Chapter 2 Worksheet - Salem State...

Chapter 3 Worksheet

The concepts in this worksheet correspond directly with the text. If you do not understand the concept or need to refresh your memory, please refer to the text. The purpose of the external analysis is to identify opportunities and threats for the industry you are analyzing. Do not focus on the company under analysis. Focus on the industry in which the company competes. Make sure your analysis of the facts leads to a logical determination of specific opportunities and threats associated with the criterion you are analyzing. Consider each criterion from a strategic perspective. Use the scientific method (data, analysis of the data (cause and effect logic) that leads to conclusions (opportunities or threats). State the specific nature of the opportunity or threat to strengthen your analysis and help you with your subsequent SWOT analysis.

Follow the quality of writing tips (e.g. expressions, word to avoid) listed on the back side of the memo grading rubric.

Refer to the examples of prior case analyses provided on the web site to assist you with understanding the desired quality of analysis and statement of opportunities and threats.

Question 1: What are the strategically relevant factors in the macro-environment (PESTEL analysis)Criteria Facts Analysis Conclusions

The economy at large(Address the economic conditions during the timeframe of the case.)Legislative, regulatory and political environmentsSocio-cultural factors(Factors include societal values, attitudes, cultural factors and lifestyles. Population demographics analysis relies on developing various categories of the population and analyzing their impact on the industry. Typical categories include gender, age, education level, geographic location, income, life stage, household size, occupation, and race. In addition to population demographics, this type of

Crafting and Executing Strategy: The Quest for Competitive Advantage, McGraw-Hill. NY. 19th EditionChapter 3 Worksheet

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categorization includes geographic segmentation (region, city or country size, density), benefit segmentation (comfort, convenience, durability, health, luxury, safety, status), and volume segmentation (usage, loyalty status). Marketing is the usual company source for these types of analysis.) Technological forces(Technological forces include the type and pace of change.)Environment forces(Includes ecological and environmental forces such as weather, climate, climate change, availability of water, the impact on food production.)

2. What is competition like and how strong are the competitive forces?Criteria Facts Analysis Conclusions

RIVALRY Under this heading you are supposed to address how the criterion affects the rivalry between the competitors. When rivalry increases, it generally is a threat to the industry. When the rivalry decreases, it generally is an opportunity for the industry.

How many competitors are there in this industry?What is the relative size (market share based on their percentage of


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industry sales) of each competitor?What is the industry concentration ratio (C4)? Top 4 company’s sales Industry salesWhat is the product or service demand growth rate? (Use the industry’s total sales over multiple years to determine the industry growth rate. Use the rival’s sales over multiple years to determine individual growth rate.)Are rivals using price cuts or other competitive weapons (Refer to table 3.2) to boost unit volume?Are the customer's switching costs low?Are rivals launching moves to change their market share or industry position at the expense of other industry participants?What are the payoffs for strategic moves?Does it cost more to exit the industry than to continue


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participation?How consistent are rivals strategic visions, strategic intents, objectives, strategies, resources and origins?

The greater the consistency, the more likely there is increased rivalry.Are strong new entrants acquiring weaker rivals and launching well-funded, aggressive moves?

THREAT OF ENTRY

Under the heading of new entrants, your analysis should lead you to conclude that new entrants are likely or unlikely to challenge the existing firms in the industry. Therefore, new entrants are likely (threat) or unlikely (opportunity) to pose an opportunity or threat to the existing firms in the industry.

What economies of scale exist in each of the following areas:

Production Purchasing Inbound and

outbound logistics Advertising Financing


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Customer service Raw materials R&D Other steps in the

value chain?(Please note that synergies across the value chains of related diversified corporations also constitute economies of scale.)Cost and resource disadvantages independent of economies of scaleWhat are the learning curve and experience effects to enter the industry?Inability to match the technology and specialized know-how of firms already in the industry. How accessible is the industry's technology?Brand preferences and customer loyaltyHow strong are the “network effects” in customer demand? (e.g. compatibility with other user’s hardware and software)What are the capital requirements to enter?


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What other resource requirements are necessary to enter?Ability to build a network of distributors or retailers and securing adequate shelf spaceWhat regulatory policies apply?What tariffs and trade restrictions apply?Ability or inclination of the industry’s incumbents to launch vigorous initiatives

SUBSTITUTES Under the heading of substitutes, your analysis should lead you to conclude that substitutes are likely or unlikely to challenge the existing products the industry produces. Therefore, substitutes are likely (threat) or unlikely (opportunity) to pose an opportunity or threat to the existing firms in the industry.

What is the availability of attractively priced substitutes?Do buyers view the substitutes as being comparable or better in terms of quality?

Do buyers view the substitutes as being


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comparable or better in terms of performance?Do buyers view the substitutes as being comparable or better in terms of _______ (You fill in the attribute or attributes that are specific to the product or service.)?Can buyers easily switch to the substitutes?

SUPPLIERS Please note, this section applies to the companies that supply the industry under analysis.

