Vous êtes sur la page 1sur 47

The secret of success in competition lies often not so

much in the use of one's own strength but in the


exploitation of the other side's weaknesses.

MGT612
Strategic Management

Krishan Gopal
2

LEARNING OBJECTIVES

Understand the importance of the external context


for strategy and firm performance

Identify the major features of an industry and the


forces that affect industry profitability

Understand the dynamic characteristics of the


external context

The Industrial organization view (I/O view)

External factors are more important than internal factors in a firm achieving competitive advantage.

COMPONENTS OF THE GENERAL ENVIRONMENT

Economic

Demographic

Sociocultural
Industry
Environment

Competitive
Environment
Political/
Legal

Global

Technological

THE EXTERNAL ENVIRONMENT OF THE ORGANIZATION

Macro Environment
Political, Economic, Sociocultural,
Technological, Environmental, Legal
Industry Environment
Strategic Group

The Organization

The Industrial organization view (I/O view)

External factors are more important than internal factors in a firm achieving competitive advantage.

FORMS OF COMETITION

Generic Competition
Form Competition
Industry Competition
Brand Competition

INDUSTRY FRAGMENTATION AND CONCENTRATION

Monopoly

Duopoly

Fragmented

10

KEY QUESTION TO ASK

What macro environmental


conditions will have a material
effect on our ability to implement
our strategy successfully?

How stable are these


characteristics?

What is our
firms industry?

What are the


characteristics of the
industry?

11

FIVE-FORCES ANALYSIS

1. The five forces are environmental forces that impact on a


companys ability to compete in a given market.

2. The purpose of five-forces analysis is to diagnose the


principal competitive pressures in a market and assess
how strong and important each one is.

PORTERS FIVE FORCES MODEL OF COMPETITION

Threat of
Threat
Newof New
Entrants
Entrants

THREAT OF NEW ENTRANTS

Economies of Scale

Barriers to
Entry

Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Government Policy
Expected Retaliation

PORTERS FIVE FORCES MODEL OF COMPETITION

Threat of
Threat
Newof New
Entrants
Entrants

Bargaining
Power of
Suppliers

BARGAINING POWER OF SUPPLIERS


Suppliers are likely to be powerful if:

Suppliers exert power


in the industry
by:
* Threatening to raise
prices or to reduce quality
Powerful suppliers
can squeeze industry
profitability if firms are
unable to recover cost
increases

Supplier industry is dominated by a few firms


Suppliers products have few substitutes
Buyer is not an important customer to supplier
Suppliers product is an important input to
buyers product
Suppliers products are differentiated
Suppliers products have high switching costs

Supplier poses credible threat of forward


integration

SUPPLIER POWER

Diamond supply
Percent

Others

Diamond
Retailers

50
When firms in the supply
industry can dictate
terms, they can extract
greater profits

DeBeers

50

19

Case for next lecture

The Oil and Gas Industry, Strategic Management: Formulation, Implementation and Control, Pearce,
Robinson & Mittal pg 539

21

PORTERS FIVE FORCES MODEL OF COMPETITION

Threat of
Threat
Newof New
Entrants
Entrants

Bargaining
Power of
Suppliers

Bargaining
Power of
Buyers

BARGAINING POWER OF BUYERS


Buyer groups are likely to be powerful if:
Buyers are concentrated or purchases are large
relative to sellers sales

Buyers compete with the


supplying industry by:

Purchase accounts for a significant fraction of


suppliers sales
Products are undifferentiated
Buyers face few switching costs
Buyers industry earns low profits
Buyer presents a credible threat of backward
integration
Product unimportant to quality
Buyer has full information

* Bargaining down prices


* Forcing higher quality

BUYER POWER

ILLUSTRATIVE

Industry A
Suppliers

Profits

Buyers

Industry B
Suppliers

Profits

Buyers

In industries
characterized with
many suppliers
and few buyers,
buyers often
capture a greater
share of profits

25

PORTERS FIVE FORCES MODEL OF COMPETITION


Threat of
Threat
Newof New
Entrants
Entrants

Bargaining
Power of
Suppliers

Bargaining
Power of
Buyers

Threat of
Substitute
Products

THREAT OF SUBSTITUTE PRODUCTS

Keys to evaluate substitute products:


Products with
similar function
limit the prices
firms can charge

Products with improving


price/performance tradeoffs relative to
present industry products

Example:
Electronic security systems in place of
security guards
Fax machines in place of overnight mail
delivery

THREAT OF SUBSTITUTES
Soft drinks

Movie rentals
Block buster

Coke

Pepsi

Cable TV

Bottled water

Hollywood video

28

CAUSES OF RIVARLY
Barriers to Entry

Barriers to Exit
In addition to entry
and exit barriers,
many factors drive
rivalry

History of price wars


Level of fixed costs
Industry
concentration

Strong brands
Proprietary technology
Start-up costs
Etc.,

Market growth
Few other opportunities
Sunk investments
Etc.,

Etc.

