Expert answer:Answer four questions

Solved by verified expert:Hello, I want you to read the article which on the two pictures attached. And then answer these four questions.-For the first question you need to read chapter 4 and it is attached. (Generic business level strategy)-And for the second question you need to read chapter 2 (external)The slides in the chapters are few and simple.The questions are:1- Which generic business level strategy has impact used?2- What and how external factors have affected impact’s strategy?3- Why has the newspapers industry become not profitable?4- Assume your company is small. Based on the implication the case provides, how could you enter an industry dominated by large incumbents?I want the answers shorts and use simple vocabulary.Please read it carefully and the answer will be from the chapters and the article.Let me know if you have any question.Thank you.
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topic_02_external_analysis_3_.ppt

topic_03_internal_analysis_2_.ppt

topic_02_external_analysis_3_.ppt

topic_04_generic_business_level_strategy_1_.ppt

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Topic 2: External Analysis
The Identification of Opportunities and Threats
1-1
Learning Objectives
 Review the primary technique used to analyze competition in
an industry environment: the Five/Six Forces model.
 Explore the concept of strategic groups and illustrate the
implications for industry analysis.
 Discuss how industries evolve over time, with reference to the
industry life-cycle model.
 Show how trends in the macroenvironment can shape the
nature of competition in an industry.
2-2
Analyzing the External Environment
Macro
Environment
Demographic
Industry
Environment
Opportunities
Sociocultural
Sources of revenue
and profit
Competitors
Global
Economic
The Firm
Customers
Suppliers
Threats
Technological
Political/Legal
Factors endangering
revenue and profit
2-3
The Industry Context
Industry Levels of Profitability, 1996-2006
Industry
ROIC
Industry
ROIC
Beverages
25.0%
Bottlers
4.0%
Cigarettes
18.5%
Computers
4.0%
Pharmaceuticals
15.5%
Agricultural
3.0%
Steel
5.5%
Airlines
– 2.0%
Railroads
5.5%
Wireless
– 3.5%
Trucking
5.0%
Strategy Implications
 The industry environment in which firms compete exerts strong
influence on firms’ profitability.
 Firms should choose and compete in profitable industries
2-4
What Is an Industry?
 Industry
− A group of firms that produce or sell the same or similar
products to the same market
 Sector
− Group of closely related industries.
 Market Segments
− Distinct groups of customers within a market that can be
differentiated on the basis of their: a) individual attributes;
b) specific demands.
Defining industry boundaries
 SIC and NAIC codes
 Product-based
 Function-based
2-5
The Industry Environment: Three Players
Suppliers
Competitors
Customers
Supplier Analysis
Competitor Analysis
Customer Analysis
– Who are important
suppliers?
– Are they
concentrated?
– Are suppliers’
products easily
available?
– Who are important
competitors?
– What are their goals and
objectives?
– What are their
strategies?
– How many strategic
groups are there?
– What resources and
capabilities do they
possess?
– Who are important
customer groups
(existing and
potential)?
– What are their needs?
– How are their needs
satisfied?
– Are their needs
satisfied well?
2-6
Porter’s Competitive Forces Model
Threat
Five forces
+
The sixth force
2-7
Threat of Entry
Threat of Entry
Degree to which potential competitors can enter an industry and intensify
rivalry and measured by the height of entry barriers.
Entry barriers are influenced by following factors in
the focal industry:
 Economies of scale
 Customer switching costs
 Brand loyalty
 Access to distribution
 Absolute cost advantage
 Capital requirements
channels
 Government regulations
2-8
Bargaining Power of Buyers
Buyer power
The ability of buyers to bargain down prices or to raise costs by demanding
better product quality and service
 Buyer power increases when:
 Buyers have choices.
 Buyers purchase in large quantities.
 The industry depends upon buyers for a large percentage of its
total orders.
 Buyers’ switching costs are low.
 Buyers can pose threat to integrate backward into the sellers’
industry.
2-9
Bargaining Power of Suppliers
Supplier Power
The ability of suppliers to raise input prices, or to raise the costs of the
industry in other ways, e.g., by providing poor-quality inputs or poor service.
Supplier power increases when:
 Suppliers are large and few in number (supplier concentration)
 Suitable substitute products are not available
 Suppliers control a scarce input
 Suppliers’ products are critical to the buyers’ success
 Suppliers’ products create high switching costs
 Suppliers pose a threat of forward integration
2-10
Threat of Substitute Products
Threat of substitutes
Degree to which products in other industries can satisfy similar customer needs
The threat of substitutes increases when:
 The substitute’s price is lower
 The substitute’s quality is equal to or greater than the existing
product
 Buyers face few switching costs (financial and non-financial)
2-11
Rivalry Among Established Companies
Rivalry
The competition between companies within an industry to gain market share.
Competition takes two forms: price competition and non-price competition.
Price competition destroys industry profitability.
The intensity of rivalry are affected by four factors:
 Industry competitive structure (the number and size distribution
of competitors)
 Industry demand
 Cost conditions
 Exit barriers
2-12
The Five Forces and Industry Attractiveness
 Interpreting the individual force analysis
Threat of Entry
Low
Bargaining power of
suppliers and buyers
Low
Threats from
substitutes
Low
Attractive
Industry
Low
Rivalry among
established firms
High profit potential
 Assessing the profitability of the industry
 The combining effect of all forces
2-13
The Sixth Force
Power of Complement Providers
Power of Complementors
▪ Companies that sell products that add value to (complement) the products of
companies in an industry because, when used together, the combined
products better satisfies customer demands.
▪ Can limit the price that companies in an industry can charge for their product
Two Examples
Hot dogs
+
More sales
 Weak complementors
Slow industry growth and limit
profitability
Buns
DVD
+
DVD player
 Strong complementors
Provide an increased opportunity
for creating value
More attractive
offering
2-14
Competitive Forces and Opportunities/Threats
Potential Opportunities
Threats












