SM Lecture 5

External Analysis: Intra-industry analysis

Strategic Management Process

External Analysis
Macro-level Inter-industry Intra-industry

Purpose & Expectations Governance

Stakeholders Ethics Culture

Situation summaries

Strategic Options
Business Corporate

Strategy Evaluation

Implementing strategies & managing change

Internal Analysis
Resources Capabilities Creating value Competitive advantage

Intra-Industry Analysis
Customers
Value Value

Organisation

Competitors

Value

Value

Suppliers

Competitor Analysis
V.M.O.S.T ? Competitive Scope ? Past & Current Performance ? Strengths & Capabilities ?

Weaknesses & Vulnerabilities ?

Assumptions about the future ? Likely Future Strategy & Direction ? What are the sources of competitor intelligence?

Competitor Analysis: Tendencies

We develop strategy, our competitors will do nothing
We underestimate our competitors core competences or capabilities (their alliances, JVs, networks or acquisitions)

We fail to recognise signs of significant change in our competitors

We fail to see the attractions of competitors as acquisition targets or alliance partners

We see competition as only coming from within the industry

Strategic Groups
Strategic groups comprise organisations within an industry with similar strategic characteristics, following similar strategies or competing on similar bases. (J, S & W,2008) Organisations may differ in terms of: Size Product range Geographical coverage Quality or service levels etc.

Strategic Group Analysis

A strategic group is a group of firms in an industry following the same or similar strategy
To identify strategic groups: Identify the principal strategic variables that distinguish firms

Position each firm in relation to these variables

Identify meaningful strategic groups

Strategic Groups: Example European budget airlines

Broad Ryanair easyJet Approx. positions c.2003/4

Extent of Route System

Aer Lingus

Virgin Express

MyTravelLite

Germanwings bmibaby

flybe

Narrow

Basic

Services

Many added

Strategic Group Analysis

Strategic group analysis can hep to identify:

Firms with similar strategic characteristics

The most direct competitors

Opportunities (Strategic spaces) Threats

Market Segmentation
Identifying similarities and differences between groups of customers Geographic: country, region, population density, climate Behavioural: benefits sought, purchase occasion, usage rate, loyalty Demographic: age, gender, social class Psychographic: lifestyle and personality
The criteria will differ between consumer and industrial markets

SOME CRITERIA FOR MARKET SEGMENTATION

TYPE OF FACTOR

CONSUMER MARKETS

INDUSTRIAL/
ORGANISATIONAL MARKETS

CHARACTERISTICS OF PEOPLE/ORGANISATIONS

AGE, SEX, RACE INCOME FAMILY SIZE LIFE CYCLE STAGE LOCATION LIFESTYLE SIZE OF PURCHASE BRAND LOYALTY PURPOSE OF USE PURCHASING BEHAVIOUR IMPORTANCE OF PURCHASE CHOICE CRITERIA

INDUSTRY LOCATION SIZE TECHNOLOGY PROFITABILITY MANAGEMENT APPLICATION IMPORTANCE OF PURCHASE VOLUME FREQUENCY OF PURCHASE PURCHASING PROCEDURE CHOICE CRITERIA DISTRIBUTION CHANNEL PERFORMANCE REQUIRMENTS ASSISTANCE FROM SUPPLIERS BRAND PREFERENCES DESIRED FEATURES QUALITY SERVICE REQUIREMENTS

PURCHASE/USE SITUATION

USERS NEEDS AND PREFERENCES FOR PRODUCT CHARACTERISTICS

PRODUCT SIMILARITY PRICE PREFERENCE BRAND PREFERENCE DESIRED FEATURES QUALITY

Market Segmentation
To identify meaningful market segments:
Identify key variables:

Identify segmentation variables Reduce to 2 or 3 Identify discrete categories

Construct a segmentation matrix Analyse segment attractiveness:

Is it distinct? Is it significant? Is it defensible?

SEGMENTATION MATRIX FOR WATCH INDUSTRY

LUXURY - 1000+ EXCLUSIVE JEWELLER LIFESTYLE - 250 TO 650 MULTI OUTLET STYLISH - 150 TO 350 CHAIN STORES PERFORMANCE FEATURES 10 - 60 MAIL ORDER TIMEKEEPER 5 - 10 PETROL STATIONS

AGE 5-12 INCOME LOW NEED

TIME

10-14 600

15-25 12K+

25-40 25K+

40+ 50K+

FEATURES FASHION

LIFESTYLE /LUXURY

What do customers value?

Some examples:

Price ? Quality ? Service ? Security ?

Speed ? Consistency ? Image ? Frequency ?

Key Success Factors

Key (or Critical) Success Factors
are those product features that are particularly valued by a group of customers and, therefore, where the organisation must excel to outperform competition.
(Johnson, Scholes & Whittington, 2008)

Environmentally based factors which are crucial for competitive success. Simply, the things that an organisation must do well if it is to succeed.
(Thompson, 2001)

IDENTIFYING KEY SUCCESS FACTORS

PRE-REQUISITES FOR SUCCESS

WHAT DO CUSTOMERS WANT ?

HOW DOES THE FIRM SURVIVE COMPETITION ?

ANALYSIS OF DEMAND WHO ARE OUR CUSTOMERS ? WHAT DO THEY WANT ?

ANALYSIS OF COMPETITION
WHAT DRIVES COMPETITION ? WHAT ARE THE MAIN DIMENSIONS OF COMPETITION ? HOW INTENSE IS COMPETITION ? HOW CAN WE OBTAIN A SUPERIOR COMPETITIVE POSITION ?

Source: R. Grant

KEY SUCCESS FACTORS

Intra-Industry Analysis
In summary
A deep understanding of our competitors is essential, it will help us to identify a sustainable competitive position Fundamental to our understanding of position is the concept of Market Segmentation and the real needs of customers The dynamics of the Company, Customer, Competitor relationship will inform our thinking about our current and future competitive positions The CSF model helps us to understand what we need to do well if we are to satisfy our customers and keep ahead of the competition.