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    Chapter 3a - Industry - Final

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    attique
    This document provides an overview of Porter's model for analyzing industry structure and competitive forces. It discusses the five forces framework for assessing competition within an industry: the threat of new entrants, power of suppliers and buyers, threat of substitutes, and intensity of rivalry. For each force, it outlines structural factors that influence the level of competitive pressure, such as concentration, switching costs, differentiation. The document emphasizes examining these factors rather than just stating whether a force is high or low. It also notes that some particularly strong forces may limit industry profitability even if other forces are weak. Overall, the document introduces Porter's influential model for evaluating the external competitive environment of an industry.

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    Chapter 3a - Industry - Final

    Uploaded by

    attique
    20 views17 pages
    This document provides an overview of Porter's model for analyzing industry structure and competitive forces. It discusses the five forces framework for assessing competition within an industry: the threat of new entrants, power of suppliers and buyers, threat of substitutes, and intensity of rivalry. For each force, it outlines structural factors that influence the level of competitive pressure, such as concentration, switching costs, differentiation. The document emphasizes examining these factors rather than just stating whether a force is high or low. It also notes that some particularly strong forces may limit industry profitability even if other forces are weak. Overall, the document introduces Porter's influential model for evaluating the external competitive environment of an industry.

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    This document provides an overview of Porter's model for analyzing industry structure and competitive forces. It discusses the five forces framework for assessing competition within an industry: the threat of new entrants, power of suppliers and buyers, threat of substitutes, and intensity of rivalry. For each force, it outlines structural factors that influence the level of competitive pressure, such as concentration, switching costs, differentiation. The document emphasizes examining these factors rather than just stating whether a force is high or low. It also notes that some particularly strong forces may limit industry profitability even if other forces are weak. Overall, the document introduces Porter's influential model for evaluating the external competitive environment of an industry.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    20 views17 pages

    Chapter 3a - Industry - Final

    Uploaded by

    attique
    This document provides an overview of Porter's model for analyzing industry structure and competitive forces. It discusses the five forces framework for assessing competition within an industry: the threat of new entrants, power of suppliers and buyers, threat of substitutes, and intensity of rivalry. For each force, it outlines structural factors that influence the level of competitive pressure, such as concentration, switching costs, differentiation. The document emphasizes examining these factors rather than just stating whether a force is high or low. It also notes that some particularly strong forces may limit industry profitability even if other forces are weak. Overall, the document introduces Porter's influential model for evaluating the external competitive environment of an industry.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 17

    CHAPTER 3

    External Analysis: Industry


    Structure, Competitive Forces,
    and Strategic Groups

    EXTERNAL ANALYSIS LECTURE

    EXTERNAL ANALYSIS
    An external analysis:
    Focuses on identifying and evaluating factors
    that are beyond the firms control that may
    influence the firms strategy and performance
    Reveals key success factors in a specific industry
    Managers can focus on improving industry specifi c
    capabilities

    Reveals key opportunities and threats


    confronting an organization
    Managers can formulate strategies to take
    advantage of the opportunities and avoid or reduce
    the impact of threats

    PORTER ANALYZING THE


    EXTERNAL ENVIRONMENT
    What the heck happened?

    THE FIRM EMBEDDED IN ITS


    EXTERNAL ENVIRONMENT
    Three categories of external factors to
    analyze
    Industry
    Competitors
    Factors in the general environment

    INDUSTRY ANALYSIS
    The industrial organization (IO) approach
    Posits that external factors are more important
    to a firms financial performance than internal
    factors

    Empirical fi ndings
    Researchers have found that 8% - 30% of the
    variation in firm profitability can be directly
    attributed to the firms industry
    Industry
    A group of (incumbent) fi rms that face the same set
    of suppliers and buyers

    INDUSTRY PROFITABILITY
    Signifi cant profi tability variation across
    industries
    Who appropriates the value that firms in the
    industry generate?
    Industry Profitability* (2000 - 2010)
    High Profitability
    Low Profitability
    Tobacco
    Household and personal
    products
    Pharmaceuticals
    Food consumer products
    Food services
    Medical products and
    equipment
    Securities
    Chemicals
    Aerospace and defense
    Construction and farm
    equipment

    33.5 Packaging and containers


    Automotive retailing and
    27.8 services
    20.5 Food and drugs stores
    20 Insurance
    19.9 Hotels, casinos, resorts
    18.5
    15.9
    15.7
    15.7

    Metals
    Forest and paper products
    Food production
    Telecommunications

    14.5 Motor vehicles and parts

    10.2
    9.8
    9.6
    9.1
    8.5
    8.2
    7.3
    5.2
    5.8
    4.4

    PORTERS INDUSTRY ANALYSIS


    Why isnt the farming industry more
    profi table?
    High consumer demand for food!

    INDUSTRY ENVIRONMENT
    Industry environment consists of three
    factors
    Competitors
    Suppliers
    Customers

    Key insight is that fi rms compete with


    suppliers and customers for value created

    PORTERS FIVE FORCES OF


    COMPETITION
    Five sources of competitive pressure
    Strength of each threat/power is based on
    structural variables

    POWER OF BUYERS
    Power of buyers is high when:
    Buyers are highly concentrated
    Buyers switching costs are low
    Buyers have the ability to backward integrate

    POWER OF SUPPLIERS
    Power of suppliers is high when:
    Suppliers are highly concentrated
    There are few substitutes for suppliers
    products
    The suppliers products/services are highly
    differentiated
    There are high switching costs when switching
    to a different supplier
    Suppliers have the ability to forward integrate

    THREAT OF SUBSTITUTES
    Threat is high when consumers can
    easily choose alternative goods from
    other industries:
    Acceptable performance alternatives
    Low switching costs for buyers

    THREAT OF NEW ENTRY


    Threat is high when there are few
    barriers to entry:
    Economies of scale are insignificant
    Network effects are insignificant
    Switching costs are low for buyers
    Capital requirements are low
    There is little government regulation
    regarding entry

    COMPETITIVE RIVALRY
    Competitive rivalry is high when price
    competition is intense within the
    industry:
    There are many competitors in the industry
    Competitors are diverse in their strategic
    outlook
    Industry growth is slow/declining
    The industrys products/services are
    undifferentiated
    Fixed costs are high and marginal costs are
    low

    ANALYZING THE FIVE FORCES


    First, identify the industry to analyze
    Next, identify the main players in the industry
    Competitors
    Suppliers
    Buyers
    Producers of substitute products

    Next, examine the structural factors that infl uence


    the level of each threat/power
    Do not just say that the level of threat/power is high/low and
    move on. Examining the structural factors leads to the
    determination of the level of the threat/power!

    Finally, assess the overall industry structure


    Are some of the forces particularly strong? If so, they
    may drive down the profi t potential of the industry even
    if the other forces are weak

    EVEN PORTER GETS TIRED AFTER


    LEARNING ABOUT PORTERS 5
    FORCES

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