Low buyer power
Low supplier power
Low threat of entry
Low threat of substitutes
Low rivalry
Strong complementors
High buyer power
High supplier power
High threat of entry
High threat of substitutes
High rivalry
Weak complementors
2-15
Strategic Groups
Strategic groups
A set of firms emphasizing similar strategic dimensions and using
similar strategies
Implications
 Intra-strategic group competition is more intense than is inter-
strategic group competition due to:
 Similar market positions
 Similar products
 Similar strategic actions
 The strengths of the competitive forces differ across industry
strategic groups
 Mobility barriers exist between strategic groups
2-16
Strategic Groups: Example
2-17
Industry Life Cycle
2-18
Industry Life Cycle Analysis
Embryonic/Emerging
Industries
Growth Industries
 Demand: Low (limited buyers;
 Demand: Increasing (more





unfamiliar with the product)
Product price: High
Production: limited
Distribution channel: Poor
Entry Barrier: Based on access
to key technological knowhow
Rivalry: Low; focusing on nonprice dimensions





first-time buyers; more familiar
with the product)
Product price: Gradually
decreasing
Production: Expanding
Distribution channel:
Developing
New Entry: Increasing
Rivalry: Relatively low
2-19
Industry Life Cycle Analysis (cont.)
Shakeout
 Demand: Saturation Level
(fewer first-time buyers)
 Rivalry: High (price wars)
 Exit: High (bankruptcy of
inefficient companies)
 New Entry: Deterred
2-20
Industry Life Cycle Analysis (cont.)
Mature Industries
Declining Industries
 Demand: Saturated
 Demand: Decreasing






(replacement purchases)
Growth Opportunity:
Population expansion
Production: Large scale
Distribution channel: Welldeveloped
Entry barrier: High
Rivalry: High; trying to avoid
price wars
Industry Structure:
Consolidated
 Industry Growth: Negative
 Rivalry: High
2-21
The Macro Environment
Dimensions
Some Important Variables to be Monitored
• General domestic product
• Interest rates
• Inflation rates
• Fuel prices
• Disposable income
• Unemployment rate
……
Demographic
• Population size
• Age structure
• Geographic distribution
• Ethnic mix
• Income distribution
……
Sociocultural
• Local lifestyle trends
• Workforce diversity
• Women in workfoce
• Attitude toward work and leisure
• Attitude toward consumerism
……
Technological
• Communication technology
• Application of knowledge
• R&D support
……
Political/Legal
• Political environment
• Taxation laws
• Deregulation philosophies
• Antitrust laws
• Private property laws
……
Global
• Important political events
• Important global markets
• Newly industrialized countries
• Different cultural attributes
…….
Economic
2-22
Summary
The Macro Environment
(The Six-Component Model)
Strategy
The Industry Environment


Industry boundary and
players
Industry competitive
forces (five/six forces)

