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56 Cards in this Set

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Thinking strategically about a company's competitive environment entails using some well-defined concepts and analytical tools to get answers
1. economic features
2. competitive forces
3. driving forces
4. market position
5. strategic moves of rivals
6. key factors for success
7. outlook for industry
examples of economic features
1. market size and growth rate
2. scope of competetive rivavly
3. number of rivals
4. buyer needs
5. prod capacity
6. pace of tech change
7. verticle integration
8. product innovation
9. degree of product differentiation
10. economies of scale
11. learning and experience curve
Five force model of competition
1. rival sellers
2. new entrants
3. substitutes
4. supplier power
5. buyer power
strongest of the five force model
rival
what are driving forces
driving forces are those that have the biggest influence on what kinds of changes will take place in the industry's structure and competitive environment
common driving forces
1. internet growth
2. globalization
3. industry growth rate
4. who buys and how they use it
5. product innovation
6. tech change
7. market innovation
8. entry and exit of firms
9. diffusion of tech know how
10. changes in cost/efficency
11. buyer preferences
12. reduction in risk
13. regulations
14. social concerns, attitudes, lifestyles
strategic group mapping
analytical tool is useful for comparing the market positions of each firm separately or for grouping them into like positions when an industry has so many competitors.
strategic group
consists of those industry members with similar competitive approaches and positions in the market
key success factors
those competitive factors that most affect industry members' ability to prosper in the marketplace, strategy elements, attributes, resources.
types of ksf
1. tech related
2. manufactoring
3. distribution
4. marketing
5. skills and capability
6. other types
1) What’s the company’s present situation? (External/Internal)
- Industry/competitive environment in which the company operates and forces acting to reshape this environment
- Company’s own market position and competitiveness
- External +Internal = Strategic vision  Identify promising strategic options  Select best strategy and business model
2) Need a WINNING strategy that:
- Is an excellent fit with the company’s situation
- Capable of building a competitive advantage
- Holds good prospect for building company performance
I. STRATEGICALLY RELEVANT COMPONENTS OF A COMPANY’S EXTERNAL ENVIRONMENT
Macroenvironment

Immediate Industry & Competitive Environment
Macroenvironment
relevant factors and influences outside the company’s boundaries

1) General economic conditions
2) Legislation and regulations
3) Population demographics
4) Societal values and lifestyles
5) Technology
B. Immediate Industry & Competitive Environment
1) Suppliers
2) Substitute products
3) Buyers
4) New entrants
5) Rival firms
II. THINKING STRATEGICALLY ABOUT A COMPANY’S INDUSTRY & COMPETITIVE ENVIRONMENT
A. 7 Questions to answer:
1) What are the industry’s dominant economic features?
2) What kinds of competitive forces are industry members facing and how strong is each force?
3) What forces are driving industry change and what impacts will they have on competitive intensity and industry profitability?
4) What market positions to industry rivals occupy – who is strongly positioned and who is not?
5) What strategic moves are rivals likely to make next?
6) What are the key factors for future competitive success?
7) Does the outlook for the industry present the company with sufficiently attractive prospects for profitability?
III. QUESTION 1: What are the industry’s dominant economic features?
A. What to consider:
1) Market size and growth rate
2) # of rivals
3) Scope of competitive rivalry
4) # of buyers
5) Degree of product differentiation
6) Product innovation
7) Supply/demand conditions
8) Pace of technological change
9) Vertical integration
10) Economies of scale
11) Learning/experience curve effects
IV. QUESTION 2: What kinds of competitive forces are industry members facing?
A. Five Forces Model
1) Rival sellers
2) New entrants
3) Substitute products
4) Suppliers (and Supplier/Seller Collaboration)
5) Buyers (and Seller/BuyerCollaboration)
B. How to use the 5 Forces Model:
1) Step 1: Identify the specific competitive pressures associated with each of the five forces.
2) Step 2: Evaluate how strong the pressures comprising each of the five forces are (fierce, strong, moderate to normal, or weak)
3) Step 3: Determine whether the collective strength of the five competitive forces is conducive to earning high profits.
A. Weapons for Competing and Factors Affecting the Strength of Rivalry
a. Weapons
i. lower prices
ii. more or different features
iii. better product performance
iv. higher quality
v. stronger brand image and appearl
vi. wider selection of models and styles
vii. bigger/better dealer network
viii. low-interest-rate financing
ix. higher levels of advertising
x. stronger product innovation capabilities
xi. better customer service capabilities
xii. stronger capabilities to provide buyers with custom-made products
A. Weapons for Competing and Factors Affecting the Strength of Rivalry

