitutes matter when customers are
attracted to the products of firms in
other industries
Examples

Eyeglasses vs. Contact Lens

Sugar vs. Artificial Sweeteners
Newspapers vs. TV vs. Internet
E-mail vs. Overnight Delivery vs
Snail mail (U.S. Post Office)

How to Tell Whether Substitute

Products are a Strong Force

Sales of substitutes are

growing rapidly

Producers of substitutes
plan to add new
capacity

Profits of producers of
substitutes are up

Factors Affecting Competition

from Substitutes
Competitive
pressures from
substitutes are
weaker when:
Good substitutes
are not readily
available or dont
exist
Substitutes are
higher priced
relative to the
performance they
deliver
Buyers have high
costs in switching
to substitutes

Firms in Other
Industries
Offering
Substitute
Products

Competitive pressures
coming
from the attempts of
companies outside the
industry to win buyers
over to their products

Rivalry
among
Competing
Sellers

Competitive
pressures from
substitutes are
stronger when
Good substitutes
are readily
available or new
ones are emerging
Substitutes are
lower priced
relative to the
performance they
deliver
Buyers have low
costs in switching
to substitutes
Buyers grow more
comfortable with

Principle of
Competitive Markets
Competitive threat of substitutes
is stronger when they are:
Readily available
Attractively priced
Believed to have comparable
or better performance features
Customer switching costs are
low

Competitive Pressures From Suppliers

and Supplier-Seller Collaboration

Whether

supplier-seller
relationships represent a
weak or strong competitive
force depends on
Whether suppliers can exercise

sufficient bargaining leverage to

influence terms of supply in
their favor
Extent and competitive
importance of collaborative
partnerships between one or
more sellers and their suppliers

Competitive Force of
Suppliers
Suppliers are a strong competitive
force when:

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

Factors Affecting Supplier Bargaining

Power
Suppliers of
Raw
Materials,
Parts,
Components,
or Other
Resource
Inputs

Competitive
pressures
stemming
from
supplier
bargaining
power and
sellersupplier
collaboration

Rivalry
Among
Competin
g
Sellers

Supplier bargaining power is stronger when

Seller switching costs to alternative suppliers are high
Some suppliers are a threat to integrate forward into the business of
their customers
Needed inputs are in short supply
Supplier bargaining power is weaker when
Seller switching costs to alternative suppliers are low
There is a surge in the availability of supplies
Good substitute inputs exist or new ones emerge
Supplier-seller collaboration or partnering provides attractive win-win
opportunities

Competitive Pressures: Collaboration Between

Sellers and Suppliers

Rival

sellers are forming long-term strategic

partnerships with select suppliers to
Promote just-in-time deliveries and

reduced inventory and logistic costs

Speed availability of next-generation
components
Enhance quality of parts being supplied
Reduce suppliers costs which paves way for
lower prices on items supplied
Competitive

advantage potential may

accrue to industry rivals doing the best job
of managing supply-chain relationships

Principle of
Competitive Markets
Suppliers are a stronger force
the more they can exercise
power over:
Prices charged
Quality and
performance
of items supplied
Reliability of deliveries

Competitive Pressures From Buyers

and Seller-Buyer Collaboration

Whether

seller-buyer
relationships represent a
weak or strong competitive
force depends on

Whether buyers have

sufficient bargaining leverage
to influence terms of sale in
their favor

Extent and competitive

importance of collaborative
partnerships between one or
more sellers and their

Competitive Force of
Buyers

Buyers are a strong competitive force

when:
They are large and purchase a sizable

percentage of industrys product

They buy in large 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

Competitive Pressures: Collaboration Between

Sellers and Buyers

Partnerships

are an increasingly important

competitive element in business-tobusiness relationships
Collaboration may result in mutual
benefits regarding

Just-in-time deliveries
Order processing
Electronic invoice payments
On-line sharing of sales at the cash register

Competitive

advantage potential may

accrue to industry rivals who do the best
job of managing seller-buyer partnerships

Factors Affecting Buyer Bargaining

Power
Rivalry
Among
Competing
Sellers

Competitive
pressures stemming
from buyer
bargaining power
and seller-buyer
collaboration

Buyers

Buyer bargaining power is stronger when

Buyer switching costs to competing brands are low

Buyers are large and purchase in large quantities
Quantity and quality of information available to buyers improves
Some buyers are a threat to integrate backward into the business of
sellers
Buyer demand is weak or declining

Buyer bargaining power is weaker when

Buyer switching costs to competing brands are high

There is a surge in buyer demand
Seller-buyer collaboration or partnering provides attractive win-win
opportunities

Principle of
Competitive Markets

Buyers are a stronger

competitive force the more
they have leverage to bargain
over:
Price
Quality
Service
Other terms and
conditions of sale

