3BA6

Computers and Society

Competition and Strategy

3BA6 Computers and Society

 Outline

• SWOT revisited
– Turning SWOT into strategy
• Porter’s 5 forces
– Linking the firm’s capabilities, SWOT and external
competitive forces

3BA6 Computers and Society

 SWOT Analysis
• A SWOT analysis is a method Strengths Weaknesses
for describing your business
(or your business proposition)
in terms of those factors that
have the most impact.
• The typical SWOT analysis is
done on a four-cell grid Opportunities Threats
• 3rd party perspective
important

3BA6 Computers and Society

 SWOT Scenarios
• “What if” questions should be presented and answered.
– This will demonstrate how the company will react or counter the
effects of an unexpected drop in sales or an increase in costs.
– The business plan should also detail potential exit strategies.
• SWOT provides focus on what is the competitive
advantage for the firm
– competitive advantage is what a firm does better than others in a
similar industry.
• SWOT analysis: strategic focus is on core competencies
– Based on assumption an effective strategy derives from a sound
“fit” between a firm’s internal resources and its external situation
– what a firm does that is Strategically Valuable

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 Turning SWOT into Business Strategy

• Strategy: determining a unique position for the firm

– the essence of strategy is choosing to perform activities
differently from rivals, rather than just more efficiently
• Activities are tailored to the strategy
– trade offs … strategy is also about what NOT to do
• Competitive Advantage comes from “fit” across the
activities
– matching resources and competencies with market opportunities
• Competitive Sustainability comes from integration across
the firm

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Strategic Opportunities

See Insigna & Werle (2000)

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 Competitive Forces

• Business strategy cannot exist in isolation

• Key Question:
– “What kind of factors can affect business strategy?”

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 Porter’s 5 Competitive Forces

Potential
Entrants
Barriers to entry Threat of new entrants
Bargaining power
Bargaining power of customers/ buyers
of suppliers
Industry Competitors

Suppliers Buyers

Rivalry Among
Existing Firms
Threat of substitute
products or services

Substitutes

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 Threat of Entry
• Seriousness of threat depends on
– Barriers to entry
– Reaction of existing firms
• Barriers to entry
– Economies of scale
– Product differentiation
– Capital requirements
– Cost advantages independent of size
– Access to distribution channels
– Government policy
• Reaction of firms
– How quickly do they respond?
– In what way do they respond?
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 Suppliers

• A supplier group is powerful if:

– It is dominated by a few companies and is more
concentrated than industry it sells to
– Its product is unique, or differentiated, or has built up
switching costs
– It is not obliged to contend with other products for
sale to industry
– It poses a threat of integrating forward into industry’s
business
– Industry is not an important customer of supplier
group

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 Buyers
• A buyer, or customer, group is powerful if:
– It is concentrated or purchases in large volume
– Products purchased from industry are standard or
undifferentiated
– Products purchased from industry form a component of its
product, representing a significant fraction of its cost
– It earns low profits, creating incentives to lower its costs
– Industry’s product is unimportant to quality of buyers’ products or
services
– Industry’s product does not save buyer money
– Buyer poses credible threat of integrating backward

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 Substitute Products

• Relevance of substitutes
– By placing a ceiling on prices charged, they limit profit
potential of an industry
• Substitutes deserving the most attention are
those
– Subject to trends improving their price-performance
trade-off with the industry’s product
– Produced by industries earning high profit

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 Jockeying For Position

• Tactics of competitive rivalry

– Price competition
– Product introduction
– Advertising slugfests

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 What Causes Intense Rivalry?

• Numerous competitors or they are roughly equal

in size and power
• Slow growth in industry
• Product lacks differentiation or switching costs
• High fixed costs or perishable product
• Capacity normally augmented in large
increments
• High exit barriers
• Rivals are diverse in strategies, origins, and
“personalities”
3BA6 Computers and Society
 Industry and Competitive Analysis

• Key questions at design stage:

Competitive
Firm Analysis Industry Analysis
Advantage

– What are the boundaries of the industry?

– What is the structure of the industry?
– Which firms are our competitors?
– What are the major determinants of competition?
– How can we get an advantage over the competition?

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 Resources
Competitive Advantage

Resources Capabilities Strategy Competitive

Advantage

People Organisational
Machinery Capabilities: Strategy is
Technology -Supplemental shaped
Land -Enabling by industry
Capital/finance -Core & competitive
Culture forces
Knowledge
Motivation
Etc…

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 References and Resources
• Essential:
– Porter, Michael E. (1979), “How Competitive Forces Shape
Strategy”, Harvard Business Review, Mar/Apr, 57(2), pp. 137-
145
• Further reading:
– Collis, D. J., & Montgomery, C. A. 1998. Creating corporate
advantage. Harvard Business Review, 76(3)
– Insinga, R.C. and Werle, M.J. (2000), "Linking Outsourcing to
Business Strategy", The Academy of Management Executive,
V.14 No.4, pp.58-70.
– Prahalad, C.K. and Hamel, Gary, “The Core Competence of the
Corporation”, Harvard Business Review, May-June 1990: 79-91

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 Business Plan Resources

• Core Reading
– Dollinger, M.J. (1999), “Entrepreneurship: strategies
and resources”, Prentice-Hall, New Jersey. Chpt. 5.
[intro to business plans: textbook in Trinity Library]
• Further Reading and Resources
– http://www.bplans.com
• samples and advice
– http://www.bgateway.com/upload/documents/Busines
s_Plan_Template.doc
• Template of a business plan

3BA6 Computers and Society

 Business Plan Resources (contd.)

• www.enterprise-ireland.ie
– general
• http://www.startups.co.uk/default.aspx
– click Business Planning, Business Plan Guidelines,
for steps to follow in drafting a plan
• http://www.bizhelp24.com/business_start_up/bu
siness_plan.htm
– example of a business plan
• http://www.anbusiness.com/business_advice/sta
rt_up_advice/take_first_steps.shtml
– advice on creating a business plan
3BA6 Computers and Society