Semester 1 Session 3a The five forces model and competitive strategies

Transcription

1 Management and Planning SEMESTER 1 September 2009 Semester 1 Session 3a The five forces model and competitive strategies Objectives To be able to describe and apply Porter s five forces model of competitive pressures. To be able to describe and use Porter s generic competitive strategies Before next week! These are all likely to be tested in coursework and in the examination. C:\Allwork\geoff\Modules\M&P\M&P session 3a five forces model and competetive strategies.doc Leese Geoff

2 The Five Forces model and competitive strategies Geoff Leese September 2005 revised September 2006, July 2007, August 2008, August Porter s five forces model Potential Entrants to market Threat of entry Suppliers Bargaining Power Rivalry with competitors Buyers Bargaining Power Substitutes Threat of substitutes 2 Threat of entry n More likely when Economies of scale are possible Capital requirements of entry are low Easy access to distribution channels No dominant player Little expected retaliation Little government/legislative intervention Low levels of differentiation n Important issues What barriers exist? What is our position? 3 1

3 Buyer power nmore likely when High concentration of buyers Large number of small suppliers Little risk/low cost of switching Alternative sources of supply Low differentiation High levels of competition High risk of backward integration 4 Supplier power nmore likely when High concentration of suppliers Cost of switching suppliers is high Risk of switching suppliers is high Supplier has powerful brand Supplier dominates market High risk of forward integration 5 Threat of substitutes nproduct for Product Post replaced by fax replaced by nsubstitution of need Better quality castings reduces need for machine tools ngeneric substitution Holiday or a new TV? ndo without! 6 2

4 Competitive rivalry (1) nrivalry between competing organisations nissues What is it based on? Increasing or decreasing? How is it affecting us? What can we do about it? 7 8 Competitive Rivalry(2) n Balance of rivalry Lots of small, balanced competitors? Market domination? n Market growth rates Product life cycle? n Global markets? n High fixed costs n High cost of extra capacity n Level of differentiation n High exit barriers n Easy acquisition Collaboration and competition n Collaboration between buyer and seller Input and output! n Collaboration to increase buying power NISA, SPAR, SURF? n Collaboration to avoid substitution or prevent entry Collaborative R&D, marketing boards n Collaboration to gain entry Honda/Rover? 9 3

5 Key issues n What are the key forces at work in our competitive environment? n Are there underlying forces (SLEPT analysis?) contributing to this? n Is it likely that these forces will change? If so how and why? n How do our competitors stand? n How do WE stand? n What can be done to influence these forces? 10 Critical (Key) Success Factors n CSFs are aspects of strategy where you must provide better value and beat the competition n Competences needed in activities which underpin each critical success factor n Performance standards for these determine how competitive advantage will be achieved n Advantage lost by competitor performance & CSFs changing 11 Identifying Critical Success Factors nthese are for an Industry nohmae gives 3 areas to consider, the 3 Cs ncustomer issues nthe competition nthe business (or Corporation) 12 4

6 Customers n Who are they now & potentially n Segments in the market n Why do they buy from whoever n General issues price service reliability + quality tech spec brands 13 Competition nwho & who has market dominance & why nmarket factors and intensity nresource comparisons ngeneral issues Cost and price comparisons Quality and service Logistics 14 The Business nwhat do our competitors actually deliver to customers nwhat is our biggest cost area ngeneral issues Low cost, labour costs, economy of scale Output and quality People - skills, relationships Innovation and technology 15 5

7 Competitor Analysis n Who are your competitors n Where are they n How many n What do they compete on n What market share do they have n Is the market segmented n How strongly do they compete n Are there any alliances 16 Strategic alternatives ngrowth and expansion nacquisition nintegration ndivestment 17 Competitive strategies nporter s generic strategies Cost leadership Broad-market differentiation Focus Cost Focus differentiation 18 6

8 Cost leadership (1) nlow level of differentiation naim for average customer nintroduce improvements only when customers demands them npricing strategies Sell at industry average, improve profits Sell at below average, improve market share 19 Cost leadership(2) nneeds these strengths Access to capital required for significant investment in process technology Ability to design products/services that have low production costs Exclusive access to low cost materials/components Efficient distribution channels 20 Cost leadership(3) nadvantages Cost advantage can protect from new entrants Pricing at industry average allows pricecutting if necessary nrisks Technology may be leapfrogged or copied Risk from a number of focussed cost leading enterprises 21 7

