Professional Documents
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Presentation 1
Presentation 1
Differ? Size
Size
Changing Structural
Characteristics of Modern
Corporation
Old Organizational Design
Vertical communication
Horizontal communication
Vertical integration
Work/quality teams
Minimal training
Extensive training
Source:Adapted from B. Macy and H. Izumi, Organizational Change, Design, and Work Innovation: A MetaAnalysis of 131 North American Field Studies19611991, Research in Organizational Change and
Development, Vol. 7, JAI Press (1993), p. 298. Reprinted with permission.
Chapter 8
Strategic Importance
Small markets dont tend to attract new firms; large markets
attract firms looking to acquire rivals with established positions
in attractive industries
Fast growth breeds new entry; slow growth spawns increased
rivalry & shake-out of weak rivals
Surpluses push prices & profit margins down; shortages pull
them up
High-profit industries attract new entrants; depressed conditions
lead to exit
High barriers protect positions and profits of existing firms; low
barriers make existing firms vulnerable to entry
More buyers will shop for lowest price
Buyers have more power because its easier to switch from seller
to seller
Raises risk; investments in technology facilities/equipment may
become obsolete before they wear out
Big requirements make investment decisions critical; timing
becomes important; creates a barrier to entry and exit
Raises capital requirements; often creates competitive & cost
differences among fully vs. partially vs. non-integrated firms
Increases volume & market share needed to be cost competitive
Shortens product life cycle; increases risk because of
opportunities for leapfrogging
Objective
To
identify
Main sources of
competitive forces
Strength of these forces
Key analytical tool
Five Forces Model
of Competition
Substitute Products
(of firms in
other industries)
Suppliers
of Key
Inputs
Rivalry
Among
Competing
Sellers
Potential
New
Entrants
Buyers
performance features?
Are rivals racing to offer 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
among
Competing
Sellers
Efforts of
rivals to
gain
better
market
position,
higher
sales and
market
share,
and
competitive
advantage
Principle of Competitive
Markets
Competitive jockeying among
rival firms is dynamic and everchanging
As industry members
initiate new offensive and
defensive moves
As emphasis swings from
one mix of competitive
weapons to another
Competitive Force of
Potential Entry
Seriousness
of threat depends on
Barriers to entry
Reaction of existing firms to
entry
Barriers exist when
Newcomers confront
obstacles
Economic factors put potential
entrant at a disadvantage
relative to incumbent firms
The Rivalry
Among
Competing
Sellers
Competitive pressures
coming
from the threat of entry
of new rivals
Potential New
Entrants
Common Barriers to
Entry
Sizable economies of scale
restrictions
Principle of Competitive
Markets
Threat of entry is stronger when:
Entry barriers are low
Sizable pool of entry
candidates exists
Incumbents are unwilling or
unable to contest a
newcomers entry efforts
Newcomers can expect to earn
attractive profits
Competitive Force of
Substitute Products
Concept
Substitutes matter when customers are
attracted to the products of firms in
other industries
Examples
Producers of substitutes
plan to add new
capacity
Profits of producers of
substitutes are up
Firms in Other
Industries
Offering
Substitute
Products
Competitive pressures
coming
from the attempts of
companies outside the
industry to win buyers
over to their products
Rivalry
among
Competing
Sellers
Competitive
pressures from
substitutes are
stronger when
Good substitutes
are readily
available or new
ones are emerging
Substitutes are
lower priced
relative to the
performance they
deliver
Buyers have low
costs in switching
to substitutes
Buyers grow more
comfortable with
Principle of
Competitive Markets
Competitive threat of substitutes
is stronger when they are:
Readily available
Attractively priced
Believed to have comparable
or better performance features
Customer switching costs are
low
Whether
supplier-seller
relationships represent a
weak or strong competitive
force depends on
Whether suppliers can exercise
Competitive Force of
Suppliers
Suppliers are a strong competitive
force when:
Competitive
pressures
stemming
from
supplier
bargaining
power and
sellersupplier
collaboration
Rivalry
Among
Competin
g
Sellers
Rival
Principle of
Competitive Markets
Suppliers are a stronger force
the more they can exercise
power over:
Prices charged
Quality and
performance
of items supplied
Reliability of deliveries
Whether
seller-buyer
relationships represent a
weak or strong competitive
force depends on
Competitive Force of
Buyers
Partnerships
Just-in-time deliveries
Order processing
Electronic invoice payments
On-line sharing of sales at the cash register
Competitive
Competitive
pressures stemming
from buyer
bargaining power
and seller-buyer
