5672_1187_27_1070_48_Forces at Work&SCP

8/3/2019 5672_1187_27_1070_48_Forces at Work&SCP

1/20

Working Draft

Forces at Work

&Structure Conduct Performance (SCP)


2/20

W

orkingDraft-LastModified5/26/20083:45:40

AM

1

"The essence of formulating

competitive strategy isrelating a company toits environment"

Competitive Strategy: Techniques for Analysing Industriesand Competitors, 1980

MICHAEL E. PORTER

WHO DO WE THANK (OR BLAME) FOR THE FORCES ATWORK FRAMEWORK?


3/20

W

orkingDraft-LastModified5/26/20083:45:40

AM

2

Industrycompetitors

How intense is

the rivalry ?

Suppliers

What is theirbargaining

power?

Buyers

What is theirbargaining

power?

PotentialEntrants

What is thethreat ?

Substitutes

What is the threat?

ELEMENTS OF THE FORCES AT WORK FRAMEWORK


4/20

W

orkingDraft-LastModified5/26/20083:45:40AM

3

Industrycompetitors

Daimler-Chrysler,

Ford, GM, Toyota...

Suppliers

Partsmanufacturers,

steel mills, labor

unions...

Buyers

Households,governments,

rental car

companies...

PotentialEntrants

Motorcycleand truck

manufacturers...

Substitutes

Manufacturers and

operators of trains,buses, airplanes,

motorcycles...

NON-EXHAUSTIVEWHO ARE THE PLAYERS IN THE AUTOMOBILEMANUFACTURING INDUSTRY?


5/20

WorkingDraft-LastModified5/26/20083:45:40AM

4

Industrycompetitors

Disney,

Universal,...

Suppliers

Park employees,food suppliers,

construction

companies...

Buyers

Families, travelagencies,

business event

planners...

PotentialEntrants

Regional themeparks, other large

entertainment

companies...

Substitutes

Disney Quest,

Sony virtual reality,other destination-

based resorts...

WHO ARE THE PLAYERS IN THE DESTINATION THEMEPARK INDUSTRY?

NON-EXHAUSTIVE


6/20


5

STRUCTURAL FACTORS IN INDUSTRY RIVALRY

IndustrycompetitorsSuppliers Buyers

Potential

Entrants

Substitutes

Basis of competition(e.g., quality, price, service)

Industry growth

Product differentiation

Brand identity/loyalty

Switching costs

Fixed cost/value added

Nature of capacity (shortage/excess)

Concentration of production

Exit barriers

Corporate stakes (e.g., strategicimportance, reputation)

Diversity of competitors

Information complexity/transparency


7/20


6

Bargaining leverage

Buyer concentration vs. firmconcentration

Buyer volume Buyer switching costs Buyer information Ability to backward integrate

Availability of substituteproducts

Price sensitivity

Price/total purchases Product differences

Brand identity/ qualityperception Buyer income/profits Decision makers incentives


Potential

Entrants

Substitutes

DETERMINANTS OF BUYER POWER


8/20


7

Differentiation of inputs

Switching costs of suppliers andcompetitors in the industry

Availability of substitute inputs

Supplier concentration

Importance of volumeto supplier

Cost relative to total purchasesin the industry

Threat of forward integrationrelative to threat of backward

integration by firms in industry


Potential

Entrants

Substitutes

DETERMINANTS OF SUPPLIER POWER


9/20

WorkingDraft-LastModified5/26/20083:45:40A

M

8

Economies of scale

Proprietary product differences

Brand identity

Switching costs

Capital requirements

Access to distribution Absolute cost advantages

Proprietary learning curve Access to necessary inputs Proprietary, low-cost product

design

Government policies/regulation Expected retaliation

Industrycompetitors

Suppliers Buyers

Potential

Entrants

Substitutes

DETERMINANTS OF BARRIERS TO ENTRY


10/20

Wo

rkingDraft-LastModified5/26/20083:45:40A

M

9

Relative price performance

of substitutes Switching costs

Buyer propensity to substitute

Industrycompetitors

Suppliers Buyers

Potential

Entrants

Substitutes

DETERMINANTS OF SUBSTITUTION THREAT


11/20

Wo


M

10

Overview of the forces at work framework

Examples of forces at work framework

Steps for creating a forces at workframework

PRESENTATION OVERVIEW


12/20

Wo


M

11

Intense competition Little industry growth

Recent excess capacity

Little product differentiation

No switching cost

Some brand equity

SuppliersLittle supplier power

Low input differentiation

Low switching costs for inputs

Highly dependent on volume

No input impact on differentiation

Low impetus for forwardintegration

New entrants Some barriers to entry Significant economies of scale

in production

High capital requirements

Established brand equities

No significant proprietaryproduct difference

Low barriers for other dairycompanies

Substitutes

Significant threat of substitution Large substitution threat from

unbranded ice cream, other milkproducts

No switching cost to consumer

Buyers

Substantial buyer power Immense distributor concentration

Little buyer switching cost

Product costs passed through toconsumer

FORCES AT WORK IN THE SUPER PREMIUM ICE CREAM INDUSTRY


13/20

Wo


M

12

Buyers have significantbuying power

Highly concentrated buying

power (top 4 companiesrepresent 67% of market)

