strategy a view from the top prentice hall 4-1 copyright © 2009 pearson education, inc. publishing...
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StrategyA View From
The Top
Prentice Hall
4-1Copyright © 2009 Pearson Education, Inc.Publishing as Prentice Hall
Chapter Four
Analyzing an Industry
Cornelis A. de Kluyver
and
John A. Pearce II
Third Edition
In Every Industry There are Deeply Held Orthodoxies…Orthodoxies are the broadly shared beliefs about what drives success within “theindustry.” These beliefs form the “dominant industry logic”:
Who is the customer/end userThe type of interface/interaction with the
customer/end userHow benefit is defined and value is deliveredHow product/service functionality is definedWhat form the product/service should takeHow processes are structured and managedThe “ideal” cost and pricing structure… “the way things are done here”
Why Orthodoxies Must Be Challenged…
“There is no reason anyone would want a computer in their home.”
- Ken Olson, President, Chairman and Founder of Digital Equipment Corp., 1977
Challenging Orthodoxies Allows You to Redefine the Boundaries of Competition
Business Practices
Core Platforms
Core Competencies
Product Functionality
Culture and Values
Price/PerformanceLevels
Benefits Sought andDelivered
Served Markets
Challenging Orthodoxies Also Helps You to Identify Your Own Weaknesses...
Blindness to new opportunitiesArrogance/elitismNeed for controlUnwillingness to learnInability to create benefits through
collaborationFollowing the herdUnwillingness to admit what we don’t knowLittle real innovation in strategy over the last
______ years
Homogeneity in Thinking Can Make Change Difficult...
Many firms are caught in an “Attraction-Selection-Attrition” (ASA) cycle that tend to promote homogeneity in managerial thinking.
Organizations can overcome the dangers of like-minded thinking in at least two ways.Give greater attention to “contrarian
voices.”They are most likely to see aspects of changing
industry environments that are ignored by top managers.
Encourage greater turnover among top management ranks.If not, top managers risk becoming more and
more committed to the status quo.
Industry Influences Can Limit Organizational Change
Industry norms and standards (the so-called “common body of knowledge”) can blind managers to new opportunities, technologies, and potential competitors.
Very difficult to formulate and implement totally new strategy in the face of pressures to maintain the status quo.
New entrants almost always have something that is totally different from industry norms.
Changes in the Industry Environment: Porter’s Five Forces Model
Suppliers
PotentialEntrants
Buyers
Substitutes
Industry Competitors
RivalryAmongExisting
Firms
Threat of substituteproducts or services
Bargaining powerof suppliers
Bargaining powerof buyers
Threat of new entrants
Threat of Entry; Barriers to Entry
Threat: Whether real or not depends on
What barriers to entry exist How entrenched competitors are likely to react
Barriers to Entry: Factors Economies of scale Product differentiation (brand equity) Capital requirements Cost advantages of independent size Access to distribution channels Government regulations
Powerful Suppliers; Buyers
Suppliers are more powerful when There are few dominant companies and they are
concentrated on the industry they serve A differentiated product offering makes switching
among suppliers difficult There are few substitutes Suppliers can integrate forward The industry is a small portion of suppliers revenue
base
Buyers have power when There are few of them and they buy in large volume The product is not differentiated making it easier to
switch The buyer’s purchase represents a substantial portion
of sellers revenue Buyers can integrate backwards
Substitutes and Complements
Substitute products that deserve the closest scrutiny are those that
Show improvements in price-performance relative to industry average
Are produced by industry with deep pockets
Complementary products and services may play an important role
Hardware vs. software Distribution capabilities vs. content
Rivalry Among Participants
Rivalry is stronger when There are a large number of competitors and
they are of similar size and power The industry is growing slowly There are high fixed costs or the products/
services are perishable There are high exit barriers
Note:The Internet can exacerbate or mitigate the relative influences of the different forces
Industry Structures Evolve Over Time; Sometimes in Complex Ways
From vertical to horizontal structuresThrough industry consolidation As an industry maturesThrough technology
Phase 1: Competition on the basis of ideas, product concepts, technology choices and building core competency base; Phase 2: Competition focused on building a viable coalition of partners; Phase 3: Battle for market share for end products & profits
Core activities
Cor
e A
sset
s
Threatened Not Threatened
Not
thre
aten
ed
Thr
eate
ned Radical Creative
Change Change (Travel agencies) (Movie studios)
Intermediating Progressive Change Change (Museums) (Trucking)
Trajectories of Industry Change
Product Life Cycle Analysis
Sales
Characteristics & Strategies
Introduction GrowthCompetitiveTurbulence Maturity Decline
Issues: What Is the Appropriate Unit of Analysis? What is a product? Category? Industry? Industry segment? Strategy should lead to growth instead of growth leading to strategy
Strategic Segmentation
Focuses on finding out which segment(s) of the industry have the best prospects for the long term
Considers long term defensibility of different segments
Segmentation, Targeting and Positioning
1. Identify
Segmentation
3. Evaluate Segment Attractiveness
5. Identify Possible Positionings
2. Develop Segment
Profiles
4. Select Target Segment(s)
6. Select, Develop
Positioning
Segmentation Targeting Positioning
Competitive Analysis: Key QuestionsWho Are Our
Competitors?
How Have TheyBehaved In The Past?
What are Their
Major Strengths?
How Might TheyBehave in the
Future?
How Will This AffectUs?
Competitor Roles - Leaders,Challengers, Followers, and
Nichers
Market Leader
40%
MarketChallenger
30%
MarketFollower
20%
MarketNicher
10%
Hypothetical Market Structure
Strategic PositioningMarket Leaders
Focus on expanding total demand Defending market share is important May not wish to aggressively take more market
share from rivals
Market Challengers Concentrate on a single target. Attacking the
leader
Market Followers Compete with modest strategic objective Often use innovative imitation Compete in selective few segments
Market Nichers Focus on narrow slice of the market
StrategyA View From
The Top
Prentice Hall
4-22Copyright © 2009 Pearson Education, Inc.Publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in
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