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CHAP 4: Further topics in industry and competitive advantage

DOES INDUSTRY MATTER?


Other and unexplained: +++
Firms effects: ++
Industry effect: +
5 forces or 6? INTRODUCING COMPLEMENTS
COMPLEMENT: the suppliers of complements CREATE VALUE for the industry and
can exercise bargaining power. (e.g. FAST CHARGING STATIONS BMW)
PLATFORM-BASED COMPETITION
COMPLEMENTS: give RISE to PLATFORM-BASED COMPETITION especially in
the markets for digital products
PLATFORM: interface in a 2-sided market (e.g. a smartphone operating system (iOS)
links a market for smartphones to a market for applications)
The COMPLEMENTARY RELATIONSHIP gives rise to NETWORK EXTERNALITIES
that create a WINNER-TAKE-ALL MARKET.
i.e. in smartphones, developers write apps for the biggest selling smartphone
platform; consumers buy the smartphone platform with the most apps.
COMPETITION AS A DYNAMIC PROCESS
Porter framework assumes:
the industry structure drives COMPETITIVE BEHAVIOR
the industry structure is (fairly) stable
BUT, COMPETITION also CHANGES industry structure:
Schumpeterian Competition: a perennial gale of creative DESTRUCTION
markets leaders overthrown (vraincre) by innovation
HYPERCOMPETITION: intense and rapid competitive moves, continuously creating
NEW COMPETITIVE ADVANTAGE and DESTROYING EXISTING COMPETITIVE
ADVANTAGE.
Implication within 5-forces framework:
Industry structure competition
Implication under dynamic competition
Competitive strategy industry structure

THE CONTRIBUTION OF CAME THEORY TO COMPETITIVE ANALYSIS


DEF: Frames strategic decision as INTERACTIONS between competitors
- Predicts OUTCOMES (rsultats) of competitive situations (evenly-matched players)
- Provides key insights into the NATURE and DETEMINANTS of interactions among
competitors. Example:
- COMPETITION AND COOPERATION: GT can show conditions where
cooperation MORE ADVANTAGEOUS than competition.
- DETERRENCE: changing the PAYOFFS in the game in order to deter a
competitor from certain actions.
- COMMITMENT: irrevocable deployments of resources that give credibility
to threats.
- SIGNALING: communication to influence a competitors decision.
PROBLEMS with GAME THEORY
Able to explain past behaviors BUT weak in predicting future behaviors.
Lack of an integrated general theory
A FRAMEWORK OF COMPETITOR ANALYSIS

STRATEGY = how
is the firm
competing

OBJECTIVES =
competitor's
current goals

ASSUMPTION =
what assumptions
does the
competitor hold
about the
industry?

PREDICTIONS
= what strategy
changes will the
competitor
initiate?

R & C: what are


the competitor's
key strengths and
weaknesses?

SEGMENTATION ANALYSIS = the principal stages


1) IDENTIFY KEY VARIABLES and CATEGORES
a) Identify segmentation VARIABLES
b) Reduce to 2or 3 variables
c) Identify discrete CATEGORIES for each variable
2) Construct a SEGMENTATION MATRIX
3) ANALYZE SEGMENT ATTRACTIVENESS
4) Identify KEY SUCCESS FACTORS in each segment

5) Analyze BENEFITS of broad v. narrow scope


a) Potential for economies of scope across segments
b) Similarity of KSFs
c) Differentiation benefits of segment focus
CUSTOMER AND PRODUCT CHARACTERISTICS AS SEGMENTATION
VARIABLES

SEGMENTATING
REGIONS/ PRODUCTS (SPREADSHEET)
SHARE OF INDUSTRY REVENUES (%)/ OPERATING MARGIN (%) (BAR
CHARTS)

STRATEGIC GROUP ANALYSIS


DEF: A strategic group is a group of firms in an industry that FOLLOW the SAME or
SIMILAR STRATEGIES.
Identifying strategic groups:
1) Identify principal STRATEGIC VARIABLES, which distinguish firms
2) POSITION each firm in RELATION TO THESE VARIABLES
3) IDENTIFY CLUSTERS (groupe)

SUMMARY
-

The suppliers of components a major influence on industry profitability and


give the rise to platform-based competition and winner-take-all markets.
The Porter 5-forces fails to address the dynamics of RIVALRY, notably the
tendency for competitive strategy to TRANSFORM industry structures.
GAME THEORY and COMPETITOR ANALYSIS offer 2 approaches to
analyzing the interactions among competition firms
SEGMENTATION ANALYSIS and STRATEGIC GROUP permit a more
detailed understanding of industries and a more precise approach to strategic
positioning.