STRATEGIC MANAGEMENT

TERM 3, 2022-23
SESSION 6

Shobha Das STRA 501 Strategic Management 1

Strategic Management: Week 3
Stand-up and Share in Pairs

The External Environment

√ Macro-Environment
√ Industry Life Cycle
- Industry Environment
- Intra-Industry Environment

Feedback on work of prior Session’s work

Today’s in-class work
Shobha Das STRA 501 Strategic Management 2
Industry and Industry Analysis
An industry is a group of companies offering products or services that
are close substitutes for each other to satisfy a consumer need
Example: Customer need – quench thirst – water, fruit juice, fizzy drinks, …-
Companies are Parle, Danone, Coca Cola, Pepsico …

Goals of industry analysis:

 To gain an understanding of the opportunities and threats confronting the
firm
 To use this understanding to identify strategies that will enable the
company to outperform rivals

Starting point:
 Identify the industry that the company is competing in.
 Determine the industry’s boundaries which are the basic customer
needs that are served

Shobha Das STRA 501 Strategic Management 3

Porter’s Five Forces Model

Source: Porter, HBR, 1979

Shobha Das STRA 501 Strategic Management 4

Porter’s Five Forces Model
 Threat of entry by potential competitors
Barriers to entry
- Economies of scale
- Cost advantages independent of scale
- Capital requirements
- Product differentiation
- Access to distribution channels
- Switching costs
- Government policy
Expected retaliation
 The intensity of rivalry among established companies
Increases due to
- Competitive structure
- Industry demand
- Cost conditions (fixed and storage costs)
- Switching costs
- Exit barriers (including strategic stakes)
Shobha Das STRA 501 Strategic Management 5
Porter’s Five Forces Model
 Bargaining power of buyers
The ability of buyers to drive prices down or quality up depends on
- purchase quantity of buyers
- purchase as % of revenue of company
- switching costs
- threat of backward integration

 Bargaining power of suppliers

The ability of suppliers to raise the costs to the firm depends on
- quantity supplied
- supplies as % of cost of company
- switching costs
- threat of forward integration

 Threat of product substitutes is affected by

- switching costs of buyers
- price of substitute products
- quality and performance of substitute products
Shobha Das STRA 501 Strategic Management 6
Porter’s Five Forces Model – Application
1. Identify industry based on consumer need

2. Do the analysis for a specific firm

3. Identify firms that are buyers, suppliers, potential entrants,

rivals, and firms that could meet the consumer need with
substitutes.

4. Determine the strength of each force – low, medium, high – to

see if industry is attractive (with high profit potential)

5. Formulate strategy to deal with the strong forces

Shobha Das STRA 501 Strategic Management 7

Intra-industry : Strategic Groups
 Groups of companies within an industry that follow a similar
strategy

 The closest competitors for a company are those in its strategic

group

 The most immediate threat to profitability comes from rivals

within the strategic group

 Each strategic group may face a different set of opportunities

and threats.

 Moving from one strategic group to another is difficult due to

mobility barriers which are inside the industry

Shobha Das STRA 501 Strategic Management 8