Growing preference forturnkey solutions

20% - 40% price reductionsobserved from 1990 to 1994

Product innovation in the railtransportation industry has reducedthe threat of substitutes

High speed rail networks haveoutperformed air travel for shortertrips (under 3 hours)

Urban railway systems preferred inmany regions with road congestion

and pollution

Although increasing, suppliers

bargaining power remains low

Highly fragmented

supply chain Bargaining power is

increasing due to growingupstream integration betweenmanu-facturers and suppliers

Current barriers to entry are highbut are falling due to adoption oftechnical standards

High capital requirements forR&D efforts

Development of modular platformswill reduce R&D costs and willincrease economies of scale

Intense rivalry based largely on

non-price competition

Product differentiation achieved

via technical innovation,integrated systems, andproject financing

Large but infrequent orders

Excess production capacity

FORCES RESHAPING THE ROLLING STOCK INDUSTRY


14/20

Wo


M

13

Overview of the forces at work framework?

Examples of forces at work framework

Steps for creating a forces at workframework

PRESENTATION OVERVIEW


15/20

Wo


M

14

Synthesize your findings into

summary messages for eachcategory. Include prioritized

bullet points under each

summarized message

Industrycompetitors

Suppliers

Intensity of rivalry

Substitutes

New

entrants

Buyers

4Define the industry that

you will analyze usingthe framework

1

Create an exhibit lead that

captures the key message of theframework

5

Review exhibit for quality control

purposes6

Create an exhibit thatexplicitly identifies

competitors,

customers, suppliers,

potential new entrantsand substitutes

2

CompetitorsSuppliers

Substitutes

Entrants

Buyers

Review trade press, financial reports, marketresearch, broker reports and interview notes,

organizing key information into the major

categories of forces

3

Six steps for building a forces at work framework


16/20

15

SITUATION ANALYSISSTRUCTURE-CONDUCT-PERFORMANCE (SCP) FRAMEWORK

Structure Conduct Performance

Rigorousapproach toanalyze industrystructure

Emphasis onconduct as keydeterminant ofeconomic returns

Performancedefined from therational shareholderperspective

$


17/20

16

Structure

THE ELEMENTS OF THE S-C-P FRAMEWORK INDUSTRY STRUCTURE

Economics of supply Concentration of producers Import competition Diversity of producers Fixed/variable cost structure Capacity utilization Technological opportunities Shape of supply curve Entry/exit barriers

Economics of demand Availability of substitutes Differentiability of products Rate of growth Volatility/cyclicality

Industry chain economics Bargaining power of input

suppliers Bargaining power of

customers

Information market failure Vertical market failure


18/20

17

THE ELEMENTS OF THE S-C-P FRAMEWORKPLAYERS CONDUCT

Vertical integration Forward/backward integration Vertical joint ventures Long-term contracts

Marketing Pricing Volume Advertising/promotion

New products/R&D Distribution

Capacity change Expansion/contraction Entry/exit Acquisition/merger/ divestiture

Internal efficiency Cost control Logistics Process R&D Organization effectiveness

Cooperation versus Rivalry

ConductStructure

THE ELEMENTS OF THE S C P FRAMEWORK PLAYERS PERFORMANCE


19/20

18

THE ELEMENTS OF THE S-C-P FRAMEWORK PLAYERS PERFORMANCE

Non-financial Technological progress

Employment objectives Customer value/service

Financial Profitability

EBIT ROS Margins

Value creation EVA ROE TRS

ConductStructure Performance

STATIC VS DYNAMIC SCP


20/20

19

STATIC VS. DYNAMIC SCP

SCP provides forcing device tospeculate about how expected external

shocks may affect the future of anindustry

Initial impact on SResultant impact on CUltimate impact on PFeedback effects

Actions

Expected

external events

Feedback

Future

PCS

SCP provides MECE organizingframework

Identifies key issuesHighlights information gapsCreates understanding of links between S,

C, and PDescriptive

Today

Historical data

PCS

5672_1187_27_1070_48_Forces at Work&SCP

Documents

Transcript of 5672_1187_27_1070_48_Forces at Work&SCP