Dispensa Strategia Aziendale PDF

# STRATEGIA COMPETITIVA – 2023/2024 This handout is written by students with no intention of replacing university materials. It is a useful tool for studying the subject, but it does not guarantee a preparation as exhaustive and complete as the material recommended by the University. A further pre...

# STRATEGIA COMPETITIVA – 2023/2024 This handout is written by students with no intention of replacing university materials. It is a useful tool for studying the subject, but it does not guarantee a preparation as exhaustive and complete as the material recommended by the University. A further premise. The handout does not follow the exact format and order of the manual, but rather the structure of the course imagined for attending students for the year 2023/2024. This does not mean that it is not exhaustive, but rather that the order of the topics covered may not coincide exactly with that of the textbook. In particular, chapter 3, as well as the second part of chapter 4 (starting from paragraph 4.6) are postponed. The aim is to segment the subject into two macro-areas: analysis and evaluation of the current strategy; analysis and evaluation of the future strategy. ## CHAPTER ONE – STRATEGY AND RESULTS DEFINITION OF STRATEGY A company's strategy can be defined as "the design that defines the system of company activities, guiding it towards common results and objectives"; alternatively, it can be defined as "the ultimate determinant, the ultimate driver of the success of a company, not temporary and not due to chance". All companies adopt a design that defines their system of activities. However, while in some cases this design may be deliberate, in others it may be the result of choices made over time. The choice of objectives towards which to guide the system of activities is the first important decision to be made when adopting a strategy explicitly, aiming to consciously guide the course of the activities. However, this is often an underestimated decision. In many cases, company executives do not even stop to consider what the company objectives are, and they take them for granted. It is assumed in this course, on the contrary, that the definition of company objectives is not at all obvious, and that it is precisely from the decisions that management assumes in this field that strategies capable of lasting over time arise. In well-managed companies, objectives are defined based on the expectations of all relevant stakeholders: customers, employees, shareholders and other stakeholders. In well-managed companies, objectives are defined based on the expectations of all stakeholders. Achieving a consistent level of satisfaction for all of the aforementioned figures is a task that is as arduous as it is difficult, the more intense the pressures and the competitive dynamics are. That said, all companies produce results of varying nature, destined for their different stakeholders: - **Competitive results**, i.e. the appreciation that the company gains from its customers. - **Social results**, i.e. the consensus and loyalty that the company obtains from its employees. - **Economic and financial results**, i.e. the appreciation from shareholders and creditors. What distinguishes successful companies is the **combination to unity** of the economic and financial, competitive and social objectives. In this sense, it can be said that, when oriented towards a medium to long-term perspective, the economic and financial objectives presuppose the achievement of the competitive and social objectives, and vice versa for each of the three categories. A successful strategy therefore means, to conclude, that the objectives are defined based on the **expectations of all stakeholders**, and not only, trivially, by one stakeholder: unlike what many people think, the objective cannot be exclusively the maximization of value for shareholders or the financial value of the company. It remains to be asked how, in fact, it is possible to meet the expectations of all stakeholders. This question presupposes a single answer, which represents the cornerstone of the entire course: it is necessary for the company to adopt a system of activities that must be both unique and coherent. This definition and these aspects will be further explained later. ## ACTIVITIES AND RESULTS If the system of activities is so central, it is necessary to clarify what the activities are, in fact. To do this, it is necessary to abandon once and for all the taxonomy of Porter’s value chain. Instead of the nine activities identified by Porter, our approach classifies two: in particular, the system of company activities in which the company's strategy is expressed is composed of **current activities and set-up activities.** **Current activities (today's strategy).** These are the activities carried out normally, continuously, typically represented by the procurement-production-sales cycle, as well as all related support activities. They represent today's strategy, and not by chance they define the PSA, i.e. the current strategic positioning of a company. They are therefore the main determinant of current company results. Current activities are those that define whether, in the present, a company is better or worse than its competitors. If you want to talk about current strategy, today, it is necessary to compare the current activities of a company with those of its competitors. This is because it is impossible to compare two companies in toto, it would be impossible. Current activities: - Define the **current competitive advantage (or disadvantage)**. - Allow for the production and sale of products in the catalogue in the present. - Generate costs and revenues in the present. They are divided into: - Current actual activities. - Current future activities. - Current objective/target activities. They are not necessarily equal to future activities. **Current activities represent the main determinant of the results obtained in the period in which they are carried out, contributing directly to:** - **Customer satisfaction**, through production and supply of products and services. - **Employee satisfaction,** through the offer of more or less competitive employment conditions compared to available alternatives. - **Shareholder satisfaction,** through production of returns to shareholders more or less capable of meeting and exceeding their expectations. - **Satisfaction of other stakeholders.