Strategic Implications of the

Five Competitive Forces

Competitive

environment is
unattractive from the
standpoint of earning
good profits when:
Rivalry is strong
Entry barriers are low

and entry is likely

Competition from
substitutes is strong
Suppliers and customers have
considerable bargaining power

Strategic Implications of the

Five Competitive Forces

Competitive

environment is
ideal 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

Coping With the

Five Competitive Forces

Objective

is to craft a strategy
To insulate firm from
competitive forces
To help make the rules,
placing added pressure on
rivals
Which allows firm to define
the business model for the
industry

Threat of New Entrants

Economies of
* Scale
Product
*
Barriers
Barrier
Differentiation
to
Entry
Capital
s to
* Requirements
Entry
Switching
* Costs
to Distribution
* Access
Channels
Disadvantages Independent of
* Cost
Scale
Government
* Policy
* Expected
Retaliation

Bargaining Power of Suppliers

Suppliers are likely to be powerful if:
Supplier industry is dominated
by a few firms
* Suppliers products have few
substitutes
* Threatening to
prices or to reduce
raise
* Buyer is not an important
quality
customer to supplier
Suppliers product is an
Powerful suppliers
*
can squeeze
important input to buyers
industry
product products are
Suppliers
*
profitability if
differentiated
Suppliers
products have
firms are unable to
Suppliers exert
power in the
industry by:

recover cost
increases

high switching costs

Supplier poses credible
threat of forward integration
*

Bargaining Power of Buyers

uyer groups are likely to be powerful if:

Buyers are concentrated or
purchases are large relative to
sellers
sales
Purchase
for a
Buyers
* significantaccounts
fraction of
compete with
Products
are sales
undifferentiated
supplying
* suppliers
industry by:
face few switching
* Buyers
* Bargaining down prices
costs
Buyers industry earns low profits

*
*

Buyer presents a credible

threat of backward
integration
Product
unimportant to quality

*
*Buyer has full information

* Forcing higher
* Playingquality
firms
eachoff of
other

Threat of Substitute Products

Keys to evaluating substitute product

Products
with
similar
function
limit the
prices
firms can
charge

Products with improving

price / performance
tradeoffs relative to
present industry products
For Example:
Electronic security systems
in place of security guards
Fax machines or emailed attachments in
place of overnight mail
delivery

Porters 5 Forces Model of Competition

Threat of
Threat of
New
New
Entrants
Entrants

Bargainin
g Power
of
Suppliers

Rivalry Among
Competing Firms in
Industry

Bargainin
g Power
of Buyers

Threat
of
Substitu
te
Products
*

Rivalry Among Existing Competitors

Intense rivalry often plays out in the

following
ways
Jockeying
for strategic

*
*
*
*
*

position
Using price competition
Staging advertising battles
Increasing consumer warranties or
service
Making new product introductions

Occurs when a firm is pressured or sees an

opportunity

*
*

Price competition often leaves entire industry

worse off battles may increase total
Advertising
industry demand, but may be costly to
smaller competitors

Rivalry Among Existing Competitors

Cutthroat competition is more likely to occur

when
* Numerous or equally balanced
Slow growth industry
* competitors
* High fixed costs
* High storage
costsof differentiation or switching
* Lack
Capacity added in large
* costs
increments
* Diverse
High strategic
* competitors
stakes
High exit barriers

Rivalry Among Existing Competitors

High Exit Barriers are economic,
strategic and emotional factors which
cause companies to remain in an
industry even when future profitability
is questionable.
* Specialized assets
* Fixed cost of exit (e.g., labour
agreements)
* Strategic interrelationships

*
*

Emotional
barriers
Government
and social
restrictions

Question 3: What Forces Are at

Work to Change Industry Conditions?

Industries change because

forces are driving industry
participants to alter their
actions

Driving forces are the

major underlying causes
of changing industry and
competitive conditions

Analyzing Driving Forces

1. Identify those forces likely to exert
greatest influence over next 1 - 3
years
Usually no more than 3 - 4
factors qualify as real
drivers of change
2. Assess impact
What difference will the
forces make - favorable?
unfavorable?

Common Types of Driving

Forces

Internet and e-commerce opportunities

Increasing globalization of industry
Changes in long-term industry growth
rate
Changes in who buys the product and
how they use it
Product innovation
Technological change/process innovation
Marketing innovation

Common Types of Driving

Forces

Entry

or exit of major firms

Diffusion of technical knowledge
Changes in cost and efficiency
Market shift from standardized to
differentiated products (or vice versa)
Regulatory policies / government
legislation
Changing societal concerns, attitudes,
and lifestyles
Changes in degree of uncertainty and risk

Environmental Scanning
Definition
Monitoring and interpreting sweep of social,
political, economic, ecological, and
technological events to spot budding trends
that could eventually impact industry

Purpose
Raise consciousness of managers about
potential developments that could
Have important impact on industry
conditions
Pose new opportunities and threats

Question 4: Which Companies are in Strongest /

Weakest Positions?

