Académique Documents
Professionnel Documents
Culture Documents
1
Nature of Competition: Basic
concepts
Strategic Competitiveness
Achieved when a firm formulate & implements a
value-creating strategy
Strategy
Integrated and coordinated set of commitments
and actions designed to exploit core competencies
and gain a competitive advantage
Competitive Advantage (CA)
Implemented strategy that competitors are unable
to duplicate or find too costly to imitate
Above Average Returns
Returns in excess of what investor expects in
comparison to other investments with similar risk
2
Nature of Competition: Basic
concepts (Cont’d)
Risk
Investor’s uncertainty about economic
gains/losses resulting from a particular investment
Average Returns
Returns equal to what investor expects in
comparison to other investments with similar risk
Strategic Management Process (SMP)
Full set of commitments, decisions and actions
required for a firm to achieve strategic
competitiveness and earn above average returns
3
Company’s Business Model
Management’s model of how strategy will allow the
company to gain competitive advantage and
achieve above average returns
A business model encompasses how the company will:
Select its customers Deliver those goods and
Define and differentiate its services to the market
product offerings Organize activities within
Create value for its the company
customers Configure its resources
Acquire and keep Achieve and sustain a high
customers level of profitability
Produce goods or services Grow the business over
Lower costs time
4
Industrial
Organizational
(I/O) Model of
Above-Average
Returns (AAR)
5
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
Basic Premise – to explain the dominant
influence of the external environment on a
firm's strategic actions and performance
6
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
Underlying Assumptions
External environment imposes pressures and
constraints that determine the strategies resulting in
AAR
Most firms compete within a particular
industry/segment
Control similar strategically relevant resources
Pursue similar strategies in light of those resources
Resources for implementing strategies are highly
mobile across firms
Therefore any resource differences between firms will be
short-lived
Organizational decision makers are rational and
committed to acting in the firm's best interests, as
shown by their profit-maximizing behaviors
7
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
8
The
Resource-
Based
Model of
AAR
9
The Resource-Based Model of AAR (Cont’d)
10
The Resource-Based Model of AAR (Cont’d)
Resources
Inputs into a firm's production process
Includes capital equipment, employee skills, patents,
high-quality managers, financial condition, etc.
Basis for competitive advantage: When resources are
valuable, rare, costly to imitate and nonsubsitutable
Internal/firm-specific resources (N=3)
Physical
Things you can touch/feel = tangible
Human
People / employees
Organizational capital
Relative to the firm itself 11
The Resource-Based Model of AAR (Cont’d)
Capability
Capacity for a set of resources to perform a task or
activity in an integrative manner
Core Competency
A firm’s resources and capabilities that serve as
sources of competitive advantage over its rival
Summary
A firm has superior performance because of
Unique resources and capabilities, and the combination
makes them different, and better, than their competition –
driving the competitive advantage
12
The Five Steps of the
Strategic Management Process
Select the corporate mission and the major
corporate goals.
Analyze the external competitive environment to
identify opportunities and threats.
Analyze the organization’s internal environment to
identify its strengths and weaknesses.
Select strategies that:
Build on the organization’s strengths and correct its weaknesses
– in order to take advantage of external opportunities and
counter external threats
Are consistent with organization’s mission and major goals
Are congruent and constitute a viable business model
Implement the strategies.
13
Vision and Mission
Mission
Specifics business(es) in which firm intends to compete
and customers it intends to serve
More specific than the vision
Vision
Picture of what the firm wants to be
What the firm ultimately wants to achieve
An effective vision statement is the responsibility of the
leader who should work with others to form it
Foundation for the mission
14
The vision of Ford is “to become the world’s
leading consumer company for automotive
products and services.”
15
Values and Goals
The values of a company should state:
How managers and employees should conduct
themselves
How they should do business
What kind of organization they need to build to
help achieve the company’s mission
Organizational culture
The set of values, norms, and standards that control
how employees work to achieve an organization’s
mission and goals
A goal is a precise and measurable desired
future state that a company must realize if it is to
attain its vision or mission.