Is the item or service a commodity available on the open market from many suppliers who are capable of filling the order?Are there only a few large suppliers to the industry?Is it difficult or costly to switch from one supplier to another or to switch to attractively priced substitutes?Are needed inputs in short supply?Do certain suppliers


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provide a differentiated input that enhances the performance or quality of the industry’s products?Do certain suppliers provide equipment or services that deliver valuable cost saving efficiencies to industry members in operating their production processes?Do suppliers provide an item that accounts for a sizable fraction of the costs of the industry’s products?Are the industry members major customers of suppliers?Does an outside supplier provide a cost advantage over vertical integration?Does an outside supplier provide other advantages over vertical integration?What types of working relationships exist? Start by listing the types of working relationships that


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exist. Then, focus on the strategic importance of relationships with suppliers in this industry. Are these relationships of strategic value for the competitors in the industry? If so, why and how do the relationships impact the competitive structure and environment of the industry?

BUYERS Please note, this section applies to the companies that purchase goods or services from the industry under analysis. Buyers include any purchaser downstream from the industry.

What is the cost to the buyer of switching to a competitor or a substitute?How many buyers are there in this industry?What is the relative size (based on the amount they purchase) of each buyer?What is the buyer's knowledge level?


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Can the buyers threaten the industry with backward integration?Are the industry's products discretionary purchases?


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3. What factors (and how are they) causing the industry's competitive structure and business environment to change? Criteria Facts Analysis Conclusions

Long term industry growth rateIncreasing globalization of the industryEmerging internet and new e-commerce capabilities and applicationsWho buys the product and how do they use itProduct innovationTechnological changeManufacturing process innovationProduct and Marketing innovationEntry of major firmsExit of major firmsDiffusion of technical know-how across companies and countriesChanges in cost and efficiencyReductions in uncertainty and business riskRegulatory and government policy changesSocietal concerns, attitudes and lifestyle changes


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4. What market positions do industry rivals occupy and which companies are in the strongest/weakest positions?

High

Price Medium

Low

narrow broad market scope

Develop additional strategic group maps using additional criteria such as quality, image, value added, resources available, or competitive advantages. Price, quality and image are not the only factors that you can use for developing strategic group maps to determine which companies are in the strongest and weakest positions. You will probably find that some companies are stronger on some dimensions while weaker on others.

Determine the opportunities and threats arising from the application of this tool (pages 89-90). Do the industry driving forces and competitive pressures favor some strategic groups and hurt others? Does the profit potential of different strategic groups vary due to the strengths and weaknesses in each group's market position?


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5. What strategic moves are rivals likely to make next?List the competitors

What are the competitor’s current strategies? Which is the best suited for the driving forces? Which strategies are weak or flawed?

What are the competitor’s current objectives? What is the extent to which each rival is meeting its objectives?

What are the competitor’s capabilities (current and in development)? How well do these capabilities enable them to perform in the market, pursue opportunities and defend against threats?

What key assumptions underlie each competitor’s strategy about itself, its rivals, market forces and macro-environmental forces?


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6. What are the key factors for competitive success (in this industry)? How does each competitor fare on each success factor? To use this tool, start by determining which of the KSFs apply. Then provide your justification for choosing these KSFs. Generally, there are less than ten (10) KSFs applicable to an industry. Then assess each of the industry competitor's capabilities for the KSF. Please note there is space provided for three competitors. You should add the number of columns necessary to evaluate all of the competitors in an industry. You should also add industry specific KSFs when they apply.

Competitor Competitor CompetitorYou can provide your justification for selecting the KSFs underneath the KSF.

What is their capability for this factor?

Analysis and conclusions





Technology related KSFsScientific research and expertiseTechnical capability to make innovative improvements in production processesProduct innovation qualityExpertise in a given technologyInternet expertise

Manufacturing (production of the product or service) related KSFsLow-cost production efficiencyManufacturing qualityHigh fixed asset utilizationLow cost plant locationsAccess to adequate supplies of skilled laborHigh labor productivityLow cost product (service) design and engineeringManufacturing flexibility

Distribution related KSFs(Note: This applies to inbound and outbound logistics.)Network strength


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Electronic (Internet) trackingAmple space on retailer's shelvesCompany owned retail outletsLow distribution costsSpeed of distribution

Marketing related KSFsFast, accurate technical serviceCustomer serviceAccurate buyer order fillingBreadth of product line and selectionMerchandising skillsAttractive styling/packagingGuarantees and warrantiesAdvertising

Skills related KSFsWorkforce talentQuality control know-howDesign expertiseExpertise in a particular technologyAbility to develop innovative products and product improvementsSpeed of getting new products to market

Organizational capability KSFsSuperior information systemsAbility to respond quickly to shifting market conditionsUse of the Internet and Enterprise Information systemsOverall experienceManagerial know-how


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Other KSFsImage and reputationOverall low costConvenient retail locationsPleasant employees in all customer contact positionsAccess to financial capitalPatent protectionOthers?

7. Is this industry attractive and what are its prospects for above-average profitability?

Criteria Facts Analysis ConclusionsHow is the company impacted by the macro-environment?Does competition permit adequate profit potential?Will the prevailing driving forces positively or negatively impact profit potential?What are the future uncertainties and risks for this industry?How severe are the problems (e.g. regulatory, environmental, buyer demand, capacity, increased competition) the industry faces?What is the company's relative competitive potential in this industry?What is the company's ability to capitalize on its competitor's weaknesses?Can the company defend against or is it insulated from the factors that make this industry unattractive?How well do the company's capabilities match the industry's KSFs?


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Chapter 2 Worksheet - Salem State...

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