Strategic Management Chapter 3

studying competitors' past behaviors and preferences provides...

a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace

only rarely are there more than _______ sf's for future competitive success.

five or six

The stronger the forces of competition, the...

harder it becomes for industry members to earn attractive profits.

not all positions on the map are equally attractive. two reasons account for why some positions can be more attractive than others:

industry driving forces may favor some strategic groups than others. competitive pressures may cause the profit potential of different strategic groups to vary.

As a rule, the stronger the collective impact of the five competitive forces, the...

lower the combined profitability of industry participants.

___________ buyers of an industry's product have equal degrees of bargaining power with sellers

not all

The dynamics of competition are...

not the same from one industry to another.

The macro-environment encompasses the broad environmental context in which a firm is situated and is comprised of six principal components:

political factors, economic conditions, sociocultural forces, technological factors, environmental factors, and legal/regulatory conditions.

PESTEL analysis can be used to assess the strategic relevance of the six principal components of the macro-environment:

political, economic, social, technological, environmental, and legal forces.

Key success factors (KSF) are...

the strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace.

Driving forces analysis has three steps:

1. Identifying the present driving forces, as only 3 to 4 factors qualify as real drivers of change. 2. Assessing whether the drivers of change are, individually or collectively, acting to make the industry more or less attractive. 3. Determining what strategy changes are needed to prepare for the impact of the driving forces.

The Six Components of the Macro-Environment Included in a PESTEL Analysis:

1.Political factors. 2.Economic conditions. 3.Technological factors. 4.Sociocultural factors. 5.Environmental forces. 6.Legal and regulatory factors.

distribution-related key success factors

A strong network of wholesale distributors/dealers Strong direct sales capabilities via the Internet and/or having company-owned retail outlets Ability to secure favorable display space on retailer shelves

Skills- and capability-related key success factors

A talented workforce (superior talent is important in professional services such as accounting and investment banking) National or global distribution capabilities Product innovation capabilities (important where rivals are racing to be first to market with new product attributes or performance features) Design expertise (important in fashion and apparel industries) Short delivery time capability Supply chain management capabilities Strong e-commerce capabilities—a user-friendly website and/or skills in using Internet applications to streamline internal operations

manufacturing-related key success factors

Ability to achieve scale economies and/or capture experience curve effects (important to achieving low production costs) Quality control know-how (important in industries where customers insist on product reliability) High utilization of fixed assets (important in capital-intensive/high fixed-cost industries) Access to attractive supplies of skilled labor High labor productivity (important for items with high labor content) Low-cost product design and engineering (reduces manufacturing costs) Ability to manufacture or assemble products that are customized to buyer specifications

The Five Competitive Forces Affecting Industry Attractiveness competitive pressures include:

Bargaining power of buyers. Substitute products of firms in other industries. Bargaining power of suppliers. The threat of new entrants into the market. Rivalry among competing sellers.

Factors that determine a firm's prospects for attractive future profits in its industry include:

Both the firm's and its industry's growth potential. Effects of internal industry competition. Effects of prevailing and future driving forces. The firm's competitive position in its industry vis-à-vis its rivals. The firm's competence in performing the industry's key success factors.

marketing-related key success factors

Breadth of product line and product selection A well-known and well-respected brand name Fast, accurate technical assistance Courteous, personalized customer service Accurate filling of buyer orders (few back orders or mistakes) Customer guarantees and warranties (important in mail-order and online retailing, big-ticket purchases, and new-product introductions) Clever advertising

common driving forces include:

Changes in the long-term industry growth rate. Increasing globalization. Emerging new Internet capabilities and applications. Changes in who buys the product and how they use it. Product innovation. Technological change and manufacturing process innovation. Marketing innovation. Entry or exit of major firms. Diffusion of technical know-how across more companies and more countries. Changes in cost and efficiency. Growing buyer preferences for differentiated products instead of a standardized commodity product (or for standardized products instead of strongly differentiated products). Regulatory influences and government policy changes. Changing societal concerns, attitudes, and lifestyles.

Question 5: What Strategic Moves Are Rivals Likely to Make Next? The Framework for Analysis of Rival Competitors points to four indictors of rival's likely strategic moves, including:

Current Strategy? - Rival's market position, competitive advantage basis, and its investments in infrastructure, technology, or other resources. Objectives? - Its performance on current financial and strategic objectives. Capabilities? - Its current set of capabilities and efforts to acquire new capabilities related to future strategic moves. Assumptions? - Views and beliefs of rival's top managers about their firm's strategic situation can strongly impact their future behaviors.

industry rivalry levels:

