we will combine our talents together to develop our skills which produce great projects. each...
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We will combine our talents together to develop our skills which produce great projects.
Each member will work to the best of their abilities, and help one another to succeed in the course
Score at least 90% on all assignments, while maintaining a creative aspect
Complete drafts one week in advance prior to deadline.
Each member complete at least one standing-O. Get an A on every exam while maintaining a
100% group viewership of rerun episodes of America's Next Top Model
Meet every Sunday evening to develop creative ideas to present to Professor Neubaum for team special points.
Meet every Wednesday night at Clodfelter’s to build team unity and morale.
“I think there is a world market for maybe five computers”
—Thomas Watson, Chairman of IBM, 1943
“There is no reason why anyone would want a computer in their home”
Ken Olson, president, chairman, and founder of Digital Equipment Corporation, 1977
“This ‘telephone” has too many shortcoming to be seriously considered a means of communication. The device is inherently of no value to us.”
Internal Memo, Western Union, 1876
“Everything that can be invented has been invented”
Charles H. Duell, Commissioner of the U.S. Patents Office,
1899
“640K of RAM ought to be enough for anybody”
Bill Gates, 1981
“I see no scenario whatsoever where Toyota will pass us in share”
Chrysler Chief Dieter Zetsche, January 2002
“I see no scenario whatsoever where Toyota will pass us in share”
Chrysler Chief Dieter Zetsche, January 2002
September 2003, “The Big Three” became GM, Ford, and Toyota
“Nothing important happened today”
Journal entry made by King George III, July 4, 1776, the day the United States declared independence from England
“Competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness”
“Analysis is the critical starting point of strategic thinking”
“Skate to where the puck is going, not to where it has been”
External Analysis
It’s not recognizing that change will occur that is the problem, it’s figuring out:
what will happen?
how it will affect us?
what to do about it?Therefore, forecasting is necessary to predict direction
and the effect of change
BROAD/REMOTE/MACROENVIRONMENT
Political and
Legal
Societal Values
and Lifestyles Demographics
Technology
The Economy at Large
COMPANY
Suppliers Substitutes
Buyers
NewEntrants
Rival Firms
IMMEDIATE INDUSTRY
AND COMPETITIVE ENVIRONMENT
Broad/Remote/Macroenvironment Segments
Macroeconomic
Demographic
Political/Legal
Technological
Social
Firms CAN NOT
Directly Control Them
?
Porter’s Five Forces
Competitive Rivalry
Power of Buyers
Power of Suppliers
Potential Entrants
Substitute Products
Each of these forces affect costs/prices,
therefore, profitability
SubstituteProducts(of firms in
other industries)
RivalryAmong
CompetingSellers
PotentialNew
Entrants
Suppliers of Key Inputs
Buyers
Price
Costs
Profits {Porter’s 5-forces is all about margins - What factors increase/decrease margins, i.e., profitability.
Prices can be kept high
Costs can be kept low
Profits can soar {
When industry structural variables are weak…...
Prices will be pushed down
Costs will rise
Profits shrink {
When industry structural variables are strong…...
If you were unable to find work and had to start making money, what kind of business would you start?
Which of these industries would be most difficult to enter? Which would be relatively more easy?
Airlines, automobile manufacturing, grocery store, pharmaceutical, beer brewing, restaurant, hair salon
Potential Entrants
Firms enter when industries are attractive, unless they find themselves at an immediate disadvantage relative to incumbents.
Firms can create “barriers to enter” Barriers of entry are desirable for
entrenched firms
Barriers to Entry
Economies of scale
Access to technology & know-how
Learning, costs, experience curves
Product differentiation & loyalty
Switching costs
Capital & resource requirement
Cost disadvantage independent of size
Distribution
Regulatory policies
Threat of retaliation
Threat of Substitutes
Product/service which fulfills similar need
Price cap
3 Questions1) Are they available?
2) Price-performance relationship?
3) Can we switch?
Power of Buyers
Who are the Buyers? - who provides our revenues?Can they force:
lower prices, higher quality and service – affect the terms and conditions of the exchange?
Based on two issues1 Price sensitivity
• significant “out of pocket” costs• no differentiation• exist in a competitive, low profit industry – every penny
counts
Power of Buyers (cont.)
2 Whether buyers can bargain down prices• few buyers
• buyers are knowledgeable
• low switching costs
• backward integration is a valid threat
Competitive Force of SuppliersWho are the suppliers?
Suppliers are a strong competitive force when:– Only a few suppliers exist– Few substitutes – Buyers not important customers– Suppliers provide a product crucial to production
process, and/or significantly affects product quality– It is costly to switch suppliers– Forward integration a credible threat– They can supply a component at a lower cost
Rivalry and Profitability
Industry profitability is a collective good.
