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“Get the tools,break the rules,make a difference”:A conceptual map of the courseDefinition and Dynamics of Strategy1.What is strategy?2.How can you be sure you are asking the“right”strategy questions?3.How strategy develops:Context,Role-playing,Mental models,and MetaphorsStrategy Content4.Competitive Forces in an Industry 5.Industry Evolution 6.Valuing Firm Resources 7.Capabilities for positioning Strategy in Action8.Implementing Strategy 9.Institutional strategy:Can strategy make a difference?Strategic ManagementSession 4Industry AnalysisIndustry AnalysisnLast time we said that to develop our strategy further we need to know our competitive environment.Knowing this we can establish:nWhat do we need to do to shape the future action of competitors and other industry players?nHow should we respond to the actions of competitors and other industry players?The source of profitability is evolving and so is the role of the managerWhat factors explain these changes?Sustaining competitive advantage appears to be difficultTop Ten U.S Traded Companies by Market Value 1.GE$494b 2.Cisco$447b 3.Intel$426b 4.Microsoft$362b 5.Walmart$307b 6.Nokia$271b 7.Exxon-Mobil$270b 8.Lucent$228b 9.IBM$196b10.Citigroup$187b 1.IBM$37.6b 2.AT&T$36.6b 3.Exxon$24.2b 4.General Motors$14.5b 5.Schlumberger$11.9b 6.Amoco$11.8b 7.Mobil$11.7b 8.GE$11.5b 9.Sohio$10.8b10.Chevron$9.6b1980 1.Exxon$62.5b 2.GE$58.4b 3.IBM$54.1b 4.AT&T$48.9b 5.Philip Morris$38.7b 6.Merck$30.6b 7.Bristol-Myers Squibb$29.4b 8.Dupont$28.1b 9.Amoco$27.9b10.Bell South$27.9b19902000Source:Jeffrey WilliamsThen why are some industries able to sustain higher prices?What drives profitability?A:Intensity of competition in an industry which,in turn,is determined by the structure of the industryAveragePharma.Why are some industries consistently more profitable than others?nBecause firms in these industries consistently face less intense competition What explains profitability variation?41943100232Business unit effectsCorporate parent effectsIndustry effectsYear effectsNot explained by modelTOTALEstimates by McGahan&Porter1545n/a1002Estimates by Rumelt38From Environmental Analysis to From Environmental Analysis to Industry AnalysisIndustry AnalysisTHE INDUSTRYENVIRONMENT Suppliers Competitors CustomersSocial structureThe Industry Environment lies at the core of the Macro Environment.The national/The national/international international economyeconomyTechnologyTechnologyGovernmentGovernmentThe natural The natural environmentenvironmentDemographic Demographic structurestructureSocial structureSocial structureThe Spectrum of Industry StructuresConcentrationEntry and ExitBarriersProductDifferentiationInformationPerfect CompetitionOligopolyDuopolyMonopolyMany firmsA few firmsTwo firmsOne firmNo barriersSignificant barriersHigh barriersHomogeneousProductPotential for product differentiationPerfectInformation flowImperfect availability of informationA structural(5 forces)industry analysis reveals:nWhether the industry is attractivenThe dimensions along which firms competenWhat structural variables affect competitionnWhether individual or collective strategies can reduce the intensity of competitionnWhat kinds of exogenous forces can affect the structure of the industryDrawbacks of 5 forces analysis:nIt only offers a static picture.Does not explain why the industry evolved the way it did and how it will evolve in the future.nIt does not highlight the role of:ntechnology(e.g.the effect of fabric technologies on Italian fashion),andnregulation(e.g.the effect of country policies about global warming on renewable energy).5 forces can explain why industries changeIndustries in transitionnUS Banking in the 90snCiticorp&TravelersnBankAmerica&NationsBanknFirst Union&CoreStatesnBanc One&First Chicago NBDnAutomobilenFiats attempts at mergernVolkswagennTelecommunicationsnVodaphone&DoCoMo vs.WorldComnPublishingnBertelsmann&NapsternBarnesandN&BertelsmannBecause.nRelevant industry is