b. Rival among competing sellers
i. How strong are the competitive pressures stemming from the efforts of rivals to gain better market positions, higher sales and market shares, and competitive advantages?
A. Weapons for Competing and Factors Affecting the Strength of Rivalry
i. Competitive sellers are active in making fresh moves to improve performance
ii. Buyer demand is growing slowly
iii. Buyer demand falls off and sellers find themselves with excess capacity/inventory
iv. The number or rivals increases and rivals are of roughly equal size and competitive capability
v. The products of rival sellers are commodities or else weakly differentiated
vi. Buyer costs to switch brands are low
vii. One or more rivals are dissatisfied with their current position and market share and make aggressive moves to attract more customers
viii. Rivals have diverse strategies and objectives and are located in different countries
ix. Outsiders have recently acquired weak competitors and are trying to turn them into major contenders.
x. One or two rivals have powerful strategies and other rival are scrambling to stay in the game.
A. Weapons for Competing and Factors Affecting the Strength of Rivalry

d. Rivalry is generally weaker when:
i. Industry members move only infrequently or in a nonaggressive manner to draw sales and market share away from rivals
ii. Buyer demand is growing rapidly
iii. The products of rival sellers are strongly differentiated and customer loyalty is high
iv. Buyer costs to switch brands are high
v. There are fewer than five sellers or else so many rival stat any one company’s actions have little direct impact on rivals’ business.
B. Factors Affecting the Strength of Threat of Entry
a. Entry Threats are Weaker When:
i. The pool of entry candidates is small
ii. Entry barriers are high
iii. Existing competitors are struggling to earn healthy profits
iv. The industry’s outlook is risky or uncertain
v. Buyer demand is growing slowly or is stagnant
vi. Industry members will strongly contest the efforts of new entrants to gain a market foothold
B. Factors Affecting the Strength of Threat of Entry

b. Entry Threats are stronger when:
i. The pool of entry candidates is large and some of the candidates have resources that would make them formidable market contenders.
ii. Entry barriers are low or can be readily hurdled by the likely entry candidates
iii. 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.
iv. Newcomers can expect to earn attractive profits
v. Buyer demand is growing rapidly
vi. Industry members are unable (or unwilling) to strongly contest the entry of newcomers.
C. Competitive Pressures from the Sellers of Substitute Products
a. Competitive pressures from substitute are weaker when:
i. Good substitutes are not readily available or don’t exist
ii. Substitutes are higher priced relative to the performance they deliver
iii. End users have high costs in switching to substitutes
C. Competitive Pressures from the Sellers of Substitute Products
b. Signs that Competition from Substitutes is strong:
i. Sales of substitutes are growing faster than sales of the industry being analyzed
ii. Producers of substitutes are moving to add new capacity
iii. Profits of the producers of substitutes are on the rise.
Competitive pressures from substitute are weaker when:
1. good substitutes are readily available or new ones are emerging
2. substitutes are attractively priced
3. substitutes have comparable or better performance features
4. end users have low costs in switching to substitutes
5. end users grow more comfortable with using substitutes.
D. Factors Affecting the Bargaining Power of Supplies
a. Supplier bargaining power is stronger when
i. Industry members incur high costs in switching their purchases to alternative suppliers
ii. Needed inputs are in short supply
iii. A supplier has a differentiated input that enhances the quality of performances of sellers’ products or is a valuable or crucial part of seller’s production process
iv. There are only a few suppliers of a particular input
v. Some suppliers threaten to integrate forward into the business of industry members and perhaps become a powerful rival.
D. Factors Affecting the Bargaining Power of Supplies