Cutthroat (Brutal) - Competitors engage in protracted price wars or employ other aggressive tactics mutually destructive to profitability. Fierce (Strong) - A vigorous market share battle reduces the profit margins of most industry rivals to bare-bones levels. Moderate (Normal) - Maneuvering among industry rivals, while lively and healthy, still allows most rivals to earn acceptable profits. Weak - Industry rivals satisfied with their sales growth and market share rarely undertake offensives against their competitors.

thinking strategically about a company's industry and competitive environment entails using some well-validated concepts and analytical tools to get clear answers to these seven questions:

Do macro-environmental factors and industry characteristics offer sellers opportunities for growth and attractive profits? What kinds and strengths of competitive forces are present in the industry? How will forces driving change in the industry impact its competitive intensity and profitability? Which rivals are strongly positioned in the market and which are not? What strategic moves are rivals likely to make next? What are the key factors of competitive success? Does the industry outlook offer good prospects for profitability?

_________ are the major underlying causes of change in industry and competitive conditions.

Driving forces

Technology-related key success factors

Expertise in a particular technology or in scientific research (important in pharmaceuticals, Internet applications, mobile communications, and most high-tech industries) Proven ability to improve production processes (important in industries where advancing technology opens the way for higher manufacturing efficiency and lower production costs)

Examples of Industry Key Success Factors:

Expertise in a particular technology. Scale economies. Experience curve benefits. High capacity utilization. Strong network of wholesale distributors. Brand-building skills. Convenient retail locations.

Procedure to Constructing a Strategic Group Map:

Identify the competitive characteristics of strategic approaches used in the industry - Typical variables: the price/quality range, geographic coverage, degree of vertical integration, product-line breadth, distribution channels, and degree of service offered. Plot firms on a two-variable map based upon their strategic approaches. Assign firms occupying the same map location to a common strategic group. Draw circles around each strategic group proportional to the size of the group's share of total industry sales revenues.

An industry is competitively unattractive when all five forces are producing strong competitive pressures. What does this include?

Internal rivalry among competitors is strong. Low entry barriers result in entry of new competitors. Competition from substitutes is intense. Suppliers and customers are in strong bargaining positions.

A Strategic Group

It is a cluster of industry rivals that have similar competitive approaches and market positions

Strategic Group Mapping

It is a useful technique for graphically displaying different market or competitive positions that rival firms occupy in the industry.

Two facets of the company's situation:

Its external environment— industry and competitive environments in which it operates. Its internal environment—the company's resources and organizational capabilities.

Other types of key success factors

Overall low costs (not just in manufacturing) to be able to meet low-price expectations of customers Convenient locations (important in many retailing businesses) Ability to provide fast, convenient, after-the-sale repairs and service A strong balance sheet and access to financial capital (important in newly emerging industries with high degrees of business risk and in capital-intensive industries) Patent protection

Question 1: What Are the Strategically Relevant Components of a Company's Macro-Environment? Relevant Factors...

Play a significant role in shaping management's decisions regarding the company's long-term direction, objectives, strategy, and business model. Are on the immediate inner ring industry and competitive environment of the company—competitive pressures, the actions of rivals firms, buyer behavior, supplier-related considerations, and so on.

When Is the Competitive Force of Rivalry Most Intense among Competing Sellers?

Rivals can boost market standing and business performance. Competitors are equal in size and capability. Market growth slows or declines and lower demand results in no growth opportunities, excess capacity and inventory. It has become less costly for buyers to switch brands. Products of rival sellers have become more standardized. Industry conditions tempt competitors to use price cuts or other competitive weapons to boost unit volume. Competitors are dissatisfied with their market position. Strong outside firms acquire weak firms in the industry and launch aggressive, well-funded moves to build market share.

What Are the Barriers to Entry?

Sizable economies of scale in production or other areas of operation. Cost and resource disadvantages not related to scale of operation. Strong brand preferences and customer loyalty. High capital requirements. Restrictive regulatory policies. Difficulties in building a network of distributors-retailers and securing space on retailers' shelves. Tariffs and international trade restrictions. Industry incumbents that can launch initiatives to block a successful entry.

Not all map positions are equally attractive. Explain.

Some groups are more favorably positioned because they confront weaker competitive forces. Industry driving forces favor some groups over others. Competitive pressures cause profit potential differences.

Whether seller-buyer relationships represent a minor or significant competitive force in limiting industry profitability depends on:

Some or many buyers having sufficient bargaining leverage to obtain price concessions and other favorable terms. The extent to which buyers are price sensitive.

KSFs include:

Specific product attributes. Necessary resources, competencies, and capabilities. Specific intangible assets. Competitive capabilities.

The strength of competitive pressures from the sellers of substitute products depends on whether:

Substitutes are readily available and attractively priced. Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes. The costs that buyers incur in switching to the substitutes are high or low.

