Industry Analysis review Figures 3.3, p.65 from your textbook. Complete an Industry Analysis for two different industries then compare these industries by

Industry Analysis review Figures 3.3, p.65 from your textbook. Complete an Industry Analysis for two different industries then compare these industries by

Click here to Order a Custom answer to this Question from our writers. It’s fast and plagiarism-free.

  review Figures 3.3, p.65 from your textbook. Complete an Industry Analysis for two different industries then compare these industries by answering the following questions.

  1. Detail Porter’s Five Forces framework with a graphic representation, like Figure 3.3, (p.65), and a written explanation in relation to the Five Forces for both industries. 
  2. Use the results from Porter’s Five Forces framework to explain the reasons why profitability is what it is in the two different industries expressed as high, intermediate, or low. 
  3. Explain the structural features of that industry that generate either high or low profitability.      
  4. How are structural changes likely to impact competition and profitability in these industries? Is this industry attractive for investment? Why or why not?

Your well-written paper should meet the following requirements:

  • Be 4 to 5 pages in length, which does not include the required title and reference pages, which are never a part of the content minimum requirements. 
  • Use  APA style guidelines.
  • Support your submission with course material concepts, principles, and theories from the textbook and at least two scholarly, peer-reviewed journal articles unless the assignment calls for more.
  • It is strongly encouraged that you submit all assignments into the Turnitin Originality Check before submitting it to your instructor for grading. If you are unsure how to submit an assignment into the Originality Check tool, review the Turnitin Originality Check—Student Guide for step-by-step instructions.

 Required

*

CONTEMPORARY STRATEGY ANALYSIS

tenth edition

Robert M. Grant

John Wiley & Sons Ltd., 2019

Chapter 3

Industry Analysis:

The Fundamentals

  • Introduction / Objectives
  • From environmental analysis to industry analysis
  • Analyzing industry attractiveness
  • Applying industry analysis to forecast industry profitability
  • Using industry analysis to develop strategy
  • Defining industries: Where to draw the boundaries
  • Identifying Key Success Factors

Industry Analysis: the Fundamentals

Copyright (© 2019 John Wiley & Sons, Inc.

OUTLINE

1

17

  • To understand how industry structure drives competition, which determines the level of industry profitability.
  • To assess industry attractiveness
  • To use evidence on changes in industry structure to forecast future profitability
  • To formulate strategies to change industry structure to improve industry profitability
  • To identify Key Success Factors

The Objectives of Industry Analysis

Copyright (© 2019 John Wiley & Sons, Inc.

INTRODUCTION / OBJECTIVES

2

18

THE INDUSTRY

ENVIRONMENT

Suppliers

Competitors

Customers

Social structure

The national/ international economy

Technology

Government

& Politics

The natural environment

Demographic structure

Social structure

The Macro Environment impacts the firm through its effect on the Industry Environment

At the Core of the Macro Environment is the Industry Environment

Copyright (© 2019 John Wiley & Sons, Inc.

FROM ENVIRONMENTAL ANALYSIS TO INDUSTRY ANALYSIS

3

Profitability of Selected US Industries (median ROCE)

Copyright (© 2019 John Wiley & Sons, Inc.

ANALYZING INDUSTRY ATTRACTIVENESS

HIGH PROFITABILITY % LOW PROFITABILITY %
Tobacco 59.9 Food and Drug Stores 10.2
Computer Software 29.8 Utilities: Gas and Electric 9.6
Household, Personal Care 25.2 Telecom Services 9.5
Semiconductors 22.5 Agricultural Processing 9.5
Pharmaceuticals 21.3 Petroleum 9.2
Entertainment 20.7 Insurance 9.1
Aerospace, Defense 19.9 Food Retailing 9.1
Beverages 19.2 Trucking 9.1
Chemicals, Specialty 18.2 Hotels, Casinos 9.0
Food Processing 18.0 Motor Vehicle Parts 9.0
Medical Products 17.5 Electrical Power 6.0
Engineering/Construction 16.8 Motor Vehicles 5.7
Restaurants/Catering 16.6 Airlines 5.1

3 key influences:

The value of the product to customers

The intensity of competition

Relative bargaining power at different stages of the value chain

The Determinants of Industry Profitability

Copyright (© 2019 John Wiley & Sons, Inc.

