Business Landscaping

8/8/2019 Business Landscaping

1/18

ANALYZING THE BUSINESS

LANDSCAPE

ANALYZING THE BUSINESSLANDSCAPE

Determining Industry Attractiveness and

Identifying Strategic Opportunities


2/18

0

10

20

30

40

50

60

70

80

90

100

2%

4%

6%

8%

10%

12

%

14

%

16%

18%

20%

22

%

24

%

26%

28%

30%

32

%

Number

of

Industries

First Quartile

Average

22.2%

Fourth Quartile

Average

9.3%

Note: Return on Equity = Net Income / Year End Shareholders

Equity; Analysis based on sample of 593 industries

Average = 14.7%

Median = 13.8%

11.7

%

13

.8%

16

.5%

Return on Equity (Percent)

Average Return on Equity in US Industries, 1982-1993

Distribution of Industry Returns

Distribution of Industry Returns

Source: Jan W. Rivkins Analysis

Based on Dun and Bradstreet Data


3/18

Source: Jan W. Rivkin

based on Compustat

Computer system design

Operating Income / Assets, 1988-95 (%)

0 5 10 15 20 25

Scheduled airlines

Motor vehicles

Cable TV service

Engineering services

Trucking except local

Race track operations

Petroleum / natural gas

Drug stores

Eating places

Dental equipment

Women's clothing stores

Semiconductors

Prepackaged software

Pharmaceuticals

Profitability Differences Across

Selected Industries

Profitability Differences Across

Selected Industries


4/18

Critical Steps in

Business Landscape Analyses

Critical Steps in

Business Landscape Analyses

Step 1: Analyze shocks and trends in the macro-environment

Step 2: Analyze the nature of market demand andconsumer behavior

Step 3: Analyze business landscape (industry)

- Five competitive forces Framework- Coopetition and Value Net Framework

Step 4: Identify critical success factors

Step 5: Analyze the intra-industry(strategic group) structure ofthe industry and identify critical differences between

groups

Step 6: Evaluate the competitive sustainability/vulnerability of strategic positions of rivals


5/18

Political/

Legal

Industry

Environment

Demographic Economic

Technological

Global

Competitive

Environment

Sociocultural

Components Of The Macro Environment

Components Of The Macro Environment


6/18

Analyzing Market Demand And

Consumer Behavior

Analyzing Market Demand And

Consumer Behavior

Identify market segments and the bases for inherent differences among

customers

buyer characteristics and preferences

price sensitivity and cross-price elasticities

patterns of use

receptivity to marketing

etc.

Analyze aggregate and market segment growth rates, saturation levels,

replacement-purchase rates, etc.

Estimate/forecast the shape of the demand curve for the industry and

each segment, keeping in mind that there is, ex ante, no such thing as anindustry life cycle.

Distinguish the nature of the products/services. i.e. observable goods,

experience goods, communication effect goods


7/18

Industry AnalysisIndustry Analysis

Analyzing the Competitive

Structure and Behavior of

Industries


8/18

Threat of New Entry

Rivalry Among

Existing Competitors

Bargaining Power

of Customers

Threat of Substitutes

Bargaining Power

of Suppliers

Economies of scale Proprietary product

differences Brand identity Switching costs

Capital requirements Access to distribution Absolute cost advantages Government policy Expected retaliation

Relative price performance of substitutes Switching costs Buyer propensity to substitute

Industry growth Fixed costs / value

added Overcapacity Product differences

Brand identity

Switching costs Concentration and balance Informational complexity Diversity of competitors Corporate stakes

Exit barriers

Differentiation of inputs Switching costs Presence of substitute

inputs Supplier concentration Importance of volume to

supplier Cost relative to total

purchases Impact of inputs on cost or

differentiation Threat of forward

integration

Buyer concentration Buyer volume Buyer switching costs Buyer information Ability to integrate

backward Substitute products Price / total purchases

Product differences Brand identity Impact of quality /

performance Buyer profits

Porters Five Forces AnalysisPorters Five Forces Analysis

Source: Michael E. Porter, Competitive Advantage (New York: Free Press, 1985)


9/18

SUPPLIER POWER

LOW

THREAT OF ENTRY

LOW

economies of scale

capital requirementsfor R&D and clinical

trialsproduct differentiationcontrol of distribution

channelspatent protection

INDUSTRY

COMPETITIVENESS

LOW

high concentrationproduct differentiationpatent protectionsteady demand growthno cyclical fluctuations

of demand

THREAT OF

SUBSTITUTESLOW

No substitutes.

(Changing as managed care

encourages generics.)

BUYER POWER

LOW

Physician as buyer:

Not price sensitive

No bargaining power.

(Changing with managed care.)