financial servicesnBanks vs.mutual funds share of household financial assets:n90%vs.10%in 1980n55%vs.44%in 1997nEconomies of scale in New Product DevelopmentnInnovations in cellular moditization in long-distancenNeed to increase market power re:distributorsnMarket power re:publishersU.S.Soft Drink IndustryHighlights,mid-1980snRising international salesnHighly and increasingly concentratednTop 2 firms gaining market share at the expense ofremaining firmsnMore new product introductions and advertisingnIncreasing price competitionnTurnover in ownership of all larger companies except Coca-Cola and PepsinBottlers role important for concentrate producerThe U.S.Soft Drink Industry in the mid-80sSuppliers:Sweeteners,ContainersRivals:Concentrate ProducersPotential Entrants:TakeoversPotential substitutes:other beveragesBuyers:Bottlers,Stores,OtherIndustryStrategic challenges Identify and segment competitive groups Analyze rivalry within and across such groups Identify the focus(e.g.,price,quality,service,innovation,features),nature,and intensity of rivalryCompetitorCompetitorCompetitorCompetitorCompetitorCompetitorRivalry among existing competitorsWhat is the nature,intensity,and focus of rivalry within an industry?nCompetitors can focus on multiple factorsnPrice,quality,service,features,innovation,etc.nIntensity of rivalry can vary within and across competitor groupsnIndustry growth ratesnCorporate stakes(e.g.,strategic businesses)nExit barriers(e.g.,specialized assets)nFixed costs(e.g.,capacity increments)nLack of product differentiationnSwitching costsRivalrynTwo dominant playersnStrong demand for soft drinks,especially among junior age groupsnProduct innovationnAdvertising important and substantialStrategic challenges Identify,build and exploit barriers to entry to minimize competitionFirmBIndustryPotentialEntrantsPotentialEntrantsFirmAFirmCBarriers to entryBarriers to entryWhat factors keep potential competitors out?nScale economiesne.g.,aerospace industrynScope economiesne.g.,retailingnCapital requirementsne.g.,aerospace industrynProprietary technologiesne.g.,pharmaceuticalsnBrand(product)differentiationne.g.,perfumenSwitching costsne.g.,MSDOS operating systemnAccess to distributionne.g.,Campbell soupnEntry deterring regulationsPotential EntrantsnHigh capital expenditures in advertisingnEconomies of scale in marketing,distribution,and maybe productionnHigh product differentiationnLimited access to distribution channelsnIncumbents have the resources to retaliate against potential entrantsStrategic challenges:Understand the functionality of products and services to customers Identify benefits and/or advantages of potential substitutes Incorporate the benefits of substitutes or provide better price or performance featuresFirmAIndustryCustomersFirmDFirmCFirmBThreat of substitutesWhat alternatives are available to customers?nCompetitors can emerge from within or outside an industrynAnalyze potential competitors from customer perspectivenLook beyond current industry structuren“Substitutes”can:nprovide the same functionalityndiesel vs gas enginesnDirecTV vs cableneliminate the need for a productnwater meters vs flat rateSubstitutesnLow likelihood of substitution given rising share of soft drinks relative to other beveragesStrategic Challenges Identify critical inputs and analyze suppliers or supplier groups Analyze industry of critical suppliers Identify degree and nature of supplier powerSuppliersSuppliersSuppliersSuppliersSuppliersSuppliersIndustrySupplier powerHow can my suppliers extract“value”?nSupplier concentrationnFew vs many suppliersnSupplier volumenLarge vs small purchase decisionsnProduct differencesnDependence on unique featuresnThreat of forward integrationnAbility to become competitornSwitching costsnLimitations on ability to change suppliersSupplier Power-SweetenersLittle bargaining power:nThey sell to relatively large and concentrated concentrate producers(with the exception of G.D.Searle)nPrice of sugar is knownnConcentrate producers