** **Set-up activities (tomorrow's strategy).** They are carried out in parallel to current activities, but have a different purpose: to change and modify the current system of activities. Consequently, set-up activities define the target strategic positioning of a company and how to achieve it. They are therefore the main determinant of the company's future results. For example, in the automotive sector, set-up activities include research and development activities on electric engines. They are divided into: - Current set-up activities. - Future set-up activities. In the period in which they are carried out, set-up activities are not the main determinant of period results, but they are still a secondary determinant that has an impact negatively on profitability and economic and financial results as a whole. On the other hand, they represent a fundamental determinant, albeit indirect, of future results. The link with future results is indirect because it passes through future current activities: set-up activities define future current activities, and future current activities are the fundamental determinant of future results. In summary, set-up activities: - Allow for the renewal of current activities. - Change the PSA, creating the conditions that allow it to move toward the target strategic positioning, defined by the target current activities. - Generate costs and investments today - and therefore impact on current results - but they are the basis for future revenues and costs. - Define future current activities. Current activities and set-up activities together form the strategy, which is composed of several elements: - The **current strategic positioning,** i.e. where the company is at a certain moment. - The **strategic orientation,** which corresponds to the navigation plan, composed in turn of two elements: the **target strategic positioning,** i.e. the destination (1); the "**strategic vector**, i.e. the route to be taken. For lasting success, it is necessary to take into account both today's strategy and tomorrow's strategy. In summary: - If I want to evaluate today's strategy, I will have to think about current activities. - If I want to evaluate tomorrow's strategy, I will have to think about set-up activities (today). The matrix represents the impact of the different activities on current and future economic and financial results. ## STRATEGY AND ACTIVITIES In the concept of strategy as "a design that defines the system of activities guiding it towards the achievement of company objectives", the strategy determines the "system of activities", which, in turn, is the determinant of "company results": Strategy  System of activities  Results (to be compared with the sector average) Strategy, as a design that defines the system of activities, guiding it towards the achievement of company objectives, includes: - **Current strategic positioning,** where the current activities are expressed. - **Target strategic positioning,** where the target current activities are expressed. - **Strategic direction, or the strategic vector,** where the set-up activities are expressed, which move the company from the current strategic positioning to the target strategic positioning in the future. - **Dynamic relationships** between the current strategic positioning (i.e. current actual activities), the strategic direction (i.e. set-up activities), the target strategic positioning (i.e. target current activities). To achieve a performance superior to the average, the strategy must have certain characteristics. These are different depending on whether it refers to a certain moment (1); or whether it refers to the long term (2). To achieve results in a certain moment, the presence of two fundamental elements is required, around which the entire course revolves: the uniqueness of the system of activities and the positioning compared to the competitors (1); a high level of internal and external coherence of the current activities (2). External coherence presupposes that strategy and activities are consistent with the expectations of customers and employees; internal coherence presupposes that current activities are coordinated in a systematic way and reinforce each other. Uniqueness is necessary because, when companies are similar or very similar to each other, their performances tend to flatten out, approaching the "perfect competition" scenario, where profits are nil for all companies. To achieve results in the long term, strategic renewal of set-up activities is necessary, in particular, it is necessary for the strategic direction and the set-up activities of which it is composed: - **Be based on:** - A realistic picture of the evolution of the market and competition. - A target strategic positioning characterised by a unique and coherent system of activities. - **Be coherent with:** - The gap between the current strategic positioning and the target strategic positioning. - Professional skills, motivation and competence. - Financial constraints. Therefore, a circular relationship is created between strategic positioning and strategic renewal, which is at the basis of the strategy’s dynamics and is fuelled in particular by the fact that the people responsible for strategic