ANALYZING INDUSTRY ATTRACTIVENESS

5

Product

Differentiation

Information

availability

Many firms

A few firms

Two firms

One firm

No barriers

Significant barriers

High barriers

Homogeneous

Product

Potential for product differentiation

Perfect

Information

Imperfect availability of information

The Spectrum of Industry Structures

© 2019 Robert M. Grant www.contemporarystrategyanalysis.com

Concentration

Entry and Exit

Barriers

Perfect

Competition

Oligopoly

Duopoly

Monopoly

ANALYZING INDUSTRY ATTRACTIVENESS

6

2

Porter’s Five Forces of Competition Framework

SUPPLIERS

POTENTIAL

ENTRANTS

SUBSTITUTES

BUYERS

INDUSTRY

COMPETITORS

Rivalry among

existing firms

Bargaining power of suppliers

Bargaining power of buyers

Threat of

new entrants

Threat of

substitutes

Copyright (© 2019 John Wiley & Sons, Inc.

ANALYZING INDUSTRY ATTRACTIVENESS

7

INDUSTRY RIVALRY

Concentration

Diversity of

competitors

Product differentiation

Excess capacity and

exit barriers

Cost conditions

THREAT OF ENTRY

  • Capital requirements
  • Economies of scale
  • Absolute cost advantage
  • Product differentiation
  • Access to distribution

channels

  • Legal/ regulatory barriers
  • Retaliation

SUBSTITUTE

COMPETITION

Buyers’ propensity

to substitute

Relative prices &

performance of

substitutes

BUYER POWER

Buyers’ price sensitivity

Relative bargaining

power

SUPPLIER POWER

Buyers’ price sensitivity

Relative bargaining

power

The Structural Determinants of Competition

Copyright (© 2019 John Wiley & Sons, Inc.

ANALYZING INDUSTRY ATTRACTIVENESS

7

Extent of competitive pressure from producers of substitutes depends upon:

  • Buyers’ propensity to substitute
  • The price-performance characteristics of substitutes.

Threat of Substitutes

Copyright (© 2019 John Wiley & Sons, Inc.

ANALYZING INDUSTRY ATTRACTIVENESS

8

Entrants’ threat to industry profitability depends upon the height of barriers to entry.

The principal sources of barriers to entry are:

  • Capital requirements
  • Economies of scale
  • Absolute cost advantage
  • Product differentiation
  • Access to channels of distribution
  • Legal and regulatory barriers
  • Retaliation

Threat of New Entry

Copyright (© 2019 John Wiley & Sons, Inc.

ANALYZING INDUSTRY ATTRACTIVENESS

9

Buyer’s price sensitivity

Relative bargaining power

Importance of item in relation

to buyers’ total costs.

Differentiation of the

purchased item

Intensity of competition

among buyers

Whether item is critical to the

quality of buyers’ own output

Size and concentration of

buyers relative to sellers.

Buyer’s information .

Ability to backward integrate.

NOTE: analysis of supplier

power is symmetric

Bargaining Power of Buyers

Copyright (© 2019 John Wiley & Sons, Inc.

The extent to which buyers are able to depress

profitability in an industry depends upon:

ANALYZING INDUSTRY ATTRACTIVENESS

12

The extent to which industry profitability is depressed by aggressive price competition depends upon:

Concentration (number and size distribution of firms)

Diversity of competitors (differences in goals, costs strategies, etc.)

Product differentiation

Excess capacity and exit barriers

Cost conditions

  • Ratio of fixed to variable costs
  • Extent of scale economies

Rivalry Between Established Competitors

Copyright (© 2019 John Wiley & Sons, Inc.

ANALYZING INDUSTRY ATTRACTIVENESS

10

Perform a Five Forces Analysis to understand why the industry’s current level of profitability is what it is

Identify the changes in industry structure that are likely to occur over the next few years. E.g.

Is new entry likely?

Will concentration increase as a result of mergers and acquisitions?

Will additions to industry capacity outpace the growth in demand?

Will innovation create new substitutes?

Use the Five Forces Framework to predict the impact of these structural changes on competition and profitability

Applying Five-Forces Analysis to Forecast Industry Profitability

Copyright (© 2019 John Wiley & Sons, Inc.

APPLYING INDUSTRY ANALYSIS TO FORECAST INDUSTRY PROFITABILITY

Strategies to Improve Industry Profitability

Which of the structural variables that are depressing profitability can we change by individual or collective strategies?

Strategic Positioning

  • Once we know which structural features of the industry support profitability and which depress profitability, we can choose a favorable positioning within the industry.

Using Industry Analysis to Develop Strategy

Copyright (© 2019 John Wiley & Sons, Inc.

USING INDUSTRY ANALYSIS TO DEVELOP STRATEGY

What industry is Ferrari in?

  • The Motor Vehicle industry (SIC 371)
  • The Automobile industry (SIC 3712)
  • The sports car industry
  • Is its industry global, regional (Europe) or national (Italy)?

