STRM043 Session 3 External Market Based Approach(3)
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Transcript of STRM043 Session 3 External Market Based Approach(3)
7/18/2019 STRM043 Session 3 External Market Based Approach(3)
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Session 3EXTERNAL ANALYSIS
Market-based approach
STRM043COMPETITIVE STRATEGY & INNOVATION
7/18/2019 STRM043 Session 3 External Market Based Approach(3)
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Business does not operate in avacuum
As strategists, we need tounderstand the externalenvironment in which a frmoperates
This has two components:
- The industry (MIC!-environment"
- The wider #usiness environment(the MAC!-environment"
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COMPANY
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COMPANY
INDUSTRY
INDUSTRY
Micro-
economic
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7/18/2019 STRM043 Session 3 External Market Based Approach(3)
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COMPANY
INDUSTRY
(Micro-economic)
INDUSTRY
(Copetition!
MACRO-ECONOMIC CONTEXT
MACRO-ECONOMIC CONTEXT
"EO-POLITICAL #RAME$OR%
"EO-POLITICAL #RAME$OR%
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The PESTLE analysis
The PESTLE analysis is a tool to think ao!t an in"!st#y$se%te#nal eni#on'ent ()hat$s in the ne)s* that )ill e a +o#,e
+o# ,han-e in the in"!st#y. an" takes in the/
•Politi,al eni#on'ent• s!,h as st#!,t!#es an" #o,esses o+ -oe#n'ent
•E,ono'i, eni#on'ent• in,l!"in- tyes o+ !siness a,tiities an" ,o'anies1 also in,l!"es the
+inan,ial eni#on'ent
•So,ial eni#on'ent• in,l!"in- ,!lt!#al +a,to#s
•Te,hnolo-i,al eni#on'ent• in,l!"in- innoation leels an" #ote,tion o+ intelle,t!al #oe#ty
Le-al eni#on'ent• #o o# anti2!siness la)s
•E,olo-i,al eni#on'ent• in,l!"es eni#on'ental #ote,tion an" ,li'ate ,han-e
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PESTLE:
Environmental Analysis to Industry Analysis
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INDUSTRY & !"PETITI#E$N$LYSIS
Imagine it’s a Monday morning
and you are a managementconsultant dropped into a newclient in a new industry –
what would you want to knowasap?
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INDUSTRY & !"PETITI#E$N$LYSIS
• Industry si$e
• Industry growth rate
• %o& o' players
• Concentration ratio• eg maret share o' top ) players (C)"
• *hare o' maret o' company in +uestion
• elative si$e o' our company to #iggest in sector
• %ature o' competition (theory o' the frm"
%ood sources o data
- Industry maga$ines trade #odies
- Mintel .eynote reports (accessi#le in /ni
li#rary"
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E'ample( U) *!!DINDUSTRY
Si+e( Retail( ,-../n0 1ro2th rate( 3456
No7 o players• 01,111 outlets, 21,111 #usinesses
oncentration ratio R8
• Top ) have 314 maret share• Average 514&&&&&& 6ut Tesco have 754, so other 7 must
have 894 on average (so Tesco is twice si$e o' next one"
!ur share o mar9et e1 $ldi :6
Sources o Industry Inormation(Industry maga$ine The rocer
Industry trade #ody I; (Institute o' rocery ;istri#ution"
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The industry lie cycle
So!#,e/ A"ate" +#o' ohnson & S,holes. E%lo#in- St#ate-y
NATRE Monooly Pe#+e,t ,o'etition Pola#isation Oli-ooly Monoolyo+ COMPETITION
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Determinants of Industry Profitability
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Recommendations
Research & read a/out
T;E!RY !* T;E *IR"*or insi1hts into the nature o competition
/ased on industry structure
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Porter<s *ive *orces
Yet another tool rom "ichael Porter=
2 <orces is a#outP!>ER
in
?
$TTR$TI#ENES*
o' an industry
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Porter’s Five Forces
om!etition Frame"or#
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1. Potential Entrants
5 Attractive if many entry barriers:
• high sunk cost
• high fixed cost• patents / know-how
• access to distribution / sales channels
• economies of scale and scope
• need for experience benefits
• access to raw materials
• high buyer switching costs
• Government subsidy
Also consider exit barriers, eg redundancies, leases and
long-term contracts which may lock-out entrants.
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2. Suppliers
• Attractive if supplier-power low:
• little differentiation / commodity supplies
• low switching costs
• lots of substitutes
• suppliers not concentrated
• supplier is small part of firm costs
• supplier is not a crucial cost component
• supplier does not affect uality of firm product
• supplier cannot easily forward integrate !buy the firm"• industry/firm is important to supplier
• much product !supplies" information available
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• 3. Buyers
• Attractive if buyer power low:
• buyers not concentrated
• products are differentiated• uality important to buyer
• few substitute producers
• small purchase si#es
• firm product not a significant part of buyer$s total costs
• buyers cannot easily backward integrate
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$%. !irm "ivalry
5 %he more intense the rivalry, the more attractive theindustry is for
5 extant firms as entrants deterred from entry consider
impact of :
• &ligopolies/concentration ratio
• fast industry growth
• a history of few acuisitions
• few perishables
• low fixed costs
• few capacity indivisibilities
• competitive reactions
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#.#. Su$stitutes
5 %he fewer the substitutes, the more
attractive the industry is. 5 'onsider impact of potential substitutionfrom outside the industry 5 e.g. fax machines substituted by email industry
caused obsolescence.
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Structural Determinants of
om!etition & accordin' to (rant:
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Strate'ic (rou! ) om!etitor Set
%A strategic group is a group of firms in an industry t&atfollow t&e same or similar strategies' ()rant*
+dentifying strategic groups:
( )dentify principal strategic variables
( *osition each firm in relation to these variables.
( )dentify clusters
,&at is esco's competitor set
- +ainsbury$s, Asda, orrison$s
aitrose, 0+
- Aldi, 1idl, 2etto
- )ndependent delis, farms shops etc
+t all depends on t&e decision to $e made
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Strate'ic (rou! ) om!etitor Set
Porter framewor/ assumes:(a* industry structure drives competitive $e&aviour
($* +ndustry structure is sta$le.
But, according to Grant, competition also changes industry structure:
( Sc&umpeterian 0ompetition:
( A “perennial gale of creative destruction”( market leaders overthrown by innovation
( yper-competition:
!a" 3intense and rapid competitive moves4. continuously creating newcompetitive advantages and destroying existing competitiveadvantages5
Implication:
)267+%89 +%87'%78 affects '&*%)%); +%8A%G9
but also
'&*%)%); +%8A%G9 affects )267+%89 +%87'%78
&e $usiness environment is comple dynamic and interactive 4 not staticas our strategy models mig&t imply.