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Strategy Analysis

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8 views18 pages

Strategy Analysis

Uploaded by

VISHUDDH JAIN
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 2:

Strategy
Analysis
The Importance of Strategy Analysis

• Strategy drives the actions of an organization.

• Studying a firm’s strategy provides:


– An understanding of what drives risks, profitability,
and competitive advantages
– A basis for future performance to be forecasted
– An idea of how to measure the success of a firm’s
actions

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or Chapter 2: Strategy Analysis
duplicated, or posted to a publically accessible website, in whole or in part.
. Palepu & Healy
Key Concepts in Chapter 2

• The importance of industry-level analysis

• Porter’s five forces framework for industry


analysis

• Competitive strategy analysis of the firm

• Corporate strategy analysis for multi-business


organizations
The Importance of Industry-Level Analysis

• A firms strategy is heavily influenced by the


industry it belongs to.

• Understanding the environment and competitive


forces within an industry helps with evaluating
the quality of a particular firm’s strategy.

• Porter created a useful framework to evaluate


the competitive forces at work in an industry, as
Seen in figure 2-1.
Industry
Structure and
Profitability
Competitive Force 1:
Rivalry Among Existing Firms
• Higher degrees of competition among firms:
– Push prices towards the marginal cost of production.
– Make non-price dimensions of products or services
more important.

• Determinants of the intensity of competition


among firms:
– Industry growth rate.
– Concentration and balance of competitors.
Rivalry Among Existing Firms, continued

• Determinants of the intensity of competition


among firms:
– Degree of differentiation in products and services and
switching costs.

– Scale/Learning economies and ratio of fixed to


variable costs.

– Excess capacity and exit barriers.


Competitive Force 2:
Threat of New Entrants
• The ease which a new firm can enter an industry
will affect the profitability of other firms within the
industry.

• Factors affecting the barriers to entry are:


– Economies of scale
– First mover advantage
– Relationships with suppliers and customers
– Legal barriers
Competitive Force 3:
Threat of Substitute Products
• The degree to which substitute products or
services exist affects the industry’s bargaining
power with suppliers and customers, and
ultimately profitability.

• The degree to which substitutes exist depends


upon the relative price and performance of
competing products or services, and the
willingness of customers to accept substitutes.
Competitive Force 4:
Bargaining Power of Buyers
• Buyer bargaining power can exert downward
pressure on prices.

• Factors that can affect this bargaining power


are:
– Buyer price sensitivity to product or service
– Relative bargaining power of buyers
Competitive Force 5:
Bargaining Power of Suppliers
• A mirror image of the bargaining power of
buyers.

– Suppliers have bargaining power when there are few


substitutes and/or few suppliers relative to the number
of customers demanding a product or service.
Applying Industry Analysis to the Personal
Computer Industry
• Despite the sales volume and ubiquity of the
product, profitability in the industry was low.

– Competitive forces

– Bargaining power of suppliers and buyers


Competitive Strategy Analysis
• Individual firms must choose appropriate
strategies to succeed within their industry
segment

• Two basic competitive strategies are:


– Cost leadership
– Product / service differentiation

• Figure 2-2 conveniently summarizes aspects of


cost leadership and differentiation
Strategies
for Creating
Competitive
Advantage
Achieving and Sustaining
Competitive Advantage
• Choice of strategy is an important first step for a
firm. The likelihood of achieving and sustaining
competitive advantage must be evaluated.

• Factors to evaluate include:


– Resources and capabilities to implement strategies.

– Whether the firm’s activities, infrastructure, and other


operating elements consistent with its competitive
strategy.
Applying Competitive Strategy Analysis to
the TJX Companies
• How was TJX’s growth in income and market
share achieved and sustained?

– Low-cost competitive strategy


– Distribution channel
– Mass customization
– Outsourcing service
– Cash management
– Investment in R&D
Corporate Strategy Analysis

• Companies with multiple business segments


require an analysis how the separate segments
are managed within the corporate governance
structure.
• Factors to analyze include:
– Transaction costs
– Specific benefits to operating under one corporate
umbrella

• The case of Tata Group.


Concluding Comments

• The industry analysis approach has notable


strengths and some limitations.
• Porters five forces framework is valuable in
evaluating the strategy and actions of firms
within an industry.

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