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

Strategic Group
Mapping
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

Procedure for Constructing a

Strategic Group Map

STEP 1: Identify competitive characteristics

that differentiate firms in an industry
from one another
STEP 2: Plot firms on a two-variable map
using pairs of these differentiating
characteristics
STEP 3: Assign firms that fall in about the
same strategy space to same
strategic group
STEP 4: Draw circles around each group,
making circles proportional to size of
groups respective share of total

Example: Strategic Group Map of the Video Game

Industry

Types of Video Game

Suppliers/Distribution
Channels

Arcades
Arcade
operators

Home PCs

Video game
consoles

Sony, Sega,
Nintendo,
several others

Publishers
of games on
CD-ROMs

MSN Gaming
Zone,
Pogo.com,
America Online,
HEAT, Engage,
Oceanline, TEN

Online/Intern
et

Low
Medium
High
(Coin(Console players
(Use PC)
operated
cost $100-$300)
Overall Cost to Players of Video
equipment)

Games

Guidelines: Strategic Group

Maps

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

Interpreting Strategic
Group Maps

Driving

forces and competitive

pressures often favor some strategic
groups and hurt others
Profit potential of different strategic
groups varies due to strengths and
weaknesses in each groups market
position
The closer strategic groups are on
map, the stronger the competitive
rivalry among member firms tends to
be

Question 5: What Strategic Moves Are Rivals Likely to

Make Next?

firms own best strategic moves are

affected by
Current strategies of competitors
Future actions of competitors

Profiling

key rivals involves gathering

competitive intelligence about their

Current strategies
Most recent moves
Resource strengths and weaknesses
Announced plans

Competitor Analysis
Successful

strategists take great

pains in scouting competitors to
Understand their strategies
Watch their actions
Evaluate their vulnerability to driving
forces and competitive pressures
Size up their resource strengths and
weaknesses and their capabilities
Try to anticipate rivals next moves

Table 3.3: Categorizing Objectives

and Strategies of Competitors
Competitive
Scope

Strategic
Intent

Local

Be
dominant
leader

Regional

Overtake
industry
leader

National

Be among
industry
leaders

Market
Share
Objective
Aggressive
expansion
via
acquisition
& internal
growth
Expansion
via
internal
growth
Expansion
via
acquisition

Competitive
Position
Getting
stronger;
on the
move
Wellentrenche
d
Stuck in
the middle
of the pack
Going after
a different
position

Multicountr
y

Move into
top 10

Global

Move up a
notch in
rankings

Hold on to
present
share

Struggling;
losing
ground

Maintain
current
position

Give up
present
share to
achieve
short-term
profits

Retrenchin
g to a
position
that can
be
defended

Just
survive

Strategic
Posture
Mostly
offensive
Mostly
defensive
Combinati
on of
offensive &
defensive
Aggressive
risk-taker
Conservati
ve follower

Competitive
Strategy
Striving
for lowcost
leadership
Focusing
on market
niche
Pursuing

differentiati
on based

on
Quality
Service
Technology
superiority
Breadth of
product
line
Image &
reputation
More value
for the
money
Other
attributes

The Advantages and Disadvantages of Different

Entry Modes
Entry Mode

Advantages

Disadvantages

Exporting

Ability to realize location and

experience-curve economies

High transport costs

Trade barriers
Problems with local marketing agents

Licensing

Low development costs and risks

Inability to realize location and

experience-curve economies
Inability to engage in global strategic
coordination
Lack of control over technology

Franchising

Low development costs and risks

Inability to engage in global strategic

coordination
Lack of control over quality

Joint
ventures

Access to local partners knowledge

Shared development costs and risks
Political dependency

Inability to engage in global strategic

coordination
Inability to realize location and
experience-curve economies
Lack of control over technology

Wholly owned
subsidiaries

Protection of technology
Ability to engage in global strategic
coordination
Ability to realize location and
experience-curve economies

High costs and risks

TABLE 8.2
Copyright 2001 Houghton Mifflin Company. All rights reserved.

