Industry analysis 2- Strategy

​Industry Analysis 2: Industry Dynamics and Strategic Group Mapping

By Sony Sreejith

LEARNING OBJECTIVES

•Understand different approaches as extension to Five Forces

•Understand the factors that shape industry dynamics and their effects on future industry attractiveness

•Explain why in-depth evaluation of a business’s strengths and weaknesses in relation to the specific industry conditions it confronts is an essential prerequisite to crafting a strategy that is well matched to its external situation

The thinking behind Porter’s Five Forces

•Porter’s Five Forces framework is used to understand how firms can exploit opportunities and weaknesses of other players in the industry and how to defend themselves from competitive pressures in the industry environments by knowing the intensity of each forces on the Porters five.

•To achieve a sustainable competitive advantage and generate superior returns, a firm must understand its interdependencies with other players and anticipate the consequences of its choices.

•Five Forces helps answer the following questions:

- How do businesses find a profitable position?

-Where are the most attractive opportunities to increase company’s profits?

-What are the potential threats to existing profits and how should businesses counter them?

Porters Five Force Framework

•It’s possible to make good money in a tough industry

–The key is to find a way to deal effectively with the five force

•There are different ways to react to competitive forces

•How can we turn turn threats into opportunities?

​The thinking behind Porter’s Five Forces

Open Ended

How can we turn turn threats into opportunities?

Few examples,

-Increase Barriers to entry by looking for ways to increase customer switching costs, lock in distribution channels, exploit economies of scale

-To increase bargaining power against suppliers, either secure multiple sources or design products using standard components

-Counter substitutes by producing your own substitutes (also known as cannibalisation) or by exploiting complements

How can we turn turn threats into opportunities?

Open Ended

- A new app can be launched easily, customers can switch between brands freely.
- Only two suppliers dominate the chip market for smartphones.
- Many substitute products exist, but switching costs are high.
What would managers do to defend their market in each case?

Complementary Industries

​A product or service that adds value when used together with the industry product

Complements can be both opportunities and threats, effectively a sixth force.

Complementary Industries
Can you group them into complements

Complementary Industries
Can you group them into complements

Open Ended

In groups, list all possible complementary industries for Smartphones and Airlines, and explain how each adds value?

Group Task

1. Each team will chase industry trends to show how external forces reshape industries.

2. Drivers of change- Technological Change , Globalization, Changing Societal Concerns, Attitudes & Lifestyles, Regulatory & Policy Changes, Entry/ Exit of Major Firms, product & Marketing Innovation, Demographic & Buyer Behavior Changes

3. Discuss in group and identify a real-world example of how that driver is changing an industry. (Choose an industry of your choice for each driver)
   
   

Group Task- 20 minutes

1. Which drivers are currently most powerful in your chosen industry?

2. Are these forces making the industry more or less attractive for new entrants or incumbents?

3. How can firms anticipate and prepare for these changes strategically?

4. Do any of these drivers interact with each other, say for instance, does technology accelerate globalization?

5. Share your discussion points

Group Task

1. Which drivers are currently most powerful in your chosen industry?

2. Are these forces making the industry more or less attractive for new entrants or incumbents?

3. How can firms anticipate and prepare for these changes strategically?

4. Do any of these drivers interact with each other, say for instance, does technology accelerate globalization?

Final Task- Strategic groups

What is your understanding on Strategic Groups?

What is your understanding on Strategic Groups?

What is your understanding on Strategic Groups?

1. ​A set of firms serving customers in the same market, with similar (substitutable) products or services, and comparable strengths

2. A set of firms emphasising similar strategic dimensions and using similar strategies Internal competition between strategic group firms is greater than between firms outside that strategic group i.e. there is more intense rivalry between firms within strategic groups

An example

Can you place these airlines into strategic groups?