MBA Induction Programme: Industry Analysis

By Prof. S. Swami Ms. Surat Pyari Mr. Rohit Rajwanshi

August 7, 2012

Outline
I. II. III. IV. What is Industry Analysis? Environmental Analysis: PESTN Framework Competitive Structure of Market How Competitive Forces Shape Strategy: Porters Five Forces Framework V. SWOT Analysis VI. Pioneering Strategies (Treacy & Wiersema) VII. Marketing Strategies of Major Players VIII. Financial and Other Aspects IX. Steps for the Project Case Study Telecom sector

I. What is Industry Analysis?

A market assessment or analysis tool
Gives idea of the structure or complexity of a particular industry

Objectives of Industry Analysis

Understand how industry structure drives competition Assess industry attractiveness and changes in industry structure Formulate strategies in view of the prevailing industry structure To identify Key Success Factors in the industry

Importance
Understanding of position of a company relative to other companies in industry Strategic planning Performance benchmarks Types of risks prevailing in the industry Identify threats and opportunities facing businesses in that industry Understand the performance of a particular company in an industry

Industry vs. Company

Industry is group of companies which make similar products. The auto INDUSTRY has many COMPANIES like Ford, GM, Toyota, Honda, BMW, etc. A company is a form of business. Generally, the term "Company" indicates a particular kind of business dealing in a particular product.

Variety of Organization Types

Size
Small (Rotomac in Kanpur) Large (Tata Motors) Manufacturing (Bajaj) Services (McDonalds) E-marketing (Rediff) High technology (Siemens)

Type

Markets

Objectives

Consumer (HLL) Industrial (Tata Steel, BHEL) For Profit (Pepsi) NPO/NGO (Red Cross) Government

II. Environmental Analysis: PESTN Framework

PESTN analysis stands for Political, Economic, Social, Technological and Natural analysis It describes a framework of macroenvironmental factors used in the environmental scanning component of strategic management.

PESTN Analysis
Political Factors - tax policy, labour law, trade restrictions, tariffs, and political stability Legal Factor - discrimination law, consumer law, competition law, employment law, and health and safety law

Economic Factors - economic growth, interest rates, exchange rates and the inflation rate

PESTN Analysis
Social Factors - cultural and health consciousness, population growth rate, age distribution, career attitudes, emphasis on safety

Technological Factors R&D activity, automation, technology incentives and the rate of technological change
Natural Factors environmental norms and laws

III. Competitive Structure of Market

Market Structure

Perfect Competition

Imperfect Competition

Monopoly Competition

Monopolistic Competition

Oligopoly Competition

Duopoly Competition

Single Seller

Comparison
Market Structure Perfect Competition Monopolistic Competition Oligopoly Competition Monopoly No. of Players Many Size of firm Small Nature of product Entry Barrier Homogeneous Free Entry & Exit Somewhat Differentiated Differentiated Unique Free Entry Barriers to Entry Barriers to Entry

Many Few Single

Small Larger Big

Concentration Ratio
It is defined as ratio that indicates the relative size of firms in relation to their industry as a whole. It indicates whether an industry is comprised of a few large firms or many small firms.

CRm = s1 + s2 +.... + sm , where si is the market share of ith firm.

Interpretation
Can have 4-firm, or 8-firm concentration ratio Concentration ratios range from 0 to 100 percent. Closer to 0% means nearly perfect competition Closer to 100% monopoly Low concentration: 0% to 50%. This category ranges from perfect competition to monopolistic competition to oligopoly. Medium concentration: 50% to 80% oligopoly.

IV. How Competitive Forces Shape Strategy: Porters Five Forces Framework
Five-Forces Analysis is a framework for analyzing a particular industry.
The five forces are environmental forces that impact on a companys ability to compete in a given market.

The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

Porters Five Forces Model of Competition

Source: Wheelen and Hunger 2011, Strategic Management, Pearson Pub.

V. SWOT Analysis
Strengths Weaknesses Opportunities Threats Industry level Company level

VI. Pioneering Strategies

Pioneer (Leader) vs. Follower firms

Treacy and Wiersema Model

Treacy and Wiersema Model of Leadership Position

Operational Excellence (OE)
Product Leadership (PL) Customer Intimacy (CI)

Treacy and Wiersema Model

OE refers to a company providing value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value delivery system, e.g., AT&T, P&G and IBM.

PL refers to the ability to continually bring out new products by investing a lot in product development and R&D, e.g., Intel, Apple, Sony CI refers to a company providing superior value by segmenting markets and tailoring products or services to match the needs of the targeted customers, e.g., Federal Express, Airborne Express

VII. Marketing Strategies of Major Players

Target market Positioning Differentiation Marketing Mix (4Ps)

Targeting/Positioning/Differentiation
Targeting is to select a group of customers to act upon further Positioning refers to the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization.

Differentiation is the process of distinguishing a product or offering from others, to make it more attractive to a particular target market.

Marketing Mix

Marketing Mix

VIII. Financial and Other Aspects

Capital Generation Share Price Sales Growth Rate Profitability trends

Other Aspects Business / revenue models Merger and acquisition activity Research intensity

IX. Steps for the Project

Select an Industry Collect data
Primary Data (Optional- Distributors, consumers, retailers)

Secondary Data Internet, books, magazines, EBSCO Conduct analysis

References
Book - Bhushan V. K.: Fundamentals of Business Organization and Management
Websites http://www.investopedia.com www.wikipedia.org www.businessdictionary.com http://www.blackwellpublishing.com www.managementstudyguide.com www.amazon.com http://www.valuebasedmanagement.net

THANK YOU. Questions, Comments??

Case Study: Telecom Sector in India