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Lecture 2_Industry Analysis_Post - Industry Analysis...

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Industry Analysis – External Environment Macro Environment, Industry Environment, & Intra-Industry Analysis
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Decomposition of Variance in Profitability Source: Anita M. McGahan and Michael E. Porter, “How Much Does Industry Matter Really? Strategic Management Journal, 1997 Year 2% Industry 18% Corporate parent 4% Business segment 30% Transient 46%
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You need structured ways of thinking about the environment …that capture the richness of the real business world …but separate signal from noise The Strategic Problem To craft an effective strategy, you must take into account the external environment/landscape: To decide whether to put your firm in an environment (entry) To decide whether to extricate your firm from an environment (exit) To position your firm to succeed in a given environment To assess the effect of a major change (e.g., deregulation) To shape the environment But the environment is enormously complex
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Critical Steps in Environment Analysis Step 1: Analyze the macro-environment Step 2: Analyze industry - Five competitive forces - Coopetition and Value Net - Six forces analysis Step 3: Analyze the intra-industry structure and identify critical differences between groups - Market segmentation - Strategic groups -Competitor analysis Step 4: Uncover the critical success factors
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1. Macro Environment Analysis Analyzing the External Forces on the Industry & Firm
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Political/L egal Industry Environment Demographic Economic Climate Technological Change International Events Competitive Environment Socio-cultural Macro Environment Analysis
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2. Industry Environment Analysis Analyzing the Competitive Structure and Behavior of Industries
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Determinants of Superior Performance Why do some industries and firms persistently outperform others? Sources of profits above competitive level are determined by: Industry attractiveness Strategic group attractiveness Competitive position attractiveness Profits earned are determined by: the value of the product/service to customers the intensity of competition the relative bargaining power at different levels in the production chain (i.e. with different players)
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Threat of New Entry Rivalry Among Existing Competitors Bargaining Power of Customers Threat of Substitutes Bargaining Power of Suppliers Porter’s Five Forces Analysis Source: Michael E. Porter, Competitive Advantage (New York: Free Press, 1985)
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Degree of Rivalry Concentration and balance Industry growth Fixed costs/Value added Product differences Brand identity Switching costs Over-capacity Diversity of competitors Corporate stakes Exit barriers
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Entry Barriers Economies of scale Product differentiation Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages Learning curve Access to necessary inputs Low cost product design Government policy Expected retaliation
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Power of Buyers Intrinsic Strengths Buyer
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