16
Emergent and Deliberate Strategies
Opportunity
General environment condition that, if exploited, helps a
company achieve strategic competitiveness
Threat
General environment condition that may hinder a
20
External Environment:
General, Industry and Competitor
Three External Environments include:
General
Industry
Competitor
21
External Environment:
General, Industry and Competitor (Cont’d)
22
The External Environment
23
External Environment:
General, Industry and Competitor (Cont’d)
Industry Environment
Set of factors directly influencing
A firm’s competitive actions/responses
Relates to Porter’s 5 Forces – see upcoming slides
Competitor analysis: gather and interpret competitor
information
Competitor Environment
Gives details about
A firm’s direct and indirect competitors
The competitive dynamics expected to impact a firm's
efforts to generate above-average returns
24
Industry Environment Analysis:
Defining an Industry
Industry
A group of companies offering products or services that are close
substitutes for each other and that satisfy the same basic customer
needs
Industry boundaries may change as customer needs evolve and
technology changes
Sector
A group of closely related industries
Market Segments
Distinct groups of customers within an industry
Can be differentiated from each other with distinct attributes and
specific demands
25
The Computer Sector: Industries
and Segments
26
The Five Forces of Competition Model
27
How the Five Forces Shape
Competition within an Industry
The stronger that each of these five forces is, the more
limited is the ability of established companies to raise
prices and earn greater profits within their industry.
A weak competitive force
may be viewed as an opportunity as it
allows company to earn greater profits
A strong competitive force
may be viewed as a threat as it depresses
industry profits
Strength of forces may change as
industry conditions change
28
Industry Environment Analysis (Cont’d)
Porter’s 5 Forces
1/5: New entrants
Can threaten market share of existing competitors
1: Barriers to entry
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Gov’t policy
2: Expected retaliation
29
Industry Environment Analysis (Cont’d)
Porter’s 5 Forces
2/5: Bargaining power of suppliers
They are powerful when …
1. Few large companies and more concentrated than the
industry to which they sell
2. No substitutes
3. Industry firms not significant customer to supplier gp
4. Supplier’s goods are critical to buyer’s success
5. High switching costs due to effectiveness of supplier’s
products
6. Threat of forward integration
30
Industry Environment Analysis (Cont’d)
Porter’s 5 Forces
3/5: Bargaining power of buyers
They are powerful when …
1. Purchase large portion of industry’s total output
2. Product sales accounts for significant seller annual revenue
3. Low switching costs (to other industry product)
4. Industry products are undifferentiated or standardized and
threat of backward integration
31
Industry Environment Analysis (Cont’d)
Porter’s 5 Forces
4/5: Threat of substitute products
Goods or services outside of given industry perform
same or similar functions (I.e., sugar vs. sugar
substitute such as NutraSweet)
5/5: Intensity of Rivalry Among Competitors
Numerous or equally balanced competitors
Slow industry growth
High fixed costs or high storage costs
Lack of differentiation or low switching costs
High strategic stakes
High exit barriers 32
Industry Environment Analysis (Cont’d)
Porter’s 5 Forces
5/5: Intensity of Rivalry Among Competitors
High exit barriers (Cont’d)
1. Specialized assets
2. Fixed costs of exit (i.e., labor agreements)
3. Strategic interrelationships (i.e., one business depends on
another)
4. Emotional barriers (i.e., loyalty to employees, etc.)
5. Government and social restrictions
33
Strategic Groups
Strategic Groups
Set of firms emphasizing similar strategic dimensions
to use a similar strategy
Implications
Because firms within a group compete (offer similar
products) rivalry can be intense – the greater the rivalry
the greater the threat to each firm’s profitability
Strengths of the 5 forces differs across strategic groups
The closer the strategic groups, in terms of strategy,
the greater the likelihood of rivalry.
34
Strategic Groups in the
Pharmaceutical Industry
35