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Contents
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Contents ................................................................................................................................................................................................................................................... 1
1. Porter’s 5 competitive forces ........................................................................................................................................................................................................... 2
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1.1. Use of 5 forces (strategy in practice) ....................................................................................................................................................................................... 3
1.2. Steps in Industry Analysis......................................................................................................................................................................................................... 3
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1.3. Avoid Pitfalls............................................................................................................................................................................................................................. 3
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2. New Game Strategies - Roberto Buaron - Mckinsey ....................................................................................................................................................................... 4
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2.1. The Business System ................................................................................................................................................................................................................ 4
3. Competitive Advantage – Nature and Sources – Robert Grant ....................................................................................................................................................... 5
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3.1. Sustaining competitive advantage – mitigating competition imitation .................................................................................................................................. 5
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3.2. Porter’s Generic Strategies – source of competitive advantage ............................................................................................................................................. 6
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VRIO - Looking inside for competitive advantage – Jay Barney ....................................................................................................................................................... 7
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5. How Industries Change – Anita McGahan ....................................................................................................................................................................................... 9
5.1. Four Trajectories of change ..................................................................................................................................................................................................... 9
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Unsolicited Gyaan
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Understand this – There is no textbook approach. Each of the methods given are models made by different management gurus for no one single task
What can be suggested for understanding competitive scenario is as follows:
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1. Dissect industry structure – Porter baba’s 5 pandavas. Do not think about firm but industry. Focus on what’s important – mind charts can help
2. Dissect VRIO – Ask each question at each step. What’s your mojo?
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3. Dissect business system and look for sources of competitive advantage – (cost/ differentiation) – Who’s the gabru?
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1. Porter’s 5 competitive forces1
Supplier Bargaining
Threat - New Entrant Threat - Substitute Buyer Bargaining power Existing Rivalry
Power
• Barriers to entry: • High Costs • Eg. Video > Travel, • Lowers Prices • A. Competition
1. Supply side EOS - Plastic > Metal, Email > Intensity
mail, Online > Agents
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low costs. • Factors: • Customer negotiating 1. Numerous
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2. Demand side EOS - 1. Concentrates/ leverage: competitors
Network effects. eg. FB Monopoly - Eg. • Sources of force to 1. Few buyers/ large 2. High exit barriers
3. Customer Switching Microsoft change customer buyer 3. Slow industry
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cost eg. SAP ERP 2. Supplier not preference: 2. undifferentiated growth
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4. Capital requirement dependent on industry 1. Lower prices product/ Commodity 4. Rivals are highly
- incl credit, inventory, 3. Switching costs of 2. Low cost of 3. Low switching cost committed. Eg. Ego,
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advertisement firm. eg. SAP switching. eg. Burger 4. Backward govt org, growth
5. Incumbency 4. Differentiated near Pizza store integration threat. eg. targets
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advantage - cumulative product. Eg. Pharma Pepsi 5. Firms cannot read
experience, brand each other
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5. No substitute. Eg. • Mitigation - Look for 5. Intermediate -
identity Pilots tech advancements influence final
6. Distribution access
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6. Forward integration customer. Eg. Retailer • B1. Competition
blocked - Eg. shelf threat Dimension - Price
space displacement 1. Identical product or
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• Customer Price
7. Government policy - Sensitive: low switching cost
eg. Liquor license
8. Expected retaliation co rc 1. Significant fraction 2. High fixed cost, Low
marginal cost
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of spend
- history of pushback, 3. Volume needed for
2. Low profit/ low cash
substantial resources, EOS
3. Quality indifferent
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likely price war
4. Low effect on 4. Perishable product.
buyer's other costs. Eg newspaper, food,
hotel room
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erode profits
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NOT FORCES – Industry growth, Technology, Government, Complementary products – these affect 5 forces – evaluate how.
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1.1. Use of 5 forces (strategy in practice)
1. Positioning the company (segmentation avail most value). Eg. Premium ice cream
2. Exploit changes in forces – evaluate forces and capitalize opportunities. Eg. I-tunes
3. Reshape industry to a. grow share, b. grow pie by neutralizing relevant force.
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•What products are in it? Which ones are part of another industry?
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Define Industry
•Geographic Scope
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•Supplier and supplier groups
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Identify participants and segment
•competitors
into groups
•substitutes
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•potential entrants
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Assess force drivers •Drivers of each force - weak or strong?
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•Why is industry profitability so?
•What are profit controlling factors?
Determine industry structure
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•Analysis consistent with actual ling run profitability?
•More profitable players better off in 5 forces?
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•Analyse recent and future changes in forces
Force changes
Paying equal attention to all of the factors rather than digging deeply into the most important ones. (Pareto! Pareto! Pareto!)
Confusing effect (price sensitivity) with cause (buyer economics).
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Using the framework to declare an industry attractive or unattractive rather than using it to guide strategic choices.
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2. New Game Strategies2 - Roberto Buaron - Mckinsey
How?
Same Game New Game
Across the board same game Across the board new game
1. Little differentiation 1. Convention made irrelevant
Across
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2. Fierce competition; often price 2. Higher profits and long term advantage
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3. Low short term risk; low commitment 3. High risk; sustained commitment
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Selective same game
- create niche
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Selective new game
Selective
1. Limited competition
1. Convention refuted
2. Focus limited resources
2. Higher profits and long term advantage
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3. Moderate risk and commitment
3. Moderate risk; sustained commitment
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Eg. Jabong
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Note – When? Is equally important
To find opportunities, look at a. business system and b. business environment – immediate industry milieu (5 forces) and panoply of external forces (govt,
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economic, social, international, etc)
• Procurement • Transport
• Production + • Brand
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Assembly
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Rare - Needs exceptionally imaginative entrepreneurial thinking and commitment. Temporary benefit – eroded by competitive forces over time.
