Slide strategic core concept and analytical approach 5e by thomson chapter3

STRATEGY Core Core Concepts Concepts and and Analytical Analytical Approaches Approaches Strategy – Core Concepts and Analytic Approaches 5e Arthur Arthur A A Thompson Thompson Authur A Thompson, The University of Alabama The The University University of of Alabama Alabama 5th 5th Edition Edition (2018-2019) (2018-2019) CHAPTER What Is Strategy and Why Is It Important? CHAPTER Evaluating Evaluating aa Company’s Company’s External External Environment Environment An Ane-book e-bookpublished publishedand anddistributed distributed by byMcGraw McGrawHill HillEducation, Education,Burr BurrRidge, Ridge,Illinois Illinois Copyright Copyright©©2018 2018by byArthur ArthurA A.Thompson, Thompson,Glo-Bus Glo-BusSoftware, Software,Inc Inc All Allrights rightsreserved reserved.Not Notfor fordistribution distribution Analysis is the critical starting point of strategic thinking Kenichi Ohmae, consultant and author Copyright © 2018 by Glo-Bus Software, Inc 3–2 Things are always different—the art is figuring out which differences matter Laszlo Birinyi, investments manager Copyright © 2018 by Glo-Bus Software, Inc 3–3 In essence, the job of a strategist is to understand and cope with competition Michael E Porter, Harvard Business School professor Copyright © 2018 by Glo-Bus Software, Inc 3–4 No No matter matter what what it it takes, takes, the the goal goal of of strategy strategy is is to to beat beat the the competition competition Kenichi Ohmae, consultant and author Copyright © 2018 by Glo-Bus Software, Inc 3–5 Learning Objectives To gain command of the basic concepts and analytical tools widely used to diagnose a company’s industry and competitive conditions To become adept in recognizing the factors that cause competition in an industry to be fierce, more or less normal, or relatively weak To learn how to determine whether an industry’s outlook presents a firm with sufficiently attractive opportunities for growth and profitability To understand why in-depth evaluation of specific industry and competitive conditions is a prerequisite to crafting a strategy well matched to a firm’s situation Copyright © 2018 by Glo-Bus Software, Inc 3–6 Chapter Roadmap  The Strategically Relevant Factors Influencing a Company’s External Environment  Assessing a Company’s Industry and Competitive Environment ► Question 1: What Competitive Forces Do Industry Members Face, ► Question 2: What Forces Are Driving Changes in the Industry and Have on Competitive Intensity ► Question 3: and How Strong Are They? What Impacts Will They and Industry Profitability? What Market Positions Do Rivals Occupy—Who Is Strongly Positioned and Who Is Not? ► Question 4: What Strategic Moves Are Rivals Likely to Make Next? ► Question 5: What Are Key Factors for Future Competitive Success? ► Question 6: Is the Industry Outlook Conducive to Good Profitability? Copyright © 2018 by Glo-Bus Software, Inc 3–7 Understanding a Company’s Situation  Actions to steer a firm in a different direction or alter its strategy must be predicated on deep understanding of two facets of its situation: The industry and competitive environment in which the firm operates and the forces acting to reshape this environment The firm’s own market position and competitiveness • • • Copyright © 2018 by Glo-Bus Software, Inc Its resources and capabilities Its strengths and weaknesses vis-à-vis rivals Its windows of opportunity 3–8 Figure 3.1 From Thinking Strategically about the Company’s Situation to Choosing a Strategy Copyright © 2018 by Glo-Bus Software, Inc 3–9 The Strategically Relevant Factors Influencing a Firm’s External Environment  External factors and influences in the “macro-environment” that influence a firm’s decisions about its direction, objectives, strategy, and business model include: ► General economic conditions ► Political, regulatory, and legal influences ► Technological influences ► Sociocultural forces (values, lifestyles, and shifting population demographics) ► Considerations relating to the natural environment Copyright © 2018 by Glo-Bus Software, Inc 3–10 Questions to Consider in Predicting the Likely Actions of Rivals  Which competitors have strategies that are producing good results and thus are likely to make only minor strategic adjustments?  Which rivals are performing poorly or losing ground in the marketplace or struggling to come up with a good strategy—and thus are strong candidates for altering prices, improving product offerings, moving to a different part of the strategic group map, and otherwise adjusting important elements of their strategy?  