The ideal competitive environment for earning superior profits occurs when:

Suppliers and customers are in weak bargaining positions. There are no good substitutes. High entry barriers deter entry of new competitors. Internal rivalry produces moderate competitive pressure.

Questions to Ask in Identifying Industry Key Success Factors:

Which crucial product attributes do industry buyers consider when choosing between competing sellers? Which resources and competitive capabilities must a company have to be competitively successful? Which shortcomings are certain to put a company at a significant competitive disadvantage to its rivals?

When Is the Competitive Force of Rivalry Among Competing Sellers Weak? The rivalry among industry competitors is usually weaker in industries where:

The products of industry rivals become more differentiated. Markets or market segments are expanding and fast-growing. Markets are comprised of vast numbers of small rivals; likewise, it is often weak when there are fewer than five competitors.

Industry suppliers can exert substantial bargaining power or leverage if:

The supplied item is not a commodity readily available from many suppliers. Industry members cannot switch their purchases to another supplier or switch to attractive substitutes. Certain required inputs are in short supply. Certain suppliers provide a differentiated item that enhances the desired performance, quality, or image of the industry's product.

Guidelines for Strategic Group Map Construction:

The variables used as map axes must not be highly correlated; if they are, the circles on the map will fall along a diagonal and strategy makes will learn nothing more about the relative positions of competitors than they would by considering just one of the variables Variables must reflect large differences in how rivals are positioned to offer customer value in their marketplace. Variables can be either quantitative or continuous; can be discrete variables or distinct classes and combinations. Draw circle sizes proportional to combined sales of each strategic group to show the relative sizes of each strategic group. Use various competitive variables as map axes, multiple maps can show different views of competitive positioning in the industry.

Buyers gain bargaining leverage when:

Their costs of switching to competing brands or substitutes are relatively low. Their large size allows them to demand concessions. They are few in number, control market access or, if a buyer-customer is particularly important to a seller. Weak buyer demand creates a "buyers' market." Buyers are well informed about products, prices, and costs. Buyers can integrate backward into the business of sellers.

The threat of entrants into the marketplace presents significant competitive pressure when:

There is a sizable pool of likely entry candidates. Potential entrants have ample entry resources at their command. Current industry participants are looking beyond their current markets for growth opportunities. When the industry is growing, offers attractive profit opportunities, and its barriers to entry are low.

Industry suppliers can exert substantial bargaining power or leverage when:

They provide specialized equipment or services that yield cost savings to industry members in conducting their operations. A large fraction of the costs of the buyer industry's product is accounted by the cost of a particular input. Industry members are not major or large customers of suppliers. It does not make good economic sense for industry members to vertically integrate backward.

the most extreme case of a "competitively unattractive" industry is when...

all five forces are producing strong competitive pressures

most driving forces originate in the...

company's more immediate industry and competitive environment

Some driving forces originate in the outer ring of the company's macro-environment but most originate in the...

company's more immediate industry and competitive environment.

a market is a...

competitive battlefield where there's no end to the campaign for buyer patronage

the degree to which an industry is attractive or unattractive is not the same for all industry participants and potential new entrants. The attractiveness of an industry depends on the...

degree of fit between a company's competitive capabilities and industry key success factors

the most powerful change agents are...

driving forces - the major underlying causes of change in industry competitive conditions, because they have the biggest influences in reshaping the industry landscape and altering competitive conditions

macro-environment components

economic conditions, sociocultural forces, technological factors, environmental forces, legal/regulatory factors, political factors

the strongest of the five competitive forces is nearly always the...

rivalry among competing sellers of a product or service

the best technique for revealing the market positions of industry competitors is...

strategic group mapping

The closer groups are to each other on the map, the...

stronger the cross-group rivalry. Firms in groups that are far apart hardly compete.

industry and competitive environment components:

suppliers, rival firms, new entrants, buyers, substitute products

types of industry key success factors include:

technology-related manufacturing-related distribution-related marketing-related skills-and capability-related other types

the two levels of a company's external environment are:

the broad outer ring macro-environment and immediate inner ring industry and competitive environment

the factors and forces in a company's external environment that have the biggest strategy-shaping impact typically pertain to...

the company's immediate inner ring industry and competitive environment-the competitive pressures Brough about by the actions of rival firms, the competitive effects of buyer behavior, supplier-related competitive considerations, the impact of new entrants to the industry, and availability of acceptable or superior substitutes for a company's products or services.

_________ is the most powerful and widely used tool for assessing the strength of the competitive forces that affect an industry's attractiveness.

the five-forces model of competition

companies in the same strategic group can resemble one another in any of several ways:

they may have comparable product-line breadth, sell in the same price/quality range, emphasize the same distribution channels, use essentially the same product attributes to appeal to similar types of buyers, depend on identical technological approaches, or offer buyers simian services and technical assistance.