Key criterion: SUBSTITUTABILITY

  • On the demand side : are buyers willing to substitute between types of cars and across countries
  • On the supply side : are manufacturers able to switch production between types of cars and across countries

We may need to draw industry boundaries differently for different types of decision

Drawing Industry Boundaries

Copyright (© 2019 John Wiley & Sons, Inc.

DEFINING INDUSTRIES

15

What drives competition?

What are the main

dimensions of competition?

How intense is competition?

How can we obtain a

superior competitive position?

Analysis of demand

Who are our

customers?

What do they want?

KEY SUCCESS FACTORS

Analysis of competition

  • What drives competition?
  • What are the main dimensions of competition?
  • How intense is competition?
  • How can we obtain a superior competitive position?

What do customers want?

How does the firm survive competition

Pre-requisites for success

Identifying Key Success Factors

Copyright (© 2019 John Wiley & Sons, Inc.

IDENTIFYING KEY SUCCESS FACTORS

17

KSFs in Steel, Fashion Clothing, and Supermarkets

IDENTIFYING KEY SUCCESS FACTORS

Copyright (© 2019 John Wiley & Sons, Inc.

WHAT DO CUSTOMERS WANT? HOW FIRMS SURVIVE COMPETITION? KEY SUCCESS FACTORS
Steel Low price
Product consistency
Reliability of supply
Specific technical specifications for special steels
Strong price competition and cyclical demand require low costs and financial strength Cost efficiency requires either large plants in low-cost locations, or hi-tech, flexible, mini-mills close to customers
Quality and service differentiation
Fashion clothing Demand segmented by garment type, style, quality, color
Price premium for brand, style, exclusivity, and quality
Mass market highly price sensitive
Intensely competitive due to low entry barriers, low seller concentration, and strong retail buying power
Differentiation can yield substantial price premium, but imitation rapid
Combining differentiation with low-costs
Key differentiation variables: design, speedy to fashion trends, brand reputation, quality
Cost efficiency requires low labor costs
Super-markets Low prices
Convenient location
Wide product range adapted to local tastes
Fresh produce, good service, pleasant ambience, easy parking
Markets localized
Intensity of price competition depends on number and proximity of competitors
Bargaining power essential to low input costs
Low-costs require operational efficiency, efficient supply chain, buying power, low wage costs.
Differentiation requires wide product range (hence, large stores), convenient location, easy parking

Profitability = Yield x Load factor – Unit Cost

Income Revenue RPMs Expenses

ASMs RPMs ASMs

=

x

Price competitiveness.

Efficiency of route

planning.

Flexibility and

responsiveness.

Customer loyalty.

Meeting customer

requirements.

Wage rates.

Fuel efficiency of

planes.

Employee

productivity.

Load factors.

Administrative

overhead.

Strength of competition on routes.

Responsiveness to changing market conditions

% business travelers.

Achieving differentiation advantage

NOTE: ASM = Available Seat Miles; RPM = Revenue Passenger Miles

Identifying KSFs Through Modeling Profitability: The Airline Industry

Copyright (© 2019 John Wiley & Sons, Inc.

IDENTIFYING KEY SUCCESS FACTORS

18

ROCE

Return on Sales

Sales/Capital

Employed

Sales mix of products

Avoiding markdowns through

tight inventory control

Max. buying power to minimize

cost of goods purchased

Max. sales/sq. foot through:

*location *product mix

*customer service *quality control

Max. inventory turnover through

electronic data interchange, close

vendor relationships, fast delivery

Minimize capital deployment

through outsourcing & leasing

Identifying KSFs by Analyzing Profit Drivers: Retailing

© 2019 Robert M. Grant

www.contemporarystrategyanalysis.com

IDENTIFYING KEY SUCCESS FACTORS

19

7

Forecasting Industry Profitability

  • Past profitability a poor indicator of future profitability.
  • If we can forecast changes in industry structure we can predict likely impact on competition and profitability.

Strategies to Improve Industry Profitability

Influencing industry structure by individual or collective strategies

Positioning the firm to shelter from the forces of competition

Defining Industry Boundaries

Key criterion: substitution

Industry definition depends upon the strategic issues being considered

Key Success Factors

Gateway to the analysis of competitive advantage

Summary

Copyright (© 2019 John Wiley & Sons, Inc.

INDUSTRY ANALYSIS: THE FUNDAMENTALS

From Environmental Analysis to Industry Analysis:

  • The industry is the core of a firm’s external environment. Political, economic, social, and technological forces impact the firm through its industry :

14

Place your order now for a similar assignment and have exceptional work written by one of our experts, guaranteeing you an A result.

Need an Essay Written?

This sample is available to anyone. If you want a unique paper order it from one of our professional writers.

Get help with your academic paper right away

Quality & Timely Delivery

Free Editing & Plagiarism Check

Security, Privacy & Confidentiality