Strategic Management

DRIVING FORCES AND KEY SUCCESS FACTORS

Concept of Driving Forces

• Forces that dictate the nature of change in the industry structure and competitive environment
• Forces that create pressure or incentives to change

Assessing the Impact of Driving Forces

• Impact on the demand of the industry product
• is it rising?
• is it falling?
• Impact on the competition
• more or less intense
• Impact on profitability
• higher or lower?

Which companies are in the strongest/weakest positions?

• Strategic group mapping
• Strategic group consists of those rival firms which have similar competitive approaches and positions in the market

Strategic Groups within Industries

• Strategic groups are groups of companies that follow a business model similar to other companies within their strategic group - but are different from that of other companies in other strategic groups
• The basic differences between business models in different strategic groups can be captured by a relatively small number of strategic factors
• An industry contains one strategic group when all rivals have essentially same strategies
• When each rival pursues distinctively different strategies, there could be as many strategies groups as there are competitors

Implications of Strategic Groups

• The closest competitors are within the same Strategic Group and may be viewed by customers as substitutes for each other
• Each Strategic Group can have different competitive forces and may face a different set of opportunities and threats
• Mobility Barriers - factors within an industry that inhibit the movement of companies between strategic groups
• include barriers to enter another group or exit existing group
• Strategic group analysis helps to understand which driving forces and competitive pressures often favors some strategic group and hurt others
• Closer the strategic groups are to each other on the map, the stronger competitive rivalry among the member firms tends to be

KEY SUCCESS FACTORS

What are Key Success Factors for Competitive Success?

• Key Success Factors are the strategy related actions/approaches that a firm must be competent of doing to be successful
• Managers must know the industry well to know which factors are more important and which are less
• Managers need to use KSFs as cornerstones for company's strategy
• Mostly industry has few KSFs, three to four and managers should rank them in order of their importance

What Strategic moves are Rivals Likely to Make?

• Need to monitor the actions of rivals carefully
• identify competitors strategies
• evaluate who are going to be the major players to the market
• predict competitors' next moves
• strategic intent
• how well it is faring in the market
• financial performance
• Market Intelligence System

Is the Industry Attractive and What are its Prospects for Above Average Profitability?

• Attractive industry invites more competitors
• Attractiveness of industry depends on Industry's Growth Potential
• Whether the prevailing driving forces are favorable or unfavorable
• Potentials of entry/exit of major firms
• Stability of demand
• Whether competitive forces will be stronger or weaker
• Risk and uncertainty in the industry's future
• If an industry's overall profitability prospects are above average, the industry can be considered attractive
• Attractive is a relative term
• It needs to be appraised from the standpoint of a particular company

HOW INDUSTRIES CHANGE

Need to Understand Change in Industry

• Industry structures affects
• profitability
• investor return
• Change in industry structure determines the strategy to be followed at a particular period of time

Industry Evolution

• Introduction/pioneering
• Growth
• Maturity
• Decline

Threats of Obsolescence

• Core activities - activities that have historically generated profits for the industry - core activitires are threatened when they become less relevant to suppliers and customers due to some new outside alternative
• Core assets - the resources, knowledge, and brand capital that have historically made the organisation unique - core assets are threatened if they fail to generate value as they once did

Trajectory of Industry Change

• Radical change
• Progressive change
• Creative change
• Intermediating change

Radical Change

• Both the core assets and core activities are threatened by obsolescence
• About 19% of US industries went through this between 1980s and 1990s
• Relatively unusual
• Industries often remain profitable for a long time
• Exit strategy may not always be necessary

Progressive Change

• Both core activities and core assets are not threatened
• About 43 of US industries
• Industries are more stable
• Progressive and technology development occur but remaining within the exiting business framework
• Firms try for distinctive position in the industry

Intermediating Change

• Core activities are threatened by obsolescence but the core assets retain their value if used in new way
• 32% of US industries
• Most challenging for firms
• Firms need to find unconventional ways to extract value from their core resources

Creative Change

• Core assets are threatened but core activities remain stable
• About 6% of US industries

Which Trajectory are You on?

• Define your industry
• Define industry's core assets and activities
• Determine whether core assets and core activities are threatened with obsolescence
• Evaluate the phase of trajectory

ANALYSING THE ENVIRONMENT

Steps in Environment Analysis

1. Understand the Nature of Environment
• How certain is the environment?
• What are the reasons for uncertainty?
• How should the uncertainties be dealt with?
• As uncertainty increases, environmental conditions become more dynamic and complex
• Dynamic deals with the rate and frequency of change
• Complexity includes
• Diversity of environmental influences
• Amount of knowledge required to handle
• Environmental forces
• Interrelations among environmental forces
• To understand the nature of environment segment it
• Demographic
• Economic
• Social
• Cultural
• Political
• Technological
• Legal
2. Analyze and Understand each Segment - Four stages
1. Scanning the environment
• detect the changes in the environment
• alert organisation of such change
2. Monitor the environment
• track the changes in the environment
• assemble sufficient data to discern an emerging pattern
3. Forecasting the environment
• development of plausible projections of directions, scope, speed, and intensity of environmental changes
• projections based of trends
• projections based on alternative future scenario
4. Assessment of the environment
• identifying and evaluating how and why current and projected environmental changes will affect strategies of the organisation
• determining implications of such changes, positive and negative
3. Attribute Weights to Each Segments
• Not all environmental changes are significant
• Assess the importance and determine the key factors

INDUSTRY AND COMPETITIVE ANALYSIS

Types of Environment

• Macro environment
• Industry environment
• Competitive environment
• Internal environment

Industry

A group of firms producing products that are close substitutes of each other and compete for the same buyers

What are the Industry's Dominant Economic Traits?

• Market size
• Scope of competitive rivals (local, national, international)
• Market growth rate and place of industry in the growth cycle
• Number of rivals and their sizes
• Number of buyers and their relative sizes
• Prevalence of backward and forward integration
• Ease of entry and exit
• Technological changes in production process and new product  introductions
• Extent of product differentiation among rivals
• Capacity utilization and low cost efficiency
• Degree of learning and experience curve
• Capital requirements
• Level of industry profitability

Michael Porter's Five Forces

• Intensity of rivalry among existing competitors
• Threat of entry
• Pressure from substitute of products
• Bargaining power of buyers
• Bargaining power of suppliers