Structural Analysis

Within Industries
 On the horns of dilemma

» Why does the performance of firms in the same industry

differ ?
» Why are some firms persistently more profitable ?
» How does it relate to strategic posture of firms ?
» How to select a competitive strategy ?
 Dimensions

» Specialization
» Brand Identification
» Pull v/s Push
» Channel Selection
» Quality
» Technological Leadership
 Dimensions (continue…)

» Vertical Integration
» Cost Position
» Service
» Price Policy
» Leverage
» Relationship With Parent Company
» Relationship to Home and Host Government
 Structural Analysis

Step : 1

Characterize all the strategies along various

dimensions
 Strategic Groups

» They exists due to various reasons like ...

» Once formed, firms in the same group resembles to one
another closely
» MUST include firm’s relationship to its parent
» CAUTION: what degree of strategic difference is
important
» All five forces wont have equal impact on different groups
 Drawing Strategic Group Map

» Identify two important competitive dimensions

» Plot the firms on the two-variable map
» Draw circles around the firms that are clustered together
» Indicate potential movement of firms with arrows
 Possible Axes

High

High

Market 
penetration
Brand image

Low

Low Specialty focus Broad range Low cost focus

Product line mix
Direct mail Retail stores Online

Distribution channels
High

Product 
price

Low

Broad Narrow
Strategic focus differentiation
 Group A
Full line, vertically integrated
Full low manufacturing costs,
low service,
Line moderate quality

Group C

Moderate line, assembler

medium price, very high
Specialization
customer service, low
quality, low price

Group B
Narrow line,
assembler,high price,
high tech, high quality

Group D
Narrow line, highly
automated, low price,
Narrow low service
Line

High Vertical Assembler

Integration
Vertical Integration
 Structural Analysis

Step : 2

Access the height and composition of mobility

barriers protecting each group
 Mobility Barriers

» Factors that deter the movement of firms from one

strategic position to another
– e.g. scale economies, switching cost …
» Depends on strategic group that the entrant seeks to join
» Prevents quick imitation of successful strategy
» No exhaustive list of mobility barriers
» AGAIN Don’t forget the parent
 Structural Analysis

Step : 3

Access the relative bargaining power of each

strategic group
 Bargaining Power

» Different degree of bargaining with Customers/ Suppliers

prevails in different groups
» Two sets of customers or suppliers
– Common Suppliers/ Customers
– Group Specific Suppliers/ Customers
» The extent to which relative power can vary depends on
the industry
 Structural Analysis

Step : 4

Access the relative power of each strategic

group vis-à-vis substitute products
 Threat of Substitutes

» Groups may face differing levels of exposure to

competition from substitutes
– e.g. Computer vendor selling computers for home users is less
vulnerable from Computers produced for developers by some
other vendor
 Structural Analysis

Step : 5

Access the pattern of market interdependence

among strategic groups
 Rivalry Among Firms

» Forces of rivalry are not faced equally by all firms in the

industry
» Greater diversity implies
– Difficult to understand one another’s intentions and reactions
– Increased likelihood of repeated outbreaks
– Higher the force of rivalry
» Hence process of competitive rivalry is not symmetrical
 Rivalry Among Firms

» Factors determining the pattern of rivalry:

– Market Interdependence
– Product Differentiation
– Number of Strategic Groups and their relative sizes
– Strategic Distance among groups
» Strategic Distance refers to the degree to which
strategies in groups diverge
 Determinants of Firm’s Profitability

1. Mobility barriers protecting the strategic group

2. Position of strategic group within industry
3. Position of firm within strategic group
4. Scale of strategic group
5. Cost of Entry
6. Time of Entry
7. Firm’s Implementation Ability
 Strategy Group & Cost Position

» Low cost position overall v/s that within the strategic

group
» Requires sacrifice in a other area of a strategy
» Difference between cost in strategic group and those of
low cost strategic group is crucial
» Relative cost position among group is a key variable
 Strategic Opportunities

1. Create a strategic group

2. Shift to a more favorably situated strategic group
3. Strengthen the structural position of the existing group
4. Strengthen the firm’s position in the group
5. Shift to a new group and strengthen that group’s
structural position
 “Strategy is a choice on
how to compete”
- Michael Porter

Thank
you …