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Strategy Analysis - Strategy analysis What is Strategy...

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Strategy analysis
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What is Strategy Analysis? The objective of business strategy analysis is to: (a) determine the competitive conditions in the industry and (b) assess the firm's plan for dealing with those conditions Business strategy analysis provides the foundation for forecasting and valuation The analyst has no context for assessing historical performance without performing business strategy analysis
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Two Steps Step 1: Evaluate the industry's profit potential by identifying key profit drivers and qualitative characteristics (Industry Analysis) Step 2: Evaluate the firm's strategy for competing in the industry based on cost leadership and/or differentiation. Determine whether the company has created a sustainable competitive advantage (Firm Analysis)
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Industry Analysis There are a number of frameworks the analyst can use to assess industry profitability. The important thing is that the analyst should assess industry attractiveness, regardless of which framework is used We will focus on Porter's Five Forces, the most popular framework
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Porter’s Five Forces
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Force 1: Rivalry Among Existing Firms Rivalry is high when Competitors are numerous Competitors have equal size Industry growth is slow Fixed costs are high Products are undifferentiated Brand loyalty is insignificant Consumer switching costs are low There is excess production capacity Exit barriers are high Discussion Question: Is the level of rivalry high or low in Apple’s industry? Why?
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Force 2: Bargaining Power of Buyers Buyers’ bargaining power is high when Buyers are more concentrated than sellers Buyer switching costs are low Threat of backward integration is high Buyer is price sensitive
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