Collective good is served by coordinationAre there industries were pricing is coordinated?
Incentive to violate
Usually the most powerful of the five forces
How actively and aggressively are rivals employing competitive weapons in jockeying for a stronger market position and increasing sales?
– Is price competition vigorous?– Active efforts to improve quality?– Are rivals racing to offer better
performance features? better customer service?
– Lots of advertising/sales promotions?– Active efforts to build a stronger
dealer network?– Active product innovation?– Active use of other weapons of rivalry?
Rivalry – What drives it?Numerous, equally balanced competitorsPerceptions of high payoff from competitive actionsSlow growth, excess capacityHigh fixed, storage, obsolescence costsHigh exit barriers Diversity of competitorsLow switching costsLack of differentiation
Porter’s..in conclusion
Determines the attractiveness of industry
Can we influence any of these structural attributes?
Static model & Hypercompetition– If the pace of transformation is rapid, if entry rapidly undermines the
market power of dominant firms, if innovation speedily transforms industry structure by changing process technology, creating new substitutes, and by shifting the basis on which firms compete, then there is little merit in using industry structure as a basis for
analyzing competition and profit.
Porter’s Five Forces - Two ExamplesCampus Bookstore
Rivals? -
Entry Barriers? -
Substitutes -
Supplier Power -
Buyer Power -
Profitable?
PCs
Rivals -
Entry Barriers -
Substitutes -
Supplier Power -
Buyer Power -
Profitable ?
Industries and SegmentsWhat is a segment?
Different segments…..posses different combinations of 5-forces
therefore:reward different strategies
possess different levels of profitability
Therefore, not all firms can effectively compete across multiple segments
What Forces Are atWork to Change Industry Conditions?
Industries change because forces are driving industry participants to alter their actions
Driving forces are the major underlying causes of changing industry and competitive conditions
Common Types of Driving Forces
Changes in long-term industry growth rate
Changes in who buys the product and how they use it
Product innovation
Technological change/process innovation
Marketing innovation
Entry or exit of major firms
Diffusion of technical knowledge
Common Types of Driving Forces
Increasing globalization of industry
Changes in cost and efficiency
Market shift from standardized to differentiated products (or vice versa)
New regulatory policies and/or government legislation
Changing societal concerns, attitudes, and lifestyles
Changes in degree of uncertainty and risk
Price
Breadth of Product Line
National Jewelry RetailersCartierTiffany Nordstroms
Sachs
WalMartKmart
Target
SearsJCP
BurdinesDillards
ZalesKay
Pawn ShopChain-by-the-Foot Carts
JerrodsMarks & Morgan
Price
Breadth of Product Line
National Jewelry RetailersCartierTiffany Nordstroms
Sachs
WalMartKmart
Target
SearsJCP
BurdinesDillards
ZalesKay
Pawn ShopChain-by-the-Foot Carts
JerrodsMarks & Morgan
Strategic Groups identify
Closest Rivals
Price
Breadth of Product Line
National Jewelry RetailersCartierTiffany Nordstroms
Sachs
WalMartKmart
Target
SearsJCP
BurdinesDillards
ZalesKay
Pawn ShopChain-by-the-Foot Carts
JerrodsMarks & Morgan
Strategic Groups identify
Mobility Barriers
Price
Breadth of Product Line
National Jewelry RetailersCartierTiffany Nordstroms
Sachs
WalMartKmart
SearsJCP
BurdinesDillards
ZalesKay
Pawn ShopChain-by-the-Foot Carts
JerrodsMarks & Morgan
Strategic Groups identify
Untapped Niches
Price
Breadth of Product Line
National Jewelry RetailersCartierTiffany Nordstroms
Sachs
WalMartKmart
Target
SearsJCP
BurdinesDillards
ZalesKay
Pawn ShopChain-by-the-Foot Carts
JerrodsMarks & Morgan
Strategic Groups identify
Untapped Niches
What strategic moves are rivals likely to make? - Competitive Analysis
Important in concentrated industries
Benefits– forecast future actions, predict reactions– can we influence rivals’ behavior?
Four Steps of CA
Identify their strategy
Identify the objectives
Identify their assumptions
Identity their capabilities
StrategyObjectivesAssumptionsCapabilities
Strategic Action
What are the Key Success Factors?
KSFs are product attributes, competencies, competitive capabilities, and market achievements with the greatest direct bearing on profitability
opportunities for competitive advantage
Example: KSFs for Beer Industry
Utilization of brewing capacity -- to keep manufacturing costs low
Strong network of wholesale distributors -- to gain access to retail outlets
Clever advertising -- to induce beer drinkers to buy a particular brand
Identifying Key Success Factors (KSFs) - vary by segment
Automotive Industry