LEARNING DIARY – 2

By: Abhinav Aggarwal, 17P062, Section – B

Pre mid-term we studied the strategic analysis of the company which comprised of the internal
and external analysis.
The external analysis of the industry is done using the model of Porter’s 5 forces.

Each of these forces is governed by many other factors which contributes in deciding the
attractiveness of the industry.
1) Threat of new Entry: This force is governed by the following factors:
a. Supply-side economies of scale
b. Demand-side benefits of scale
c. Customer switching costs
d. Capital requirements
 e. Incumbency advantages independent of size
f. Unequal access to distribution channels
g. Restrictive government policy

2) Bargaining power of suppliers: This force is governed by the following factors:

a. Number of suppliers
b. Availability of substitutes
c. Switching Cost
d. Suppliers’ Threat of Forward Integration
e. Industry’s Threat of Backward Integration
f. Contribution to Quality
g. Contribution to Cost
h. Industry’s Importance to Supplier

3) Bargaining power of buyers: This force is governed by the following factors:

a. Number of buyers
b. Availability of substitutes
c. Switching Cost
d. Buyers’ Threat of Backward Integration
e. Industry’s Threat of Forward Integration
f. Contribution to Quality
g. Contribution to Cost
h. Buyers’ Profitability

4) The Threat of Substitutes

a. Availability of close substitutes
b. Switching Cost
c. Substitutes’ Price Value
d. Profitability of Producers of Substitutes

5) 1) The Threat of Rivalry

a. Number of competitors
b. Industry Growth
c. Fixed Costs/ Storage Costs
d. Differentiation
e. Switching Costs
f. Openness of terms of sale
g. Excess Capacity
h. Strategic Stakes
 2) The Threat of Rivalry: Barriers to Exit
a. Asset Specialization
b. Fixed Cost of Exit
c. Government Restrictions
The internal analysis includes Value Chain Analysis and the VRIO framework.
Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to
recognize, which activities are the most valuable (i.e. are the source of cost or differentiation
advantage) to the firm and which ones could be improved to provide competitive advantage.

Using the tool there are 2 types of competitive advantages.

Cost Advantage: This approach is used when organizations try to compete on costs and want to
understand the sources of their cost advantage or disadvantage and what factors drive those
costs.

 Step 1. Identify the firm’s primary and support activities

 Step 2. Establish the relative importance of each activity in the total cost of the product
 Step 3. Identify cost drivers for each activity
 Step 4. Identify links between activities
 Step 5. Identify opportunities for reducing costs

Differentiation Advantage: The firms that strive to create superior products or services use
differentiation advantage approach
  Step 1. Identify the customers’ value-creating activities.
 Step 2. Evaluate the differentiation strategies for improving customer value.
 Step 3. Identify the best sustainable differentiation.

VRIO Analysis

VRIO analysis stands for four questions that ask if a resource is: valuable? rare? costly to
imitate? And is a firm organized to capture the value of the resources? A resource or capability
that meets all four requirements can bring sustained competitive advantage for the company.

We then discussed a paper on Strategies for Two sided markets. In traditional markets value
chain, the value moves from left to right, to the left of the company is Cost and to the right is the
revenue. But in case of two sided markets the cost and revenues are on both the sides.
In two-sided market strategies we studied the network effects and how they are important in
achieving the scales. We also discussed the various challenges we face while devising the strategy
for two sided markets.
These challenges are
1. Pricing the platform
2. Winner takes all dynamics and
3. The threat of envelopment.
In two sided markets there is a money side and a subsidy side. If we provide subsidy to one of
the sides and increase their presence on the platform then due to positive cross side network
effect the money side numbers increase which then can be monetized. Hence it is important to
determine which side to subsidize and which side to monetize.
In the last class we discussed Porter’s 6th force which is the Complementors
Complementors are companies or entities that sell or offer goods or services that are compatible
with, or complementary to, the goods or services produced and sold in a given industry. The
presence of the sixth force of Porter, complementors, can benefit or hurt the firms competing in
an industry, depending on the circumstances. If business is booming for the complementors, then
this could positively affect the business of the firms in the given industry. On the other hand,
if business is slow for the complementors, this could adversely affect the business of the firms in
the given industry. So, complementors and complementary goods do not necessarily increase or
decrease the competitiveness of an industry, they merely add another layer to the structural
complexity of the competitive environment.
Eg: tourism and the airline industry, PC and the Operating System industry.
We also discussed about the Blue Ocean Strategy and the Red Ocean Strategy. The major
differences between the 2 are summarized as follows:
We also studied the Value Curve Analysis.

Reduce: What factors should be reduced well below industry standards

Eliminate: What factors should be eliminated that industry takes for guaranteed

Create: What factors should be created that industry has never offered

Raise: What factors should be raised well above industry standard

Reduce

New
Eliminate Value Create
Curve

Raise