renewal are also responsible for strategic positioning. For those who have left behind years of success achieved with a strategic approach that is no longer relevant and no longer able to perform in a superior way, it is not easy to maintain the attitude to question it and intercept the first weak signals that make it appear obsolete. One of the most important problems for the purpose of maintaining superior performance therefore is the company's ability to not rest on its laurels and to maintain a high level of attention towards the signals of change that may require a renewal of the acquired strategic positioning. The quality of individual activities, current or set-up, is not enough, if they are not part of a unique and coherent strategic design. In conclusion, superior performance in the long term is only possible by ensuring that the system of activities evolves while remaining unique and coherent with the external environment, as well as with its own internal environment. ## RESOURCES and ACTIVITIES The activities of a company presuppose the use and development of the resources that it owns, so it follows that the strategy defines the **system of activities-resources** of the company, where activities are flow variables, describable with reference to a certain period of time, while resources are level variables, identifiable with reference to a certain moment. Any reflection on resources goes back to the activities with which they are linked, and vice versa, any reflection on activities implies the consideration of the resources that fuel them. Managing a company means carrying out activities and, consequently, employing and developing resources. Therefore, in strategy studies, there is a conception of the company that places activities at the center, because resources are the tool and the “object” of activities: Resources  Activities  Results With reference to this consolidated conception, which is not an activity-based view opposed to the resource-based view. On the contrary: it is a systematic and dynamic conception, where resources are treated for what they are, i.e. stock variables subject to change due to the effect of activities. The strategy is therefore the design that defines the system of activities, and consequently also the dynamics of resources. This conception of the company can be represented in a diagram where activities give rise to inflows (incoming flows) and outflows (outgoing flows), which change the stock of available resources. Inflows and outflows are obviously correlated, but it is important to distinguish flows attributable to current activities from those connected to set-up activities. The former, in fact, are inflows and outflows correlated with each other in terms of time, duration and rhythm dictated by the economic and financial cycles of management; when the system of current activities is not efficient, flows take place with more or less serious misalignments that can lead to excessive or scarce resources destined to have negative repercussions on company functionality. As for set-up activities, the corresponding outflows are correlated with the margins that will be generated, in a shorter or longer period of time, from the current activities that will arise from them. But what exactly are resources? The most effective definition of resources is "productive factors available". Primary resources can be attributed to the two fundamental categories of capital and labour. - **Resources that fall under the category of capital are “assets” (assets).** Assets can be tangible or intangible, material or immaterial, visible and invisible, where only material, visible and tangible assets always find a counterbalance in the asset side of the balance sheet, while for the other categories, these find a counterbalance only if a cost has been incurred for their acquisition. - **Resources that fall under the category of labour - so-called “human resources” - express the ability to carry out activities.** In combination with other resources, they give rise to the “organizational competence” of a company. They are also resources, and in particular derived resources, because they arise from the performance of activities through the combination with primary resources. There are therefore three macro-categories of resources: tangible assets, intangible assets and organizational competence. Distinctive resources are those that fuel unique activities. Resources must be valuable, and to understand if they are, I must calculate their impact on activities. If they are valuable resources, I will have valuable activities, i.e. they are unique and coherent internally. To support the company’s competitive advantage, resources must “stand out”; we mention “distinctive competence”, if they allow you to carry out activities better or at lower costs compared to what competitors can do, and therefore generate a competitive advantage. Distinctive competence can be at the basis of both current activities and set-up activities. If they are part of a valid strategy, distinctive competence is difficult to imitate or acquire or reproduce by competitors. Finally, among the company's set of competences, there may be “core” competences, i.e. the core hidden within distinctive competence, susceptible to be valued for the purpose of doing new things through set-up activities. Company resources can be classified in various categories: technological, commercial, financial, managerial resources. Commercial and technological resources refer in particular to the “business level”; financial, marketing and managerial resources refer to the “corporate level”. The set of resources can be assessed at a given point in time. Its economic value depends fundamentally on three determinants, which correspond to three valuation logics: - The market value of goods. - The profitability arising from the performance of activities. - The strategic options for profitable development that it opens up, thanks to the presence of "core resources". ## LEVELS OF THE STRATEGY **Definition of Business.