Strategic groups

Industry life cycle
Opportunities
Superior
Returns
Threats
2-23
Topic 3: Internal Analysis
The Identification of Strengths and Weaknesses
3-1
Learning Objectives
 Understand resources, capabilities/distinctive competencies,
and activities
 Discuss how to assess a resource/capability
 Discuss how to assess a firm’s financial performance
 Explain the concept of organizational structure and describe
the basic organizational forms
3-2
Internal Environment: Key Issues
 Goals, performance, and strategy
 Vision, mission, and culture
 Financial goals and performance
 What is the firm’s strategy at corporate
and business levels?
 Resources, capabilities, and activities
Competitive
Advantage
Strengths
Weaknesses
Competitive
Disadvantage
 Organizational structure and
processes
3-3
Resources
3-4
Capabilities and Distinctive Competencies
Capabilities
 The capacity to deploy resources that have been purposely
integrated to achieve a desired end state.
 Emerge over time through complex interactions among different
resources.
 Are often developed in specific functional areas.
Distinctive Competencies
 Firm-specific strengths that allow a company to differentiate its
products from those offered by rivals, and/or achieve substantially
lower costs than its rivals.
3-5
Capabilities: An Example
3-6
Resource/Capability Assessment
The VRIO Framework
Definition
Competitive Implication
Valuable
The resource/capability
helps the firm
neutralize threats or
exploit opportunities
Competitive Parity
If the resource/capability is valuable
and exploitable, but not rare
Rare
The resource/capability
is not possessed by
many others
Temporary Competitive
Advantage
If the resource/capability is valuable,
rare, and exploitable, but imitable
Inimitable
The resource/capability
is not easy to copy
▪ Causal ambiguity
Sustainable competitive
advantage
If the resource/capability meets all
four criteria
The company is
Organization
organized to exploit the
(Exploitable) resource/capability
3-7
Activities
The Firm Value Chain
3-8
Outsourcing
Outsourcing
 The purchase of a primary activity or a support activity from an
external supplier.
̶ Few organizations possess the resources and capabilities
required to achieve competitive superiority in all primary and
support activities.
 Effective outsourcing increases flexibility, mitigate risks, and reduce
capital investment
How to Outsource Effectively?
 Do Not outsource activities in which the firm itself can create and
capture value.
 Do Not outsource primary and support activities that are used to
neutralize external threats or to utilize external opportunities.
3-9
Resources, Capabilities, Activities, and Value Creation
How to create value and make profits?
Resources
Capabilities
Activities
Creating value
/Making profits
How to design activities and develop resources/capabilities?
3-10
Assessing Firm Financial Performance
Value Creation
 Profitability of a company depends on the:
 value customers place on its products (reflecting the utility
they get from a product, or, the happiness or satisfaction gained
from consuming or owning the product)
 price it charges for its products.
 costs of creating those products.
 More pricing options when customer value is high:
 raising prices to reflect the value.
 reducing prices to induce more customers to purchase its
products.
3-11
Value Creation Model
3-12
Value Creation: Pricing Options
3-13
Assessing Firm Financial Performance
Profitability
3-14
Analyzing Profitability: An Example
3-15
Assessing Firm Financial Performance
Financial Ratios
3-16
Organizational Structure
Organizational Structure
The combination of the location of decision-making responsibilities,
the formal division of the organization into subunits, and the
establishment of integrating mechanisms to coordinate the activities
of the subunits.
Basic Organizational Structures
 Functional structure
 Multidivisional structure
 Matrix structure
3-17
Organizational Structure
Three Components
Horizontal Differentiation (Organizational Units)
The formal division of the organization into subunits.
▪ Subunits can be teams/projects, functions/departments, and divisions.
Vertical Differentiation (Vertical Relationship)
▪ The location of decision making responsibilities within a structure,
referring to centralization or decentralization
▪ The number of layers in a hierarchy, referring to whether the
organization is tall or flat
Integrating/Coordinating Mechanisms
▪ Processes and procedures used for coordinating subunits
▪ Integration/coordination approaches: direct contact; liaison roles;
teams; informal mechanisms
3-18
Functional Structure: An Example
Head Office
R&D
Purchasing
Production
Marketing
HRM
Advantages
Disadvantages
▪ Simple and inexpensive
▪ Rapid decision making
▪ Effective in smaller firms and those
with a single product category
▪ Accountability at the top
▪ Poor communications among
functional departments
▪ Dysfunctional in multiproduct and
multimarket firms
3-19
Multidivisional Structure: An Example
3-20
Multidivisional Structure
Advantages and Disadvantages
Advantages
Disadvantages
 Clear accountability and
 Functional resources duplicated
simplifying control
 Facilitating comparison
between divisions
 Effective in multiproduct and
multimarket firms
 Dysfunctional competition
between divisions
 Coordination across divisions
can be difficult if cooperation is
in the best interests of one’s
own division
3-21
Matrix Structure: An Example
Corporate
Office
R&D
Operations
Marketing
Finance
Product or
Region A
Product or
Region B
Product or
Region C
Product or
Region D
3-22
Matrix Structure
Advantages and Disadvantages
Advantages
Disadvantages
 Multiple channels of
 Dual reporting channels
communication
 Functional resources shared
 Facilitating learning
 Dual sources of reward and
punishment
 Shared authority
3-23
Summary
The Internal Environment