The Advantages and Disadvantages of

Different Strategies for Competing Globally
Strategy

Advantages

Disadvantages

International

Transfer of distinctive competencies

to foreign markets

Lack of local responsiveness

Inability to realize location economies
Failure to exploit experience-curve
effects

Multidomestic

Ability to customize product offerings

and marketing in accordance with
local responsiveness

Inability to realize location economies

Failure to exploit experience-curve
effects
Failure to transfer distinctive
competencies to foreign markets

Global

Ability to exploit experience-curve

effects
Ability to exploit location economies

Lack of local responsiveness

Transnational

Ability to exploit experience-curve

effects
Ability to exploit location economies
Ability to customize product offerings
and marketing in accordance with
local responsiveness
Reaping benefits of global learning

Difficulties in implementation because

of organizational problems

TABLE 8.1
Copyright 2001 Houghton Mifflin Company. All rights reserved.

Choosing an Investment Strategy at

the Business Level
Stage of the
Industry Life Cycle

Strong Competitive
Position

Weak Competitive
Position

Embryonic

Share building

Share building

Growth

Growth

Market concentration

Shakeout

Share increasing

Market concentration or
harvest/liquidation

Maturity

Hold-and-maintain or profit

Harvest or
liquidation/divestiture

Decline

Market concentration or
harvest (asset reduction)

Turnaround, liquidation,
or divestiture

TABLE 6.2
Copyright 2001 Houghton Mifflin Company. All rights reserved.

Predicting Moves of
Rivals
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

Question 6: What are the Key Factors for Competitive

Success?

Competitive

elements most
affecting every industry
members ability to prosper
Specific strategy elements
Product attributes
Resources
Competencies
Competitive capabilities

KSFs

spell the difference between

Profit and loss

Competitive success or failure

Identifying Industry
Key Success Factors

Answers

to three questions pinpoint KSFs

On what basis do customers choose
between competing brands of sellers?
What resources and competitive
capabilities does a seller need to have
to be competitively successful?
What does it take for sellers to achieve a
sustainable competitive advantage?
KSFs consist of the 3 - 5 really major
determinants of financial and
competitive success in an industry

Table 3.3: Common Types of

Key Success Factors
Scientific research expertise; Product innovation
capability; Expertise in a given technology; Capability to
use Internet to conduct various business activities
Low-cost production efficiency; Quality of manufacture;
Manufacturi High use of fixed assets; Low-cost plant locations; High
labor productivity; Low-cost product design; Flexibility to
ng-related
make a range of products
network of wholesale distributors/dealers; Gaining
Distribution- Strong
ample space on retailer shelves; Having company-owned
related
retail outlets; Low distribution costs; Fast delivery
Fast, accurate technical assistance; Courteous customer
Marketingservice; Accurate filling of orders; Breadth of product line;
Merchandising skills; Attractive styling; Customer
related
guarantees;
Clever advertising
Superior workforce
talent; Quality control know-how;
SkillsDesign expertise; Expertise in a particular technology;
Ability to develop innovative products; Ability to get new
related
products
to market quickly
Superior information
systems; Ability to respond quickly
Organization to shifting market conditions; Superior ability to employ
al capability Internet to conduct business; More experience &
managerial know-how
Favorable image/reputation with buyers; Overall low-cost;
Other types Convenient locations; Pleasant, courteous employees;
Access to financial capital; Patent protection

Technologyrelated

Example: KSFs for Beer

Industry
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

Example: KSFs for Apparel Manufacturing Industry

Fashion design -- to
create buyer appeal

Low-cost manufacturing
efficiency -- to keep selling
prices competitive

Example: KSFs for Tin and

Aluminum Can Industry

Locating plants close to end-use

customers -- to keep costs of
shipping empty cans low

Ability to market plant output within

economical shipping distances

Strategic Management
Principle
A sound strategy
incorporates efforts to be
competent on all industry
key success factors and to
excel on at least one factor!

Question 7: Is the Industry

Attractive or Unattractive and Why?

Objective
Develop conclusions about whether the
industry and competitive environment is
attractive or unattractive, both near- and
long-term, for earning good profits

Principle
A firm uniquely well-suited in an
otherwise unattractive industry can,
under certain circumstances, still earn
unusually good profits

Things to Consider in
Assessing Industry Attractiveness

Industrys market size and growth potential

Whether competitive conditions are
conducive to rising/falling industry
profitability
Will competitive forces become stronger or
weaker
Whether industry will be favorably or
unfavorably impacted by driving forces
Potential for entry/exit of major firms
Stability/dependability of demand
Severity of problems facing industry
Degree of risk and uncertainty in industrys
future

Conducting an Industry and

Competitive Situation Analysis

Two things to keep in mind

1. Evaluating industry and
competitive conditions cannot be
reduced to a formula-like exercise-thoughtful analysis is essential
2. Sweeping industry and
competitive analyses need to done
every 1 to 3 years

The
The Basis
Basis for
for Good
Good
Strategic
Strategic Decisions
Decisions
Intuition + Analysis

Effective Strategic Decisions

1999 Prentice Hall

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