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Session_10_Competitor_Analysis

Session_10_Competitor_Analysis - CompetitorAnalysis...

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Competitor Analysis
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A snapshot of some key issues and  analytical tools Organizational Analysis  (S & W) VRIO Strategic Coherence Appraisal Matrix Value Chain Environmental Analysis (O & T) Structure-Conduct-Performance  framework Five Forces Model Strategic Choices Use of value chain for competitive  positioning (cost vs. differentiation) Segmentation analysis TWOS matrix Strategic Choices under uncertainty Scenario Analysis Real Options Analysis Strategic (game theoretic) analysis
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Risk and Uncertainty Thus far, we have assumed that the strategic  decision making occurs under known conditions  The concepts of risk and uncertainty relate to non- deterministic outcomes When there is more than one possible outcome of a  decision or scenario Future profitability is not certain
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Two Sources of Risk and  Uncertainty Exogenous circumstances  Payoffs are determined exogenously or by chance   Results in decision theoretic analysis (as in Finance) E.g. natural causes or outside shocks to industry Endogenous actions and mutual interdependence Caused due to strategic reactions of competitors Results in game theoretic analysis (as in industrial  organization) E.g. actions and reactions in competitive rivalry
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 Difference between Risk and  Uncertainty Risk implies that one can assign probabilistic  distributions to expected outcomes Expected values can be determined Uncertainty implies that probabilistic distributions  cannot be assigned Expected values cannot be determined
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Impact of Risk and Uncertainty on  Strategic Choices All other things equal, lower risk and uncertainty is preferable Failure to consider uncertainty and risk in strategic decisions makes it  difficult for firms to satisfy critical stakeholders Some strategic choices are more valuable under conditions  of high risk and uncertainty than others Strategic choices that enhance firm flexibility and keep options open  are of greater value under conditions of high uncertainty and risk than  otherwise
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Traditional Evaluation Of Financial  Projects Net Present Value or Discounted Cash Flow  Analysis time CF + -
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Traditional incorporation of Risk and  Uncertainty in NPV Analysis Risk and uncertainty incorporated through the discount rate When none are present, appropriate discount rate is the risk free  opportunity cost of capital (e.g. rate of return on government  securities) When firm is expanding investment, appropriate discount rate is  opportunity cost of firm capital When firm is engaging in new ventures and innovation,  risk/uncertainty is perceived to be higher, and discount rate is  appropriately adjusted on the basis of the risk class of the  strategies
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