Structural Analysis Within Industries
On the horns of dilemma » Why does the performance of firms in the same industry differ ? » Why are some firms persistently more profitable ? » How does it relate to strategic posture of firms ? » How to select a competitive strategy ?
Dimensions » » » » » »
Specialization Brand Identification Pull v/s Push Channel Selection Quality Technological Leadership
Dimensions (continue…) » » » » » » »
Vertical Integration Cost Position Service Price Policy Leverage Relationship With Parent Company Relationship to Home and Host Government
Structural Analysis
Step : 1 Characterize all the strategies along various dimensions
Strategic Groups » They exists due to various reasons like ... » Once formed, firms in the same group resembles to one another closely » MUST include firm’s relationship to its parent » CAUTION: what degree of strategic difference is important » All five forces wont have equal impact on different groups
Drawing Strategic Group Map » » » »
Identify two important competitive dimensions Plot the firms on the two-variable map Draw circles around the firms that are clustered together Indicate potential movement of firms with arrows
Possible Axes High High
Market penetration Brand image Low Low
Specialty focus
Broad range
Low cost focus
Product line mix Direct mail
Retail stores
Distribution channels
Online
High
Product price Low Broad
Narrow
Strategic focus differentiation
Group A
Full Line
Full line, vertically integrated low manufacturing costs, low service, moderate quality
Specialization
Group C
Narrow Line
Moderate line, assembler medium price, very high customer service, low quality, low price Group B Narrow line, assembler,high price, high tech, high quality
Group D Narrow line, highly automated, low price, low service
High Vertical Integration
Assembler
Vertical Integration
Structural Analysis
Step : 2 Access the height and composition of mobility barriers protecting each group
Mobility Barriers » Factors that deter the movement of firms from one strategic position to another – e.g. scale economies, switching cost …
» » » »
Depends on strategic group that the entrant seeks to join Prevents quick imitation of successful strategy No exhaustive list of mobility barriers AGAIN Don’t forget the parent
Structural Analysis
Step : 3 Access the relative bargaining power of each strategic group
Bargaining Power » Different degree of bargaining with Customers/ Suppliers prevails in different groups » Two sets of customers or suppliers – Common Suppliers/ Customers – Group Specific Suppliers/ Customers
» The extent to which relative power can vary depends on the industry
Structural Analysis
Step : 4 Access the relative power of each strategic group vis-à-vis substitute products
Threat of Substitutes » Groups may face differing levels of exposure to competition from substitutes – e.g. Computer vendor selling computers for home users is less vulnerable from Computers produced for developers by some other vendor
Structural Analysis
Step : 5 Access the pattern of market interdependence among strategic groups
Rivalry Among Firms » Forces of rivalry are not faced equally by all firms in the industry » Greater diversity implies – Difficult to understand one another’s intentions and reactions – Increased likelihood of repeated outbreaks – Higher the force of rivalry
» Hence process of competitive rivalry is not symmetrical
Rivalry Among Firms » Factors determining the pattern of rivalry: – – – –
Market Interdependence Product Differentiation Number of Strategic Groups and their relative sizes Strategic Distance among groups
» Strategic Distance refers to the degree to which strategies in groups diverge
Determinants of Firm’s Profitability 1. 2. 3. 4. 5. 6. 7.
Mobility barriers protecting the strategic group Position of strategic group within industry Position of firm within strategic group Scale of strategic group Cost of Entry Time of Entry Firm’s Implementation Ability
Strategy Group & Cost Position » Low cost position overall v/s that within the strategic group » Requires sacrifice in a other area of a strategy » Difference between cost in strategic group and those of low cost strategic group is crucial » Relative cost position among group is a key variable
Strategic Opportunities 1. 2. 3. 4. 5.
Create a strategic group Shift to a more favorably situated strategic group Strengthen the structural position of the existing group Strengthen the firm’s position in the group Shift to a new group and strengthen that group’s structural position
“Strategy is a choice on how to compete” - Michael Porter
Thank you …