MGMT 495- Ch3

strategic groups

strategic groups are: a set of companies that pursue a similar strategy in a specific industry. the strategic group model (framework): clustes different firms into groups and is based on key strategic dimensions

Rivalry among competitors

the intensity with which companies in teh same industry jocky for market share and profitability other 4 forces put pressure on this rivalry: the stronger the forces, the higher the intensity. Intensity determined by: 1. competitive industry structure 2. industry growth 3. strategic commitments 4. exit barriers

Threat of entry

the risk that potential competitors will enter an industry lowers industry profit potential: incumbents lower prices incombents spend more to satisfy existing customers entry barriers: obstacles blocking others from entering a significant predictor of industry profit potential.

strategic group

the set of companies that pursue a similar strategy within a specific industry

threat of substitutes is high when...

the substitute offers an attractive price-performance trade-off The buyer's cost of switching to the substitute is low

Legal factors

Official outcomes of political processes: laws, mandates, regulations, court decisions industry deregulations affect multiple industries: airlines, telecom, energy, and trucking governments can achieve desired outcomes: to buy zero-emission vehicles, the U.S. Government offers a $7,500 federal tax credit

network effect

the value of a product or service for an individual user increases with the number of total users. network effects describes the positive effect that one user of a product or service has on the value of that product or service for other users.

bargaining power of buyers is high when:

there are a few buyers & each buyer purchahses large quantitites the industrys products are standardized or undifferentiated commodities buyers face low or no switching costs buyers can backwardly integrate into the industry

shortcomings of models discussed

they are static: just a snapshot, but black swan events happen suddenly, information can become obsolete models dont explain why performance differences occur in an industry: internal analyssis is required

industry convergence

when unrealated industries satisfy the same need example: media industries progress in IT, telecommunications, digital media, has united computing, communications, content content providers are adapting: newspapers, magazines, TV movies, radio, music new forms of content media: amazons kindle apples iPad Googles chromebook

five forces model

The five forces determine the profit potential of an industry and shape a firm's competitive strategy: threat of new entrants bargaining power of buyers bargaining power of suppliers threat of substitute products or services rivalry among existing competitors

competitive industry structure

The number and size of its competitors the firms degree of pricing power the type of product or service (commodity or differentiated product) the height of entry barriers

strategic position

a firm's strategic profile, based on value creation and cost. the goal: generate a large gap between the value the firm's product or service creates and the cost required to produce it.

strategic group model

a framework that explains differences in firm performance within the same industry

industry analysis

a method to identify an industry's profit potential, derive implications for a firm's strategic position

Industry growth

affects intensity of rivalry among competitors during periods of high growth: consumer demand risies price competition among firms decrease ( they focus on capturing new customers, they are not focused on taking profitability away from each other) during periods of negative growth: rivalry is fierce rivals can only gain at the expense of one another

strategic commitments

affects intensity of rivalry among competitors firm actions that are: costly, long-term oriented, difficult to reverse example: airline industry hub and spoke model requires significant investment

exit barriers

affects intensity of rivalry among competitors obstacles that determine how easily a firm can leave that industry examples: contractual obligations emotional attachemnts

insights from strategic group mapping

competitive rivalry: strongest between firms in the same strategic group external environment: affects strategic groups differently five competitive forces: affect strategic groups differently profitablility: some strategic groups are more profitable than others

barganing power of suppliers is high when:

concenterated ( or limited) supplier industry suppliers not dependent on industry for majority of revenue incumbent firms face supplier switching costs suppliers offer differentiated products there are no supplier substitutes suppliers can forward-integrate into the industry

complement

considered the 6th force a product, service, or competency adds value when used with the origional product

industry consolidation

consolidated industries are more profitable mergers and acquisjtions make this possible: results in higher industry profitability example: U.S. Airline Industry Mergers delta and northwest united and continental southwest and airtran american and us airways

types of entry barriers

economies of scale network effects customer switching costs capital requirements advantages independent of size government policy credible threat of retaliation