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3. Competitive Advantage – Nature and Sources – Robert Grant
“One firm earns (or has potential to earn) a persistently higher rate of profit”
•Speed is critical! Umbrellas in the rain •Type A: create value for customer. eg. Starbucks
•Anticipating change - edge •Type B: Redesigned process/ organisation. Eg. Walmart, Southwest,
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•Responsiveness key: Nike (outsource), Amazon
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•Resource - Information
•Capability - Flexibility •But How? Viewpoints:
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•Eg. Dell, Zara •Reconstructing and rearranging value chain - capitalize on
competencies, erect barriers to advantage
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•Deliver unpresendented customer satisfactions through erstwhile
conficting dimensions
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•elemination of intermediaries. E-commerce.
•Not one-time but continual reinvention
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3.1. Sustaining competitive advantage – mitigating competition imitation
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Identification Competition can gauge superior profitability
•Obscure superior performance (eg. Pvt companies, gold rush)
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•"Theory of limit pricing" - set prices at a level to just fail to attract entrants
•Complex team based routines take years to reach leader standards. Acquisition is subject to transaction costs
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3.2. Porter’s Generic Strategies – source of competitive advantage
Low Cost Differentiation
Cost Leadership Differentiation Advantage
similar product at lower cost Price premium from unique product
Drivers: Drivers:
Industry wide
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1. EOS 1. Tangible (Observable aspects) – Product features,
Scope
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3. Technology 2. Intangible differences – Desire for status, exclusivity,
4. Low input costs individuality etc. by customer.
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Single Segment Focus
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Notes
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DUAL ADVANTAGE – Porter baba says, companies that try to do both can get ‘stuck in the middle’
o However, dual might just be an ideal position to be in if possible to sustain. Eg. Apple
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4. VRIO - Looking inside for competitive advantage – Jay Barney
“Environment analysis is half the story. Look inside for competitive advantage” 3
• Is the firm able to exploit an • Is control of the • Is it difficult to imitate, and • Is the firm organized, ready,
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opportunity or neutralize an resource/capability in the will there be significant cost and able to exploit the
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external threat with the hands of a relative few? disadvantage to a firm resource/capability? Is the
resource/capability? • Valuable but common trying to obtain, develop, or firm organized to capture
• Changes in customer tastes, resources lead to duplicate the value?
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industry or technology can competitive parity resource/capability? • Complementary resources -
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render them more/less • Rareness of resources gives • Either duplication or limited ability of CompAd in
useful competitive advantage. substitution isolation.
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• Resources not valuable in • Eg. Walmart's point of • Why costly to imitate? • Incl reporting structure,
vaccum, but only when they purchase data collection • History - skills, abilities and control systems,
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exploit opportunities (then) resources picked up over compensation policies
• Eg. AT&T high quality + R&D time which are unique to
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organisation. Eg Caterpillar
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• Power of small decisions-
CompAd depends heavily
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on thousands of decisions
Examples
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1. Cola wars – Comp parity – similar resources, advertising, financial resources and management. Diversifying – Diet coke, fast food, other businesses and
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geographies
2. Macintosh – Responsiveness to market opportunity, in-house development team – motivated and enthusiastic, different “fun” concept of PC.
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“Power of small decisions” – Personal view – biggest internal factor. Take it, and go.
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Exploited by
Costly to
Valuable? Rare? the Competitive implication
imitate?
organization?
No Competitive disadvantage
Yes No Competitive parity
Yes Yes No Temporary CompAd
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Yes Yes Yes No Unexploited CompAd
Yes Yes Yes Yes Sustained CompAd
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5. How Industries Change – Anita McGahan
“Shut out the noise from immediate comp threats; take a longer term look at the context in which you do business”
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Radical Change/ Disruptive Creative
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Knowledge, brand capital, customer/ supplier relationship Assets turn over constantly/ not stable
erode Companies usually sustain standing
Trajectory changes. Rare Capitalize on relationships
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Strategy – look at productivity, pace of transition and buyer’s Tactics examples – a. spread risk of new projects over
Threatened
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switching cost portfolio. B. Outsource project management. C. Acquisition
Tactics examples – A. Staggered improvement to current + strategy6
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selective experiments on new assets. B. Abandon existing and Eg. Film production, pharma, oil & gas exploration, software
move to emerging line (IBM) - risky. C. Reinvest in current
Core Assets5
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industry – risky
Eg. Travel companies
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Intermediate Progressive
Typically when buyers and suppliers have new options – Incumbents have incentives to preserve status quo
access to information Carving out distinct position based on geographic, technical or
Not Threatened
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Difficult to manage – Preserve valuable assets and restructure marketing expertise.
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key relationships
Find unconventional way to extract value from core resources
Goal to build resources and capabilities steadily and
incrementally. Low Risk.
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Eg. Auto dealership – Internet info, customer engagement by Eg. Changes in retail brought over time by Walmart
manufacturer, inventory management by bigger companies
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Core Activities – activities which have generated profits for the firm
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Core Assets – Resources, knowledge, brand capital
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Acquisition Strategy is a personal note. Eg. CISCO
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