Goals, performance, and
strategy
Competitive
Advantage
Strategy
Strengths

Superior
Returns
Resources, capabilities,
and activities
Weaknesses

Organizational structure
and processes
Competitive
Disadvantage
3-24
Topic 2: External Analysis
The Identification of Opportunities and Threats
1-1
Learning Objectives
 Review the primary technique used to analyze competition in
an industry environment: the Five/Six Forces model.
 Explore the concept of strategic groups and illustrate the
implications for industry analysis.
 Discuss how industries evolve over time, with reference to the
industry life-cycle model.
 Show how trends in the macroenvironment can shape the
nature of competition in an industry.
2-2
Analyzing the External Environment
Macro
Environment
Demographic
Industry
Environment
Opportunities
Sociocultural
Sources of revenue
and profit
Competitors
Global
Economic
The Firm
Customers
Suppliers
Threats
Technological
Political/Legal
Factors endangering
revenue and profit
2-3
The Industry Context
Industry Levels of Profitability, 1996-2006
Industry
ROIC
Industry
ROIC
Beverages
25.0%
Bottlers
4.0%
Cigarettes
18.5%
Computers
4.0%
Pharmaceuticals
15.5%
Agricultural
3.0%
Steel
5.5%
Airlines
– 2.0%
Railroads
5.5%
Wireless
– 3.5%
Trucking
5.0%
Strategy Implications
 The industry environment in which firms compete exerts strong
influence on firms’ profitability.
 Firms should choose and compete in profitable industries
2-4
What Is an Industry?
 Industry
− A group of firms that produce or sell the same or similar
products to the same market
 Sector
− Group of closely related industries.
 Market Segments
− Distinct groups of customers within a market that can be
differentiated on the basis of their: a) individual attributes;
b) specific demands.
Defining industry boundaries
 SIC and NAIC codes
 Product-based
 Function-based
2-5
The Industry Environment: Three Players
Suppliers
Competitors
Customers
Supplier Analysis
Competitor Analysis
Customer Analysis
– Who are important
suppliers?
– Are they
concentrated?
– Are suppliers’
products easily
available?
– Who are important
competitors?
– What are their goals and
objectives?
– What are their
strategies?
– How many strategic
groups are there?
– What resources and
capabilities do they
possess?
– Who are important
customer groups
(existing and
potential)?
– What are their needs?
– How are their needs
satisfied?
– Are their needs
satisfied well?
2-6
Porter’s Competitive Forces Model
Threat
Five forces
+
The sixth force
2-7
Threat of Entry
Threat of Entry
Degree to which potential competitors can enter an industry and intensify
rivalry and measured by the height of entry barriers.
Entry barriers are influenced by following factors in
the focal industry:
 Economies of scale
 Customer switching costs
 Brand loyalty
 Access to distribution
 Absolute cost advantage
 Capital requirements
channels
 Government regulations
2-8
Bargaining Power of Buyers
Buyer power
The ability of buyers to bargain down prices or to raise costs by demanding
better product quality and service
 Buyer power increases when:
 Buyers have choices.
 Buyers purchase in large quantities.
 The industry depends upon buyers for a large percentage of its
total orders.
 Buyers’ switching costs are low.
 Buyers can pose threat to integrate backward into the sellers’
industry.
2-9
Bargaining Power of Suppliers
Supplier Power
The ability of suppliers to raise input prices, or to raise the costs of the
industry in other ways, e.g., by providing poor-quality inputs or poor service.
Supplier power increases when:
 Suppliers are large and few in number (supplier concentration)
 Suitable substitute products are not available
 Suppliers control a scarce input
 Suppliers’ products are critical to the buyers’ success
 Suppliers’ products create high switching costs
 Suppliers pose a threat of forward integration
2-10
Threat of Substitute Products
Threat of substitutes
Degree to which products in other industries can satisfy similar customer needs
The threat of substitutes increases when:
 The substitute’s price is lower
 The substitute’s quality is equal to or greater than the existing
product
 Buyers face few switching costs (financial and non-financial)
2-11
Rivalry Among Established Companies
Rivalry
The competition between companies within an industry to gain market share.
Competition takes two forms: price competition and non-price competition.
Price competition destroys industry profitability.
The intensity of rivalry are affected by four factors:
 Industry competitive structure (the number and size distribution
of competitors)
 Industry demand
 Cost conditions
 Exit barriers
2-12
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