b. Supplier bargaining power is weaker when
i. The item being supplied is a commodity that is readily available from many suppliers at the going market price
ii. Seller switching costs to alternative suppliers are low
iii. Good substitute inputs exist or new ones emerge
iv. There is a surge in the availability of supplies
v. Industry members account for a big fraction of suppliers; total sales and continued high volume purchases are important to the well-being of suppliers.
vi. Industry members are a threat to integrate backward into the business of suppliers and to self0manufacture their own requirements
vii. Seller collaboration or partnering with selected suppliers provides attractive win-win opportunities.
E. Factors Affecting the Bargaining Power of Buyers
a. Supplier bargaining power is stronger when:
i. Industry members incur high costs in switching their purchases to alternative suppliers
ii. Needed inputs are in short supply
iii. There are only a few supplier of a particular input
iv. Some suppliers threaten to integrate forward into the business of industry members and perhaps become a powerful rival.
E. Factors Affecting the Bargaining Power of Buyers
a. b. Supplier bargaining power is weaker when:
i. the item being supplied is a commodity that is readily available from many suppliers at the going market price
ii. seller switching costs to alternative suppliers are low
iii. good substitute inputs exist or new ones emerge
iv. there is a surge in the availability of supplies
v. industry members account for a big fraction of suppliers’ total sales and continued high volume purchases are important to the well-being of suppliers
vi. industry members are a threat to integrate backward into the business of supplier and to self- manufacture their own requirements
vii. seller collaboration or partnering with selected suppliers provides attractive win-win opportunities.
F. Determining Whether the Collective Strength of the Five Competitive Forces Promotes Profitability
a. The next step is to evaluate the collective strength of the fives forces and determine whether the state of competition promotes profitability
b. As a rule the stronger the forces of competition, the harder it becomes for industry members to earn attractive profits.
c. a company’s strategy is increasingly effective the more it provides some insulation form competitive pressure and shifts the competitive battle in the company’s favor
d. Effectively matching a company’s strategy to the particular competitive pressures and competitive conditions that exist has two aspects
i. Pursuing actions to shield the firm
ii. Initiating actions to produce sustainable competitive advantage.
QUESTION 3: What factors are driving industry change and what impacts will they have?

A. The Concept of Driving Forces
a. Industry conditions change because important forces are driving industry participants (competitor, customers, or suppliers) to alter their actions
b. Driving Forces:
are the major underlying causes of changing industry and competitive conditions- some driving forces originate in the macroenvironment and some originate from within a company’s immediate industry and competitive environment.
B. Identifying an Industry’s Driving Forces
a. Growing use of the Internet
b. Globalization
c. Changes in long-term industry growth rate
d. Changes in who buys the product and how they use it
e. Product innovation
f. Technology change and manufacturing process innovation
g. Marketing innovation
h. Entry or edit of major firms
i. Diffusion of technically know-how across more companies and more countries
j. Changes in cost and efficiency
k. Growing buyer preferences for differentiated products instead of standardized commodity products
l. Reduction in uncertainty and business risk
m. Regulation and government policy changes
n. Changing societal concerns, attitudes, and lifestyles.
C. Assessing the Impact of the Driving Forces
The second phase of driving forces is to determine whether the driving forces are acting to make the industry environment more or less attractive. Three questions need to be answered here:
1. Are the driving forces causing demand for the industry’s product to increase or decrease?
2. Are the driving forces to make competition more or less intense?
3. Will the driving forces lead to higher or lower industry profitability?
D. The Link between Driving Forces and Strategy:
a. sounds analysis of an industry’s driving forces is a prerequisite to sound strategy making.
QUESTION 4: What market positions do rivals occupy – who is strongly positioned and who is not?

Strategic group mapping:
a technique for displaying the different market or competitive positions that rival firms occupy in the industry
Strategic group:
cluster of firms in an industry with similar competitive approaches and market positions.
The procedure for constructing a strategic group map is straightforward:
• Identify the competitive characteristics that differentiate firms in the industry
o Price/quality range
o Geographic coverage
o Degree of vertical integration
o Product-line breadth
o Use of distribution channels
o Degree of service offered
• Plot the firms on a two variable map using pairs of differentiating characteristics
• Assign firms that fall in about the same strategy space to the same strategic group
• Draw circles around each strategic group, making the circles proportional to the size of the group’s share of total industry sales revenues.
strategic group mapping guidelines
1. the two variables selected as axes for the map should not be highly correlated
2. the variables chosen as axes for the map should expose big differences in how rivals position themselves to compete in the marketplace.
4. the variables used as axes don’t have to be either quantitative or continuous, rather, they can be discrete variables or defined in terms of distinct classes and combinations.
5. drawing the sizes of circles on the map to reflect the relative sizes of each strategic group
6. if more than two good competitive variables can be drawn to give different exposures to the competitive positioning relationships present in the industry’s structure.
B. What Can Be Learned from Strategic Group Maps
1) One thing to look for in assessing rivals’ market positions to what extend industry driving forces and competitive pressures favor some strategic groups and hurt others
2) Driving forces and competitive pressures do not affect all strategic groups evenly. Profit prospects vary from group to group according to the relative attractiveness of their market positions
3) Another consideration is to hat extent the profit potential of different strategic groups varies due to the strengths and weakness in each group’s market position
4) The closer strategic groups are to each other on the map, the stronger the cross-group competitive rivalry tends to be.
VII. QUESTION 5: What strategic moves are rivals likely to make next?
• Competitive intelligence about rival’s strategies their latest actions and announcements, their resource strengths and weaknesses, the efforts being made to improve their situation, and the thinking and leadership styles of their executives in valuable for predicting or anticipating the strategic moves competitors are like to make next in the marketplace.
• Good scouting reports on rivals provide a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.
B. Identifying Competitors’ Strategies and Resource Strengths and Weaknesses
In sizing up the strategies of competition, it makes sense to make three assessments
1. which competitors has the best strategy? Which competitors appear to have flawed or weak strategies?
2. which competitors are poised to gain market share, and which ones seem destined to lose ground?
3. which competitors are likely to rank among the industry leaders five years from now? Do one or more up-and coming competitors have powerful strategies and sufficient resource capabilities to overtake the current leader.