29

PORTERS FIVE FORCES MODEL OF COMPETITION

Threat of
Threat
Newof New
Entrants
Entrants

Bargaining
Power of
Suppliers

Rivalry Among
Competing Firms in
Industry

Threat of
Substitute
Products

Bargaining
Power of
Buyers

RIVALRY AMONG EXISTING COMPETITORS

Intense rivalry often plays out in the following ways:


Jockeying for strategic position
Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions

Occurs when a firm is pressured or sees an opportunity


Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but may be costly to
smaller competitors

RIVALRY AMONG EXISTING COMPETITORS

Cutthroat competition is more likely to occur when:


Numerous or equally balanced competitors
Slow growth industry
High fixed costs
Lack of differentiation or switching costs
Diverse competitors
High strategic stakes
High exit barriers

Activity

Ajay is deciding whether to switch career and become a farmer he's always loved the countryside,
and wants to switch to a career where he's his own boss. Create five force analysis of the situation

35

36

Conclusion
The threat of new entry is quite high: if anyone looks as if they're

making a sustained profit, new competitors can come into the


industry easily, reducing profits.
Competitive rivalry is extremely high: if someone raises prices,
they'll be quickly undercut. Intense competition puts strong
downward pressure on prices.
Buyer Power is strong, again implying strong downward pressure
on prices.
There is some threat of substitution.
Unless he is able to find some way of changing this situation, this
looks like a very tough industry to survive in. Maybe he'll need to
specialize in a sector of the market that's protected from some of
these forces, or find a related business that's in a stronger position.
37

Copyright 2007 Prentice Hall

Industry Analysis: The External Factor


Evaluation (EFE) Matrix
Summarize & Evaluate
Economic
Social
Cultural

Government
Demographic
al
Environmenta Technologic
l
al
Political

Competitive

Ch 3 -38

Copyright 2007 Prentice Hall

Ch 3 -39

Copyright 2007 Prentice Hall

Ch 3 -40

Copyright 2007 Prentice Hall

Industry Analysis EFE


Total weighted score of 4.0

Organization response is outstanding to threats and


weaknesses

Total weighted score of 1.0

Firms strategies not capitalizing on opportunities


or avoiding threats

Ch 3 -41

Copyright 2007 Prentice Hall

Industry Analysis EFE

Important --

Understanding the factors used in the EFE


Matrix is more important than the actual
weights and ratings assigned.

Ch 3 -42

Copyright 2007 Prentice Hall

Industry Analysis: Competitive Profile


Matrix (CPM)

Identifies firms major competitors and


their strengths & weaknesses in
relation to a sample firms strategic
positions

Ch 3 -43

Copyright 2007 Prentice Hall

Gateway

Apple

Dell

Wt

Rating

Wtd
Score

Rating

Wtd
Score

Rating

Wtd
Score

Market share

0.15

0.45

0.30

0.60

Inventory sys

0.08

0.16

0.16

0.32

Fin position

0.10

0.20

0.30

0.30

Prod. Quality

0.08

0.24

0.32

0.24

Cons. Loyalty

0.02

0.06

0.06

0.08

Sales Distr

0.10

0.30

0.20

0.30

Global Exp.

0.15

0.45

0.30

0.60

Org. Structure

0.05

0.15

0.15

0.15

CSFs

Ch 3 -44

Copyright 2007 Prentice Hall

Gateway

Apple

Dell

CSFs (contd)

Wt

Rating

Wtd
Score

Rating

Wtd
Score

Rating

Wtd
Score

Prod. Capacity

0.04

0.12

0.12

0.12

E-commerce

0.10

0.30

0.30

0.30

Customer Serv

0.10

0.30

0.20

0.40

Price competitive

0.02

0.08

0.02

0.06

Mgt. experience

0.01

0.02

0.04

0.02

Total

1.00

2.83

2.47

3.49

Ch 3 -45

Copyright 2007 Prentice Hall

Industry Analysis CPM

Important --

Just because one firm receives a 3.2 rating


and another receives a 2.8 rating, it does not
follow that the first firm is 20 percent better
than the second.

Ch 3 -46

THANK YOU

KRISHAN GOPAL
47