“Get the tools, break the rules, make a difference”: A conceptual map of the course,Definition and Dynamics of Strategy What is strategy? How can you be sure you are asking the “right” strategy questions? How strategy develops: Context, Role-playing, Mental models, and Metaphors Strategy Content Competitive Forces in an Industry Industry Evolution Valuing Firm Resources Capabilities for positioning Strategy in Action Implementing Strategy Institutional strategy: Can strategy make a difference?,Strategic Management,Session 4 Industry Analysis,Industry Analysis,Last time we said that to develop our strategy further we need to know our competitive environment. Knowing this we can establish: What do we need to do to shape the future action of competitors and other industry players? How should we respond to the actions of competitors and other industry players?,The source of profitability is evolving and so is the role of the manager,What factors explain these changes?,Sustaining competitive advantage appears to be difficult,Top Ten U.S Traded Companies by Market Value,Source: Jeffrey Williams,Then why are some industries able to sustain higher prices?,What drives profitability?,A: Intensity of competition in an industry which, in turn, is determined by the structure of the industry,Why are some industries consistently more profitable than others?,Because firms in these industries consistently face less intense competition,What explains profitability variation?,From Environmental Analysis to Industry Analysis,THE INDUSTRY ENVIRONMENT Suppliers Competitors Customers,Social structure,The Industry Environment lies at the core of the Macro Environment.,The national/ international economy,Technology,Government,The natural environment,Demographic structure,Social structure,The Spectrum of Industry Structures,Concentration,Entry and Exit Barriers,Product Differentiation,Information,Perfect Competition,Oligopoly,Duopoly,Monopoly,Many firms,A few firms,Two firms,One firm,No barriers,Significant barriers,High barriers,Homogeneous Product,Potential for product differentiation,Perfect Information flow,Imperfect availability of information,A structural (5 forces) industry analysis reveals:,Whether the industry is attractive The dimensions along which firms compete What structural variables affect competition Whether individual or collective strategies can reduce the intensity of competition What kinds of exogenous forces can affect the structure of the industry,Drawbacks of 5 forces analysis:,It only offers a static picture. Does not explain why the industry evolved the way it did and how it will evolve in the future. It does not highlight the role of: technology (e.g. the effect of fabric technologies on Italian fashion), and regulation (e.g. the effect of country policies about global warming on renewable energy).,5 forces can explain why industries change,Industries in transition US Banking in the 90s Citicorp because of territorial exclusivity, they could not threaten to leave one concentrate producer for another who already operated in that area. Large bottlers might have been able to exercise moderate power over concentrate producers,Buyer Power-Stores and Fountains,Food stores had moderate power: Soft drinks were important because they drew traffic in the store Bottlers fought for shelf space Some regional concentration Fountains had low to moderate power: Soft drinks were important because they were a substantial source of profits Some large buyers Concentrate producers competed intensely over fountain sales,The U.S. Soft Drink Industry in the mid-1980s,Evolution of the industry,mid-1980s to early 1990s,Restructuring of bottling operations a key dimension of competition Price of concentrate to bottlers raised, price of soft drinks falls International markets of key importance for profitability Role of bottlers important internationally Product innovation and product line proliferation New retail formats (warehouse clubs) Growing importance of private label soft drinks, other beverages as potential substitutes “New Age” beverages also important as potential substitutes,The U.S. Soft Drink Industry in the 1990s,Suppliers: Sweeteners, Containers Power:Sweeteners: Low Containers: Low,Rivals: Concentrate Producers Rivalry: High,Potential Entrants: Takeovers Threat: Low,Potential substitutes: other beverages Threat: High,Buyers: Bottlers, Stores, Other Power: Moderate only for certain distribution channels,Why is the Soft Drink Industryin the US structured this way?,Only 2 major players why? entry barriers sunk costs (scale economies in advertising) retaliation ability regarding new entrants (e.g. Philip Morris) market foreclosure (distribution channels, bottling) Intense rivalry yet major players profitable why? low capital investment advertising intensity non-price rivalry (advertising, product differentiation) market saturation, international expansion,Why is the Soft Drink Industryin the US structured this way?,Bottler