Which competitors seem poised to gain market share, and which ones seem destined to lose ground? Copyright © 2018 by Glo-Bus Software, Inc 3–83 Questions to Consider in Predicting the Likely Actions of Rivals (continued)  Which competitors are likely to rank among the industry leaders five years from now? Do any of the up-and-coming competitors have strategies and sufficient resource capabilities to overtake the current industry leader?  Which rivals badly need to increase their unit sales and market share? What strategic options are they most likely to pursue: lowering prices, adding new models and styles, expanding dealer networks, entering additional geographic markets, boosting advertising to build brand-name awareness, acquiring a weaker competitor, placing more emphasis on online sales, or ……? Copyright © 2018 by Glo-Bus Software, Inc 3–84 Questions to Consider in Predicting the Likely Actions of Rivals (continued)  Which rivals will likely enter new geographic markets or make major moves to increase their sales and market share in a particular geographic region?  Which rivals are candidates to expand their product offerings and enter new product segments where they currently have no presence?  Which rivals are candidates to be acquired? Which rivals want make an acquisition and are financially able to so? Scouting competitors to anticipate their next moves allows managers to launch countermoves and to take rivals’ probable moves into account in crafting a firm’s own best course of action Copyright © 2018 by Glo-Bus Software, Inc 3–85 Question 5: What Are the Key Factors for Future Competitive Success?  Key Success Factors (KSFs) ► Are competitive factors that most affect industry members’ ability to compete successfully and profitably ► Are those particular strategy elements, product attributes, resources, capabilities, and/or market achievements with the greatest impact on a company’s future competitive success  Why industry KSFs matter? ► Because how well a firm’s strategy elements, product attributes, resources, and capabilities measure up against the industry’s KSFs shape how financially and competitively successful it will be Copyright © 2018 by Glo-Bus Software, Inc 3–86 Core Core Concept Concept Key success factors (KSFs) are the strategy elements, product attributes, resources, capabilities, and market achievements with the greatest impact on future competitive success in the marketplace KSFs are so important to competitive success that how well a firm measures up on each industry KSF can spell the difference between being a strong competitor and a weak competitor—and sometimes between profit and loss Copyright © 2018 by Glo-Bus Software, Inc 3–87 Strategic Strategic Insight Insight To be a winner, a company’s strategy must compare favorably with rivals on all industry KSFs and be competitively superior on one, maybe two, of the industry’s KSFs Copyright © 2018 by Glo-Bus Software, Inc 3–88 Example: KSFs for Bottled Water Industry   Access to distribution to get a firm’s brand stocked and favorably displayed in retail outlets Image to induce consumers to buy a particular firm’s product (brand name and attractiveness of packaging are key deciding factors)   Low-cost production capabilities to keep selling prices competitive Sufficient sales volume to achieve scale economies in marketing expenditures Copyright © 2018 by Glo-Bus Software, Inc 3–89 Example: KSFs for the Ready-to-Wear Apparel Industry  Appealing designs and color combinations to create buyer appeal  Low-cost manufacturing efficiency to keep selling prices competitive  Strong network of retailers/company-owned stores to allow stores to keep best-selling items in stock  Clever advertising to effectively convey a specific image to induce consumers to purchase a particular label Copyright © 2018 by Glo-Bus Software, Inc 3–90 Identifying Industry Key Success Factors  KSFs are specific to an industry, however they can vary over time within the industry as driving forces and competitive conditions change  An industry rarely has more than five KSFs  Questions that help identify industry’s KSFs: ► On what basis buyers choose between competing brands of rival sellers? That is, what product or service attributes are crucial? ► Given an industry’s competitive rivalry and its prevailing competitive forces, what resources and capabilities must a firm have to be competitively successful? ► What KSF shortcomings will put a firm at a significant competitive disadvantage in its industry? Copyright © 2018 by Glo-Bus Software, Inc 3–91 Using KSFs in Crafting a Winning Strategy  Strategists seek to create a strategy that both allows the firm to compete favorably with rivals on the industry’s