** Business can be defined as a “system of activities that the company is involved in” – the focus is therefore always on systems of activities. A business is therefore a system of activities: - with its own economic and financial structure. - Configurable as a center of economic responsibility for results. - Governable as a relatively homogeneous unitary whole: - Unitary production system. - Unitary market. - Unitary distribution system. The definition of strategy proposed at the beginning of the book is generally valid, but, in the case of companies operating in more than one business, it must be adapted to two levels: **company level and business level.** Companies operating in different industrial sectors, in fact, need to develop a comprehensive design that, if possible, guides and coordinates the strategies of the different businesses. The overall strategy of a multi-business company cannot be analyzed and evaluated without referring, at least initially, to each specific “field of activity”, i.e. to each business in which the company is present. This is also true when the company presents itself as a conglomerate of companies that are not at all interrelated. We can therefore distinguish two levels of strategy: company level and business level. **Company level strategy (corporate level strategy).** This is the company’s development plan that defines the overall “activity-resources” system, in its entirety, by articulating it at the central level and at the business level. Consequently, there are two key elements to the strategy at the company level: - The “activity‐resources” system at the central level, considered in its ability to generate or not value for businesses, shareholders and other stakeholders. - The company’s development plan as a whole. It is the strategic thinking that connects the different businesses and explains their presence in the same company or multi-business group. This indicates the directions in which the company must evolve (for example, in which sectors/businesses, in which new geographic markets, integrating to) - either up or down, by climbing or descending, by running or ## ANALYSIS OF THE SECTOR AND COMPETITIVE POSITIONING The first crucial step is to understand what is meant by **sector**. The definition is fairly basic: a sector is defined as “a set of companies in competition with each other”. Alternatively, the sector can also be defined as “**a competitive system**”. Why is the analysis of the competitive system important for strategy? Because the sector’s configuration has a strong impact on the company’s profitability, as can be seen from the image shown: The definition of the company's strategy is one of the most discussed issues, namely “how much does the sector count”, i.e. to what extent are company economic and financial results determined by sector conditions and to what extent, on the other hand, can they be attributed to the quality of the company strategy. The strong impact of the sector (and its profitability) on company performance is a key reason why understanding the sector is considered a mandatory step for those working on company strategy. If company performance depended solely and exclusively on the quality of company strategy, there would be no need for an analysis of the sector in which it operates. However, the quality of the strategy depends in turn on the environment that surrounds it: no index or value has any meaning outside the context of the sector. To make a judgement about a company and its strategy, I cannot ignore the analysis of the sector in which it operates, because its performance depends on the sector - just as the fruit certainly depends on the quality of the seed, but also on that of the soil. Let us therefore drop the sequence Structure  Conduct  Performance, and embrace a new one, which sees the Performance as the sum of Structure and Conduct. Therefore, the analysis of the competitive system is important because: - It allows us to express a real judgment. It was this great contribution of Porter, namely the introduction of the need to study the sector's structure. The average profitability of different sectors was, in fact, significantly included in the beginning of the Porter study (2008) on the five forces that determine the sector’s average profitability . A McKinsey study showed that the differences in profitability that occur within the same sector are often larger than the differences that are observed when comparing the average profitability of different industries. - It allows us to distinguish the changes that are destined to alter profitability permanently from those that are only temporary changes. ### WHAT IS SECTOR ANALYSIS? The analysis of the competitive system, i.e. sector analysis, can take two configurations that we will delve into in depth: - **Quantitative analysis.** - **Qualitative analysis.** Sector analysis, in particular, is the study of the causes that explain different aspects of sector profitability: - **Sector profitability analysis (1).** Profitability refers to the sector’s “objective” attractiveness, in a given observation period. We are looking, i.e., for the average level of sector profitability. By “objective”, it means we are not placing ourselves from the perspective of a company that is analyzing the sector because it wants to enter it. - **Profitability variability analysis (2):** * over time. * between companies, in the same period. - **Profitability dispersion analysis around the average (3)**, through cross-section analysis. Profitability is defined as: - **Operating profitability**, understood as EBIT, ROI. - **Average profitability.