Industry Analysis and Growth Strategies

Point System

• 1 point is awarded for assessing whether an industry is attractive or unattractive. A bonus point is awarded for comparing it to the economic growth.
• 1 point is awarded for identifying whether a force is high or low.
• 3 points are awarded for analyzing the importance of each force (supplier, buyer, substitution, and rivalry).

Threat of New Entry

• High barriers to entry can make an industry more attractive because they prevent new competitors from entering and eroding existing firms' market share.
• Economies of scale and scope can act as entry barriers.
• Economies of scale refer to the cost advantages that firms achieve as their output increases.
• Economies of scope arise when firms can use the same resources to produce multiple products or services.
• Capital requirements can also be a barrier to entry.

Growth

• A company's growth strategy should consider how competitors will react.
• Growth strategies should be evaluated based on their impact on performance, value capture, and competitive advantage.
• Growth strategies should also consider the long-term sustainability of the firm's competitive advantage.
• Expansion through franchising can provide scale but also leads to a loss of control.

Strategic Management

• Strategic management involves decision-making aimed at improving long-term firm performance compared to a defined reference group.
• Strategic decisions are difficult to reverse, affecting multiple subunits and functional areas, while considering other actors in the market.
• The goal of strategy is to create value.

Performance (Productivity) Differences

• Persistent performance differences can be achieved by continuously improving quality, lowering costs, and innovating.
• Productivity focuses on the quantity of results, while performance focuses on the quality of results.

Porter's Principles for Effective Strategies

• Operational effectiveness is less important than strategy.
• Strategy involves tough trade-offs.
• Strategy requires consistent investments in a cohesive set of activities.

Operational Effectiveness vs. Strategy

• Operational effectiveness means improving how things are done.
• Strategy involves choosing what to do, not just how to do it.
• Strategy involves performing activities differently or performing different activities than rivals.

Sustainability of Strategic Position

• Choosing a unique position is not enough for sustainability.
• Trade-offs are crucial to sustaining a unique position, requiring the firm to choose between different options and activities.
• Making trade-offs increases the cost of imitation for competitors and makes it less appealing for them to try replicating the strategy.

Supplier Power

• Supplier power can be limited by dealing with multiple suppliers, backward integration, and locking in advantageous rate agreements.
• High supplier power makes an industry less attractive.

Substitutes

• Substitutes are products or services that can be used in place of one another.
• Low threat of substitutes makes an industry more attractive.

Rivalry

• Intense rivalry can lead to price competition, driving prices down, or non-price competition, increasing costs and quality to differentiate products.
• Rivalry can be affected by factors such as industry concentration, growth rate, exit barriers, and differentiation.
• High rivalry can make an industry less attractive.

Differentiation-based Positioning

• Firms using a differentiation strategy aim to raise customer willingness to pay (WTP) without significant cost increases.
• Differentiation involves performing different and valuable activities that lead to benefit leadership.
• Differentiation strategies involve identifying and selectively incurring costs to create value for customers.

Challenge of Differentiation

• Sustaining above-average profitability through differentiation requires maintaining cost proximity to competitors.

Generating a WTP Advantage

• WTP advantage can be achieved through superior product features, branding, and customization.

Competitive Scope

• Broad scope involves competing in all or most customer segments.
• Narrow scope involves targeting specific segments with distinct needs.

Focus Strategies

• Focus strategies target narrow segments with distinct needs.
• Firms may choose a focus strategy because large firms may overlook smaller niches.
• Focusing allows for building competitive advantage through specific activities.
• Focus strategies can be chosen due to a lack of resources to compete in broader markets.

Competitive Advantage

• Firms gain a competitive advantage when they create a significant gap between customer willingness to pay and their costs.
• Competitive advantage requires performing unique and valuable activities.

Establishing a Competitive Advantage

• Differentiation strategy aims to raise WTP without significant cost increases.
• Low-cost strategy aims to reduce costs without sacrificing WTP.

Activity Analysis

• Activity analysis involves examining how different activities within a firm contribute to its relative cost position and willingness to pay.

Cost Drivers

• Cost drivers are factors that influence the cost of an activity.
• Factors such as firm size, economies of scale, experience, scope, capacity utilization, and location can influence costs.

Willingness to Pay

• Any activity in the value chain can affect customers' willingness to pay.

This quiz explores various factors influencing industry attractiveness, including the threat of new entrants and the importance of market forces. Participants will analyze barriers to entry and evaluate growth strategies in relation to competition. Test your understanding of these crucial business concepts!