Today’s market leaders don’t automatically become tomorrow’s.
C. Predicting Competitors’ Next Moves
Predicting the next strategic moves of competitors is the hardest yet most useful part of competitor analysis.

The moves a competitor is likely to make are generally predicated on the views their executives have about the industry’s future and the belief of the firm’s situation.
Other considerations in trying to predict what strategic moves rivals are likely to make include
• Which rivals badly need to increase unit sales and market share?
• Which rivals have a strong incentive, along with the resources, to make major strategic changes, perhaps moving to a different position on the strategic group map?
• Which rivals are good candidates to be acquired?
• Which rivals are likely to enter new geographic markets?
• Which rivals are strong candidates to expand their product offerings and enter new product segments where they do not currently have presence?

Managers who fail to study competitors closely risk being caught napping by the new strategic moves of rivals
VIII. QUESTION 6: What are the key factors for future competitive success?

Key Success Factors:
those competitive factors that most affect industry members ability to prosper in the marketplace
• the particular strategy elements
• product attributes
• resources
• competencies
• competitive capabilities
• market achievements that spell the difference between a strong competitor and a weak competitor
KSF's are important because...
KSFs are so important to future competitive success that all firms in the industry must be competent at performing or achieving them or risk becoming an industry also-ran.
The answers to three questions help identify an industry’s key success factors:
1. what attributes of competitor’s product offerings are crucial?
2. what resources and competitive capabilities does a company need to have to be competitively successful?
3. what shortcomings are almost certain to put a company at a significant competitive disadvantage?
Which factors are most important to future competitive success flow directly from:
• the industry’s dominant characteristics
• what competition is like
• the impacts of the driving forces
• the comparative market positions of industry members
• the likely next moves of key rivals
KSF things to remember
Only rarely are there more than 5-6 key factors for future competitive success.
-The goal of company strategists should be to design a strategy aimed at stacking up well on all the industry’s future KSFs and trying to be distinctively better than rivals on one (or possibly two) of the KSFs
-being distinctively better than rivals on one or two key success factors tend to translate into competitive advantage.
Common Types of Industry KSFs:
• technology related
• manufacturing related
• distribution related
• marketing related
• skills and capabilities-related
• other types
IX. QUESTION 7: Does the outlook for the industry present the company with an attractive opportunity?
to decide whether the outlook for the industry presents the company with sufficiently attractive prospects for profitability and growth. The important factors are

A. The industry’s growth potential
B. whether powerful competitive forces are squeezing industry profitability to subpar levels and whether competition appears destined to grow stronger or weaker
C. whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces.
D. the degree of risk and uncertainty in the industry’s future.
E. whether the industry as a whole confronts severe problems- regulatory or environmental issues, stagnating buyer demand, industry overcapacity, mounting competition.
F. the company’s competitive position in the industry compared to rivals.
G. the company’s potential to capitalize on the vulnerabilities of weaker rivals
H. whether the company has sufficient competitive strengths to defend against or counteract the factors that make the industry unattractive.
I. whether the continued participation in this industry adds importantly to the firms ability to be successful in other industries in which it may have business interests.
Outlook. General Proposition:
-If an industry’s overall profit prospects are above average, the industry environment is basically attractive
-If industry profit prospects are below average, conditions are unattractive.

-However, it is a mistake to think of a particular industry as being equally attractive or unattractive to all industry participants and potential entrants.
Attractiveness is relative, not absolute.

The degree to which an industry is attractive or unattractive= is not the same for all industry participants and all potential entrants; the opportunities an industry presents depends partly on a company’s ability to capture them.