** - **Variability**, how much profitability changes over time. - **Variability**, how much it changes between companies in the same period. Profitability is measured and appreciated at both company and business level. However, when we talk about sector profitability, only ROI is assessed, not ROE, because the latter refers to the company and is a result of the company’s particular choices. When we do not have the profitability of all sectors or that of a specific sector, we take the balance sheets of the most important (and possibly some less important) players in the sector that we want to analyze into account. But be careful: it is necessary to proceed using the weighted average of balance sheets. If we only have the income statement of the companies, we adjust: instead of ROI, we use ROS (Revenue/Sales turnover), always using the weighted average. However, an assumption is made: that the “turnover rate” is the same for all companies. It is therefore calculated with a simple multiplication of the ROI. In any case, even if we have a good database, we need to conduct a qualitative sector analysis to complete the study of the competitive system. ### WHEN CAN A SECTOR BE CONSIDERED PROFITABLE? According to some, a rule of thumb is that the sector’s average profitability would be considered high for levels higher than 10%. That said, it is worth considering some further reflections. A sector is profitable when it allows sector operators to achieve performances that are superior to the cost of capital, a cost that inevitably varies from one sector to another. In the electricity sector, the risk of the sector is lower than the risk that characterizes the clothing sector or the automotive components sector. Consequently, the cost of capital in the electricity sector is lower than the cost of capital in the clothing sector. The profitability that is “satisfactory” or “high” for a sector cannot be assessed regardless of its riskiness. ### WHEN CAN A SECTOR BE CONSIDERED ATTRACTIVE? It is necessary to distinguish between “objective” attractiveness (which corresponds to the concept of profitability just explained), and “subjective” attractiveness (referring to an operator who intends to enter the sector). A sector is attractive (in a subjective sense) when it offers investors the possibility of entering the sector and achieving a return on invested capital that is higher than the cost of capital. A sector that is highly profitable, but characterized by high barriers to entry, might not be attractive to those who are looking at it from the outside. For example, this is what has characterized the soft drink sector for many years, where Coca Cola and Pepsi Cola can be considered profitable companies, without the sector being considered particularly attractive to other operators. For this reason, it is typically “attractive” for sectors where it is easy to enter, a condition that is usually found: - In growing sectors, where entry is not necessarily a reduction in sales of competitors. - In sectors where there are no significant barriers to entry, i.e. where large amounts of capital are not required. - In sectors where there are no excesses of production capacity. Attractiveness presupposes a result expected to be higher than the cost. This condition can only occur temporarily, because over time, competitive behaviour tends to reduce the attractiveness of the sector. The increase in production capacity and the increase in supply tend to reduce the market price, to the point where entry into the sector is no longer worthwhile. However, this adjustment process is not instantaneous: some sectors remain attractive for a relatively long period of time. When a sector is going through a crisis that is considered to be temporary, sector profitability and subjective sector attractiveness also undergo temporary changes. ### HOW DOES QUALITATIVE SECTOR ANALYSIS TAKE PLACE? FOUR AREAS FOR SECTOR ANALYSIS Finally, how does the analysis of the competitive system take place? We proceed through four different models of analysis, which can be used in a coordinated way: - **The five forces competitive system (Porter's basic scheme).** - **Supply chain analysis (studying the relationships of the chain to observe how companies that operate in interconnected sectors collaborate - even in competition with other "company chains" - and share profits).** - **Analysis of complementary products (studying the impact that complementors have on sector profitability within the framework of network relationships).** - **Analysis of strategic groupings.** The quality of sector studies depends on several variables: - **The difficulty in understanding sector boundaries.** - **Availability of information.** - **The skills and experience of those who carry out the study.** - **The cost to acquire basic data.** Therefore, as a result of the above, we see relatively complete sector studies and superficial sector studies. The consequences in terms of strategy definition are easily imaginable. ### THE FIVE FORCES MODEL BY PORTER Of the models mentioned above, the one that has had the greatest dissemination is undoubtedly the five forces model. The conceptual framework in which it is based is industrial economics, which analyzes the sector according to the “Structure Conduct Performance” paradigm: sector structure is the main cause of company conduct, which in turn determines its performance. Porter’s model sees five actors as protagonists: suppliers (1); customers (2); potential entrants (3); internal competition (4); producers of substitute goods (5). The five forces are closely linked to the five actors, but they are not the same thing. The actors are only the medium capable of generating the different forces, which is what interests us. These are: 1. **Supplier bargaining power/power.