Oligopoly

few (large) firms some pricing power differentiated product high entry barriers firms are interdependent resulting industry: firm actions often coordinated

industry

group of incumbent companies, relatively the same set of suppliers and buyers, tend to offer similar products and services

PESTEL model

groups enviornmental factors into six segments: Political Economic Sociocultural Technological Ecological Legal These factors can create: Opportunties & Threats

economic expansion

growth rates: businesses expand, are more profitable levels of emplooyment: unemployment is low interest rates: credit is cheap because interest rates are low price stability: rising prices result in inflation currency exchange rates: The dollar can appreciate

mobility barriers

industry-specific factors separate one strategic group from another

Economic factors

largely macro-economic examples: growth rates levels of employment interest rates price stability currency exchange rates

Monopolistic competition

many firms some pricing power differentiated product medium entry barriers resulting industry: niches are established

Perfect competition

many small firms firms are price takers offer commodity product low entry barriers resulting industry: profitability is typically low

Industry dynamics

models discussed are only a snapshot leaders need information about: changing speed of an industry rate of innovation industries aren't stable over time

entry bariers

obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential

Monopoly

one firm considerable pricing power unique product very high entry barriers resulting industry: profit extracted

4 main competitive industry structures

perfect competition monopolistic competition oligopoly monopoly

Power of suppliers

pressures that industry suppliers can exert on an industry's profit potential lowers industry profit potential if: suppliers demand higher prices for their inputs, suppliers reduce quality

Political factors

processes & actions of government bodies firms can shape this factor through Lobbying, public relations, contributions, litigation example: Tesla has a build-to order sales model, cuts out dealers, dealers are lobbying for new legislation

threat of substitutes

products or services outside an industry meeting the needs of current customers Examples: H&R Block vs. Turbo Tax Energy drinks vs. coffee e-mail vs. express mail wireless telephone vs. VOIP video conferencing vs. business travel

how do strategic groups differ from other strategic groups

r&d technology product differentiation product and service offerings pricing market segments distribution channels customer service

Sociocultural factors

societys cultures, norms and values are constantly in flux and differe across groups demographic trends present opportunities and threats. Population characteristics related to age, gender, family, size, ethnicity, sexual orientation, religion, and socioeconomic class.

how to apply the five forces model

1. define the relevant industry 2. identify the key forces-group them 3. identify the drivers of each force. -are they strong or weak? 4. assess overall industry structure -profit potential

analysis of the external environment is key to strategic management

1. first step: PESTEL Analysis - how external factors affect the industry 2. next step: Porter's five forces -the overall industry environement 3. final step: Draw a Strategic Group Map -explains performance differences in an industry

how to create a strategic group map

1. identify important strategic dimensions 2. choose two key dimensinons: for horizontal and vertical axes, not highly correlated 3. graph the firms in the strategic group: each firms market share indicated by the size of teh bubble

Technological Factors

Applicaiton of knowledge: to create new processes, to create new products innovations in process technology: lean manufacturing, six sigma quality, and biotechnology invoations in product technology: smartphones, computer tablets, and high-performing electric cars such as teh Tesla Model S

co-opetition

Co-opetition (co-operation among competitors) can create a positive -sum game, resulting ina larger pie for everyone involved. Complements increase demand for the primary product, enhancing the profit potential for the industry and the firm. Attractive industries for co-opetition are characterized by high entry barriers, low exit barriers, low buyer and supplier power, a low threat of substititues, and the availability of complements

Economic contraction

Growth rates: businesses retract, are less profitable levels of employment: unemployment is high interest rates: credit is expensive because interest rates are high. price stability: falling prices result in deflation currency exchange rates: the dollar can depreciate

Ecological Factors

Involve environmental issues, such as: natural environment, global warming, sustainable economic growth and also provide business opportunities.

Power of Buyers (customers)

Pressure customers put on an industry by demanding: a lower price or higher product quality

complementor

a company that provides a good or service that leads customers to value your firms offering more when the two are combined