collaboration
Buyers
Principle of
Competitive Markets
Competitive
environment is
unattractive from the
standpoint of earning
good profits when:
Rivalry is strong
Entry barriers are low
Competitive
environment is
ideal from a profit-making
standpoint when:
Rivalry is moderate
Entry barriers are high
Objective
is to craft a strategy
To insulate firm from
competitive forces
To help make the rules,
placing added pressure on
rivals
Which allows firm to define
the business model for the
industry
recover cost
increases
*
*
*
*Buyer has full information
* Forcing higher
* Playingquality
firms
eachoff of
other
Bargainin
g Power
of
Suppliers
Rivalry Among
Competing Firms in
Industry
Bargainin
g Power
of Buyers
Threat
of
Substitu
te
Products
*
*
*
*
*
*
position
Using price competition
Staging advertising battles
Increasing consumer warranties or
service
Making new product introductions
*
*
*
*
Emotional
barriers
Government
and social
restrictions
Entry
Environmental Scanning
Definition
Monitoring and interpreting sweep of social,
political, economic, ecological, and
technological events to spot budding trends
that could eventually impact industry
Purpose
Raise consciousness of managers about
potential developments that could
Have important impact on industry
conditions
Pose new opportunities and threats
One
Strategic Group
Mapping
Firms in same strategic group have two
Arcades
Arcade
operators
Home PCs
Video game
consoles
Sony, Sega,
Nintendo,
several others
Publishers
of games on
CD-ROMs
MSN Gaming
Zone,
Pogo.com,
America Online,
HEAT, Engage,
Oceanline, TEN
Online/Intern
et
Low
Medium
High
(Coin(Console players
(Use PC)
operated
cost $100-$300)
Overall Cost to Players of Video
equipment)
Games
Variables
Interpreting Strategic
Group Maps
Driving
Profiling
Current strategies
Most recent moves
Resource strengths and weaknesses
Announced plans
Competitor Analysis
Successful
Strategic
Intent
Local
Be
dominant
leader
Regional
Overtake
industry
leader
National
Be among
industry
leaders
Market
Share
Objective
Aggressive
expansion
via
acquisition
& internal
growth
Expansion
via
internal
growth
Expansion
via
acquisition
Competitive
Position
Getting
stronger;
on the
move
Wellentrenche
d
Stuck in
the middle
of the pack
Going after
a different
position
Multicountr
y
Move into
top 10
Global
Move up a
notch in
rankings
Hold on to
present
share
Struggling;
losing
ground
Maintain
current
position
Give up
present
share to
achieve
short-term
profits
Retrenchin
g to a
position
that can
be
defended
Just
survive
Strategic
Posture
Mostly
offensive
Mostly
defensive
Combinati
on of
offensive &
defensive
Aggressive
risk-taker
Conservati
ve follower
Competitive
Strategy
Striving
for lowcost
leadership
Focusing
on market
niche
Pursuing
differentiati
on based
on
Quality
Service
Technology
superiority
Breadth of
product
line
Image &
reputation
More value
for the
money
Other
attributes
Advantages
Disadvantages
Exporting
Licensing
Franchising
Joint
ventures
Wholly owned
subsidiaries
Protection of technology
Ability to engage in global strategic
coordination
Ability to realize location and
experience-curve economies
TABLE 8.2
Copyright 2001 Houghton Mifflin Company. All rights reserved.
Advantages
Disadvantages
International
Multidomestic
Global
Transnational
TABLE 8.1
Copyright 2001 Houghton Mifflin Company. All rights reserved.
Strong Competitive
Position
Weak Competitive
Position
Embryonic
Share building
Share building
Growth
Growth
Market concentration
Shakeout
Share increasing
Market concentration or
harvest/liquidation
Maturity
Hold-and-maintain or profit
Harvest or
liquidation/divestiture
Decline
Market concentration or
harvest (asset reduction)
Turnaround, liquidation,
or divestiture
TABLE 6.2
Copyright 2001 Houghton Mifflin Company. All rights reserved.
Predicting Moves of
Rivals
Predicting rivals next moves involves
Analyzing their current competitive positions
Examining public pronouncements about
Competitive
elements most
affecting every industry
members ability to prosper
Specific strategy elements
Product attributes
Resources
Competencies
Competitive capabilities
KSFs
Identifying Industry
Key Success Factors
Answers
Technologyrelated
Fashion design -- to
create buyer appeal
Low-cost manufacturing
efficiency -- to keep selling
prices competitive
Strategic Management
Principle
A sound strategy
incorporates efforts to be
competent on all industry
key success factors and to
excel on at least one factor!
Objective
Develop conclusions about whether the
industry and competitive environment is
attractive or unattractive, both near- and
long-term, for earning good profits
Principle
A firm uniquely well-suited in an
otherwise unattractive industry can,
under certain circumstances, still earn
unusually good profits
Things to Consider in
Assessing Industry Attractiveness
The
The Basis
Basis for
for Good
Good
Strategic
Strategic Decisions
Decisions
Intuition + Analysis
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