future KSFs and that aims at being distinctly better than rivals on one or more of the KSFs  Firms that excel on a KSF enjoy a stronger market position—being distinctly better than rivals on one or two key success factors often translates into competitive advantage Using the industry’s KSFs as cornerstones for the firm’s strategy and trying to gain sustainable competitive advantage by excelling at one particular KSF is a fruitful competitive strategy approach Copyright © 2018 by Glo-Bus Software, Inc 3–92 Strategic Strategic Insight Insight To be a winner, a company’s strategy must compare favorably with rivals on all industry KSFs and be competitively superior on one, maybe two, of the industry’s KSFs Copyright © 2018 by Glo-Bus Software, Inc 3–93 Question 6: Is the Industry Outlook Conducive to Good Profitability?  Factors that determine an industry’s prospects for attractive profitability: ► Whether the industry and the company are being favorably or unfavorably impacted by macro-environmental factors ► The industry’s growth potential ► The anticipated strength of competitive forces—the big issue here is whether competitive forces seem likely to intensify and squeeze industry profitability to subpar levels or whether the company should be able to earn good profits despite the expected strength of competitive forces ► Whether and to what degree industry profitability will be favorably or unfavorably affected by the industry’s driving forces ► Whether the company is strongly or weakly positioned on the industry’s strategic group map ► How well the company’s strategy, product offering, and capabilities stack up against industry KSFs ► The degrees of risk and uncertainty in the industry’s future Copyright © 2018 by Glo-Bus Software, Inc 3–94 Core Core Concept Concept The degree to which an industry’s outlook is attractive or unattractive is not the same for all industry participants and all potential entrants Some companies may be strongly positioned with the strategies and competitive strengths to capture the opportunities an industry presents; others may not Copyright © 2018 by Glo-Bus Software, Inc 3–95 Factors to Consider in Assessing Industry Attractiveness Future industry conditions may be be attractive to some industry participants and some potential entrants, but not attractive to others There are several reasons why  Even if an industry’s outlook is unattractive, a favorably situated and competitively capable firm may see ample opportunity to outcompete weaker rivals and significantly grow its revenues and profits  Weak competitors in an attractive industry may conclude that fighting an uphill battle against stronger rivals holds little promise of eventual market success or even average profitability  Some industry outsiders may conclude they have the resources to readily hurdle the barriers to entering an attractive industry while other outsiders view the same industry as unattractive because of the difficulties they face in challenging the current market leaders and because they have better opportunities elsewhere An industry’s attractiveness depends in large part on whether a firm has sufficient competitively valuable resources and capabilities to be competitively successful and profitable in that environment Copyright © 2018 by Glo-Bus Software, Inc 3–96 What Should a Current Competitor Decide about Investing in Its Industry?  A strong competitor in an attractive industry should invest aggressively to capture opportunities to improve its long-term competitive position  A strong competitor in an unattractive industry should try to protect its position by investing cautiously, striving to take sales and market share away from weaker rivals, while also looking for opportunities to enter other industries  Often, it makes more sense for a competitively weak firm in an unattractive industry to find a buyer, perhaps a rival, to acquire its business rather than struggling (perhaps futilely) to turn things around and boost its financial and strategic performance Copyright © 2018 by Glo-Bus Software, Inc 3–97 ... consultant and author Copyright © 2018 by Glo-Bus Software, Inc 3–5 Learning Objectives To gain command of the basic concepts and analytical tools widely used to diagnose a company’s industry and competitive... battle ebbs and flows, sometimes takes unpredictable twists and turns, and produces winners and losers Copyright © 2018 by Glo-Bus Software, Inc 3–16 Competitive Pressures Created by the Rivalry... Buyer demand is growing rapidly ► Industry members are unable (or unwilling) to strongly contest the entry of new firms Copyright © 2018 by Glo-Bus Software, Inc 3–30 Core Core Concept Concept