have the resources to integrate backwardAlso,concentrate producers are sensitive to the price of sweeteners:nIt is a big percentage of concentrate production costsnIt is not a differentiated product(with the exception of non-nutritive sweeteners)Therefore,the market power of sweetener suppliers(with the exception of G.D.Searle)relative to concentrate producers is low.Supplier Power-ContainersnMostly low and in some cases moderate market power:nIt is a big percentage of concentrate production costsnOverall undifferentiated product with certain exceptionsnBuyers are relatively large and concentratednSome self-manufacture on the part of buyersnContainers are comparable and the price can be inferredCustomerCustomerCustomerCustomerCustomerCustomerStrategic challenges Focus on how to segment markets served(geography,industries,products,size,etc.)Analyze buying criteria and power of important market segmentsIndustryBuyer powerHow can my customers extract“value”?nBuyer concentrationnFew vs many customersnVolume of purchasesnLarge vs small purchase decisionsnAvailable alternative productsnCompetitive productsnThreat of backward integrationnAbility to become a competitornSwitching costsnThreat of switching suppliersnInformationne.g.via comparison shoppingBuyer Power-BottlersnBottlers have generally low bargaining power:nThreat of forward integration(eg.concentrate-owned bottlers)n65%of their costs plus shared advertising costs are influenced by concentrate producersnThey could not play off concentrate producers against one another:because product was differentiated on the basis of marketing activities,they could not credibly threaten to bottle lesser-known brands;because of territorial exclusivity,they could not threaten to leave one concentrate producer for another who already operated in that area.nLarge bottlers might have been able to exercise moderate power over concentrate producersBuyer Power-Stores and FountainsFood stores had moderate power:nSoft drinks were important because they drew traffic in the storenBottlers fought for shelf spacenSome regional concentrationFountains had low to moderate power:nSoft drinks were important because they were a substantial source of profitsnSome large buyersnConcentrate producers competed intensely over fountain salesThe U.S.Soft Drink Industry in the mid-1980sSuppliers:Sweeteners,ContainersPower:Sweeteners:Low(except for D.G Searle)Containers:Moderate to lowRivals:Concentrate ProducersRivalry:HighPotential Entrants:TakeoversThreat:LowPotential substitutes:other beveragesThreat:LowBuyers:Bottlers,Stores,OtherPower:Moderate to lowEvolution of the industry,mid-1980s to early 1990snRestructuring of bottling operations a key dimension of competitionnPrice of concentrate to bottlers raised,price of soft drinks fallsnInternational markets of key importance for profitabilitynRole of bottlers important internationallynProduct innovation and product line proliferationnNew retail formats(warehouse clubs)nGrowing importance of private label soft drinks,other beverages as potential substitutesn“New Age”beverages also important as potential substitutesThe U.S.Soft Drink Industry in the 1990sSuppliers:Sweeteners,ContainersPower:Sweeteners:LowContainers:LowRivals:Concentrate ProducersRivalry:HighPotential Entrants:TakeoversThreat:LowPotential substitutes:other beveragesThreat:HighBuyers:Bottlers,Stores,OtherPower:Moderate only for certain distribution channelsWhy is the Soft Drink Industryin the US structured this way?nOnly 2 major players why?nentry barriersnsunk costs(scale economies in advertising)nretaliation ability regarding new entrants(e.g.Philip Morris)nmarket foreclosure(distribution channels,bottling)nIntense rivalry yet major players profitable why?nlow capital investmentnadvertising intensitynnon-price rivalry(advertising,product differentiation)nmarket saturation,international expansionWhy is the Soft Drink Industryin the US structured this way?n Bottler territorial exclusivity why?ncoffee&milk historynavoid