** 2. **Customer bargaining power/power.** 3. **Relationships of rivalry and collaboration between producers of similar goods – internal competition.** 4. **Relationships with producers of substitute goods.** 5. **Relationships with potential entrants.** The first concept to grasp, relating to forces, is to distinguish between a “centripetal” force and a “centrifugal” force. Based on the forces, and on the direction in which their “arrows” point, we <start_of_image> Forces: - Intensity of the link of belonging to the single supply chain. There are suppliers linked, even through exclusive agreements, to a single supply chain, whose fate they share inevitably. On the other hand, there are suppliers who, while having a main link with a single supply chain, also enjoy stable relationships with other customers: the relationship of dependence on the chain with which they have the main link is reduced. - Bargaining power they enjoy in the exercise of their activity. Depends on the degree of uniqueness and usefulness of the component produced. The bargaining power that exists between suppliers and customers is extremely different from that within Porter's value chain. Relationships tend to be lasting and long-term. - Circumstances of profitability of which the supply chain, as a whole, can benefit. This circumstance depends mainly on the results obtained by those who carry out the role of coordination and direction within the chain. Analysing the supply chain thus helps to understand the ROI of the companies that are part of it. In particular, it helps to understand why some links in the chain are more profitable than others If, on the one hand, the last decades of the 20th century and the first years of the 21st century have seen an intensification of competition between supply chains, on the other hand it is necessary to recognise that the phenomenon is not present with the same impact in all sectors. It is accentuated where products and services are not standardised and where production scheduling and availability of production capacity lead those who offer the main products and services to involve suppliers and distributors in programming and medium-term contracts. In these cases, many companies work in a team; and it is in a team that they win or lose compared to others. Through contracts, they work in a group, in such a way that it is difficult for individual producers to move from one supply chain to another. The sectors of the automobile, electronic components made to order, and of large construction projects are examples where the results of the supply chain have a strong impact on the results of those who participate. On the contrary, the food sector, standard electronic components, and security services. The development of the supply chain can take place: - Upstream. - Downstream. In the analysis of the profitability of a supply chain, the distribution is never homogeneous. There are always actors who have a greater ability to take home the value created overall. This depends on the role they play within the supply chain and on the competitive systems in which each node of the supply chain participates. ### HOW DOES SUPPLY CHAIN ANALYSIS TAKE PLACE? - Identify the activities that take place from start to finish, from the first link in the chain to the last. - Once the activities that take place within the chain have been identified, we identify who carries them out. - We study the relationships between the different actors, in order to understand who is the strong link and who is the weak link. - For each actor and its role, we study its exclusiveness. ### ANALYSIS OF PRODUCERS OF COMPLEMENTARY GOODS AND THE VALUE NETWORK In many competitive systems there is a further actor that affects sector profitability: complementors. The producers of complementary goods have the opposite role to that of the producers of substitute goods. If, on the one hand, producers of substitute goods, thanks to their power, reduce the value of a product (constituting real alternatives), complementary goods can increase sector profitability through their combined use. Complementary goods are seen as integrated elements of the competitive capacity of the supply chain as a whole, and not of the company considered as a separate entity. The image represents the impact of the producers of complementary goods on the five forces. The main difference with the analyses carried out previously lies in the fact that, while the supply chain extends vertically, the analysis of complementary goods and the “value net” generally develops both vertically and horizontally. It is important to underline “also”, because complementary goods are seen as integrated elements of the competitive capacity of the supply chain as a whole, and not of the single company. Hence the concept of “value net”, or value network, which extends both vertically and horizontally, in order to consider all the elements that can have a significant impact on the company’s competitive capacity. The changing of sectors and their transformation into “digital” makes it increasingly important to understand and appreciate the role of producers of complementary goods and services. Complementors trigger a dynamic “cooperative” between actors operating in different sectors that does not mitigate - but rather enhances - the “competitive” dynamics within a given sector It therefore generates “ecosystems of companies” that work in a stable and coordinated way to achieve a common objective. In this case, we are talking about “horizontal” relations between the producers of different but complementary goods. Unlike what happens with the supply chain, where a compressive action of marginality is always present in relation to the bargaining power of a particular role within the chain, in most cases, in relationships between complementors there is a cooperation