DRUG

INDUSTRY

(ROE=28%)


10/18

SUPPLIER POWER

HIGH

strong labor unionsconcentrated aircraft makers

THREAT OF ENTRY

HIGH

entrants have cost

advantageslow capital requirementslittle product

differentiationderegulation of

governmental barriers

INDUSTRY

COMPETITIVENESS

HIGH

many companieslittle product

differentiationexcess capacityhigh fixed/variable costscyclical fluctuations of

demand

THREAT OF

SUBSTITUTESMEDIUM

autos for short distance

travel

BUYER POWER

MEDIUM/HIGH

Buyers extremely price sensitive

Good access to information

Low switching costs

Airline

Industry

(ROE=-1%)


11/18

Customers

Firm

Suppliers

Competitors Complementors

A player is yourcomplementor

with respect to customers if

customers value your product more

when they have the other players

product as well

A player is yourcompetitorwith

respect to customers if customers

value your product less when they

have the other players product as

well

A player is yourcomplementor

with respect to suppliers if it is

moreattractive for a supplier to

provide resources to you when it

is also supplying the other player

A player is yourcompetitorwith

respect to suppliers if it is less

attractive for a supplier to provide

resources to you when it is also

supplying the other player

Coopetition and theValue NetCoopetition and theValue Net

Source: Adam Brandenburger and Barry Nalebuff, Co-operation (New York: Currency Doubleday, 1996)


12/18

Neutralizing The Five

Competitive Forces

Neutralizing The Five

Competitive Forces

Force Entry

Rivalry Substitutes Buyers Suppliers

Method for Neutralizing Force Erecting barriers (isolatingmechanisms)create exploit economies of scale,aggressive deterrence, design in switching costs, etc.

Compete on nonprice dimensions:cost leadership, differentiation, cooperation, etc. Improve attractiveness compared tosubstitutes: better service, more features, etc..

Reduce buyer uniqueness:forwardintegrate, differentiate product, new customers, etc.. Reduce supplier uniqueness:backwardintegrate, obtain minority position, second source, etc..


13/18

Analyzing Intra-industry

Heterogeneity

Analyzing Intra-industryHeterogeneity

Market Segmentation,Strategic Group and

Competitor Analysis


14/18

Strategic Group AnalysisStrategic Group Analysis

A strategic group is a group of firms in an industry following the same orsimilar strategy

Identifying strategic groups:

Identify principal strategic variables which distinguish firms. For example,

single product Vs product family, private labeling Vs branded products, push

Vs pull marketing, etc.

Choose variables that produces the greatest contrast between firms, usuallythe CSFs. Do not use correlated variable.

Sometimes it is useful to being grouping firms before selecting strategic

variables

Position each firm in relation to these variables

Analyzing the attractiveness of each group by performing a five force on

each group Identify the mobility barriers that inhibit movement of firms between strategic

groups


15/18

Key Strategic VariablesKey Strategic Variables

Key strategic dimensions specialization

brand identification

channel selection

product quality

technological leadership

vertical integration

cost position service

price policy

financial leverage

relationship to parent company, if any

Outcome variables (like price and market share) shouldnot be used to distinguish competitive groups

Firms cluster into groups based on their commonality in

strategic approach


16/18

Strategic Groups and Mobility BarriersStrategic Groups and Mobility Barriers

The height of entry barriers depends on the particular

strategic group that the entrant seeks to join

Mobility barriers are group-specific entry barriers that

restrict shifting strategic position from one strategic group

to another

Mobility barriers prevent quick imitation of successful

strategies

The most important aspect of any strategic group analysis

is identifying the mobility barriers that impede movementbetween groups

There is no exhaustive list of mobility barriers


17/18

Strategic Maps of the United States Airline Industry

Braniff

TWA

Eastern

United

American

Delta

WesternRepublicOzark

USAir Piedmont

FrontierAirCal

PSA

South-

west

Texas Intl

United

South-

west

America

West

InternationalInternational

NationalNational

Regional Regional

No Frills No FrillsFull Service Full Service

Quality of Service Quality of Service

Geograp

hic

Scope

The Late 1970s The Early 1990s

Reno

Air

Continental

Pan

Am

Northwest

Laker

World

American

TWA

Delta

USAir

NorthwestConti-

nental

Kiwi

Others


18/18

LessonsLessons

Industries or landscapes are neither created equal nor stayequal

The concept of extended competition provides acomprehensive framework for assessing structural

attractiveness A firms strategy can increase or decrease its exposure to

competitive forces

Other things being equal, a firm should seek to trigger

actions that improve structural attractiveness But it isnt enough to look at just structural attractiveness:

competitive position must also be considered

Documents

Business Landscaping