price competitionnreward regional brand and market developmentnenourage market saturationnswitching costsnBottler buy-outs why?ncapacity commitmentsnefficiency improvementsStrategic GroupsSoft Drinks&Non Soft-Drink BeveragesNon soft-drink beveragesSoft DrinksType of BeverageDSD by own bottlers“Piggy-back”Warehouse deliveryMeans of distributionCoke&Pepsi BrandInternationalShasta,Cott Price InternationalHires,Dr PepperA&W,7-Up Brand NationalRC ColaBrandInternationaladvertising intensityregulationadvertising intensityregulationStrategic Groups in Book RetailingVirtualPhysicalPresenceLocalNationalInternationalGeographic ReachMail Order,Online Price Convenience Specialised offeringsB&N,Borders Price Availability Social ExperienceIndependents Loyalty Know customs ConvenienceFront-endFixed-costTechnology cultureEoSCultureSuperstore“recipe”Summary of Soft Drink Industry:nConcentrate producers have relatively high market power vs.other competitive forces and are highly concentrated(rivalry is focused between two players)nThe industry remained attractive in the early 90s,but the key dimensions of competition changednSome of the changes were due to exogenous factors but others were initiated by the major playersnTherefore,the profitability of these players will be to a large extent determined by how rivalry between them plays out along the dimensions they have control over.nCould the major players compete less aggressively with each other?n“Industry”can be analyzed at many levels.The more fine-grained the analysis,the better the insights regarding threats and opportunitiesYou can shape the reaction of your competitors:CommitmentnEstablish and use a reputationnAlexander the Great in TyrosnWrite contractsnCut off communicationnCrossing the streetnBurn bridges behind younCortez in MexiconProgram your response to your competitors movesnCornering a cat can be dangerous to your healthYou can shape the structure of your industry:Competitive movesnNew product introductionsnPrice changesnAdvertising campaignsnInvestmentsnVertical integrationnDiversificationnStrategic alliancesnSpin-offsnLegal actionsnInstitutional actions (lobbying,etc)nDistribution channelsnSize of installed basenLease vs.sellSpecial case:Games of attritionnGames of attrition can go on for long.nThis is true even when strong egos and emotions are not involved.nBecause at any point in the game it is reasonable for each competitor to expect that if the other leaves,they will win the prize.nThus,they are costly.You dont want to be caught up in one.nIf you are:Try to change the other players beliefs about you:nDemonstrate commitment before or during the game.nShe might not enter,exit,or collaborate.How to use industry analysisnFind out the attractiveness of an industry before enteringnSeek ways to lower barriers to entry if you wish to enternIn general,seek ways to“push back”on the forces of competition if they are unfavourable to you30 minute group assignment nPick one of the industries that the individuals in your group are analysing.nAssess each of the five forces and whether overall this is an attractive industry.nHow are these forces likely to change the industry in the future?nHow can an incumbent improve its position?(or,How can an potential entrant improve its position?)n百年大计质量先、安全生产记心间。7月-247月-24Saturday,July 20,2024n优质建设，以质为根。08:18:27 08:18:27 08:18 7/20/2024 8:18:27 AMn效率生产，安全第一。7月-2408:18:27 08:18 Jul-2420-Jul-24n只有防微杜渐，才能防患未然。08:18:27 08:18:27 08:18 Saturday,July 20,2024n要有好的灌溉，才有好的成果。7月-247月-2408:18:27 08:18:27 July 20,2024n只要精神不滑坡，办法总比困难多。2024 年7月20日8:18 上午7月-247月-24n时时讲质量，树立生命观。20 七月 20248:18:27 上午08:18:27 7月-24n违章是事故的前奏曲，事故是幸福的休止符。七月 248:18 上午7月-2408:18 July 20,2024n提高安全意识，倡导安全文化。2024/7/20 8:18:2708:18:27 20 July 2024n抓基础从小处着眼，防隐患从小处着手。8:18:27 上午8:18 上午08:18:27 7月-24n品质最重要，每个环节要做到。7月-247月-2408:18 08:18:27 08:18:27 Jul-24n以严格管理为荣，以姑息迁就为耻。2024/7/20 8:18:27Saturday,July 20,2024n加强安全教育，确保安全生产。7月-242024/7/20 8:18:277月-24谢谢大家！谢谢大家！
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