aimed at increasing value for the customer (and therefore having a larger share), rather than sharing value (profit pool). There are many cases of companies that have built their uniqueness on the value network. Examples include the telecommunications based on the fixed network, where there is a convergence of different services: telephony, Internet connection, provision of entertainment services (in particular media services). ### ANALYSIS OF STRATEGIC GROUPINGS The analysis of strategic groupings allows to complete the final analytical step, aimed at preparing the ground for the study of strategic choices. For us, “strategic grouping” is therefore the set of companies exposed to the same extent (in a homogeneous way ) to the five competitive forces. Different groupings will therefore be exposed in different ways to the five competitive forces. For this reason, company profitability and prospects are different depending on the grouping to which they belong. This does not mean that companies belonging to the same grouping necessarily enjoy the same level of profitability or that they pursue the same strategies. The homogeneity of exposure to the five competitive forces can in fact derive from different circumstances, which contribute to defining the competitive strategy, but do not qualify it completely. This rather implies that the identification of strategic groupings can be useful to identify how different sets of companies are exposed to the five competitive forces. The identification of groupings takes place based on variables that define “mobility barriers”. It is therefore possible to say that the analysis of strategic groupings aims primarily to analyse the strategic options of competitors who express “internal mobility barriers” within the sector. Take the example of the automotive sector: within it, we can distinguish different strategic groupings based on two important mobility barriers: price and range. The degrees of freedom that companies have are therefore limited from two points of view: - From the perspective of the strategic options available. - From the perspective of mobility barriers, i.e. from the transfer from one strategic grouping to another. The analysis of strategic groupings therefore serves to: - Move from the generic analysis of sector profitability to the analysis of sector profitability, i.e., those companies that are in direct competition with each other. - Identify mobility barriers. - Describe the sector map. ## THE MAP OF STRATEGIC GROUPINGS The map of strategic groupings is structured like a Cartesian plane, on whose axes a variable is located. To create a map of strategic groupings, we proceed as follows: 1. Analysis of the competitive system aimed at identifying strategic options that differentiate the various players. 2. Identification of relevant variables: a. They must be variables capable of generating differences in how companies are exposed to the five competitive forces. b. They must be independent variables (uncorrelated). c. They must be discrete variables (if they are continuous, they must be expressed for ranges). 3. Positioning of actors on the map of strategic groupings and identification of the groups. Some examples of the map's dimensions: - Company reputation and image and its main products/brands. - Specialisation level in terms of customer segments served. - Geographic market coverage. - Choice of distribution channels. - Product quality level. - Technological leadership and product functionality level. - Level of vertical integration (upstream/downstream). - Service level offered. - Pricing policy. - Relationship with the parent company (group synergies). When the map of strategic groupings is set up based on variables that affect exposure to the five competitive forces, the study of strategic groupings sheds light on different sectors that enjoy conditions of profitability and room for manoeuvre. Further steps in strategic grouping analyses: 1. Clearly identify mobility barriers within the sector, in order to prevent attacks from competitors. 2. Identify groups of marginal companies, which represent blind spots (blind alleys) where it is best not to venture. 3. Hypothesize movements from your own grouping to another one that is characterised by higher profitability or potential (strategic trajectories). 4. Analyse sector trends and their impact on the different groupings. 5. Prevent future moves. ## CONCLUSION OF THE ANALYSIS OF THE COMPETITIVE SYSTEM The analysis of strategic groupings is the link between the “aseptic” analysis of the sector and the analysis/assessment of the specific competitive strategy of a company. In reality, the analysis of the supply chain and the value network already allowed us to approach an understanding of the specific competitive strategy of a specific company, as it allowed us to identify the different roles (of director, rather than co-star or second-rate) played by the various companies depending on the current activities they carry out (the “expanded” system of activities through connections with current activities carried out by other companies in the same supply chain or value network). ## STRATEGIES BASED ON COMPETITION: ADVANTAGE AND COMPETITION After the sector analysis, the analysis of basic competitive strategies is the second step in understanding competitive strategy. Its starting point, in any case, remains the sector analysis and its results. The analysis of basic competitive strategies however aims to take a step forward by answering the question: why do some companies have a profitability that is higher than the average of the sector in the medium to long term, while others have a profitability that is lower than the average? In other words, why are some companies characterized by a competitive advantage over others? According to Porter, the ability