9 Differentiation(1) nperceived quality is the key! Whether real or not. Intrinsic qualities of the product Pre/post sales service nallows premium pricing 22 Differentiation(2) ntypical strengths required Access to leading edge R&D Highly skilled and creative product development Strong sales team Corporate reputation for quality and innovation 23 Differentiation(3) n Advantages Price increases from powerful suppliers can be passed on to buyers Brand loyalty protects from substitution Brand loyalty protects against market entry Buyers cost of switching may be high n Risks Imitation is a possible threat Novelty value short-lived Limits to price elasticity Customer tastes may change 24 8

10 Focused strategies (1) nfocuses on a narrow market segment (niche market) and attempts to obtain competitive advantage on a cost or differentiation basis. noften generates fierce customer loyalty nconcentrate on core competences 25 Focused strategies(2) nadvantages Power of buyers often sole source of supply Brand loyalty helps protect against substitution or market entry Easier to stay close to customer and respond quickly to changes in need 26 Focused Strategy (3) n Risks Low purchasing quantities hands power to suppliers Low production volume brings high unit costs Change in consumer taste means that niche markets disappear May be easy for cost leaders/big differentiators to adapt their products to compete 27 9

11 Stuck in the middle? nporter argues long term interests are best served by picking a strategy and sticking to it. nhow does one then cope with mixed consumer needs, quality and price for example? 28 Summary nfive forces model nporter s generic strategies 29 Further reading nthe Cambridge University view follow the link! nmore explanation follow the link! nbennett chapter 3 njohnson and Scholes chapters 3 and

12 Management and Planning SEMESTER 1 September 2009 Session 3a The five forces model and competitive strategies Tutorial questions Using the five forces model, describe and analyse the competitive pressures in the environment of your own firm. Using Porter s generic strategies, suggest a strategy that may help you to deal with these competitive pressures. Be prepared to discuss your solutions during next week s tutorial session. C:\Allwork\geoff\Modules\M&P\M&P session 3a tutorial - Five forces and competetive strategies.doc Geoff Leese

13 Management and Planning SEMESTER 1 September 2009 Semester 1 Session 3b Management and Environmental Audit Objectives Management audit o To be able to describe The Seven-S model Value Chain Analysis Organisational Network Analysis o And use them in a given scenario. Environmental Scanning o To be able to describe PEST (STEP, SLEPT) analysis Competitor analysis o And use them in a given scenario SWOT analysis o To be able to describe SWOT analysis and combine the above into a SWOT analysis document These are all likely to be tested in coursework and in the examination. C:\Allwork\geoff\Modules\M&P\M&P session 3b header - Management and environmental audit.doc Geoff Leese

14 Management Audit and Environmental Analysis Geoff Leese October 2005 Revised September 2006, July 2007, August 2008, August SWOT analysis nstrengths nweaknesses nopportunities nthreats Internal (Management audit) External (Environmental Scanning) 2 Management audit nthe 7-S model nvalue chain analysis nnetwork analysis 3 1

15 McKinsey s 7-S Framework nstrategy nstructure nsystems nshared Values nstaff nskills nstyle 4 an approach to organising n aid to building a cohesive strategy n all equally important n 7 interdependent variables n change one, impacts others n use this to evaluate strategy developments n soft is harder to measure n good for capturing importance of the links 5 Value chain analysis (Porter) nviews the organisation as a chain of value-creating activities. nmust create sufficient value to exceed their cost thus generating profit (or at least not generating loss!) nprimary and support value chain activities 6 2

16 Primary value chain activities Inbound logistics Operations Sales and marketing Service Outbound logistics Any or all of these can be important in a given scenario sometimes defining them is not so simple! 7 Support value chain activities nprocurement ntechnology development nhuman Resource Management ninfrastucture management Legal, financial, QA, estates and buildings etc 8 Value chain analysis n Identify the activities and process flows n Identify linkages between activities n Identify ways to optimise the value chain Outsourcing? Involving the customer? On-line booking Self-assembly furniture Involving suppliers? 9 3

17 Organisational network analysis nsocial network analysis applied to organisations nmaps nodes (people, groups, functions) and the interactions between them (relationships or flows) nmeasures centrality of nodes (their importance) using mathematical criteria 10 Some ONA criteria ndegrees (number of direct connections) nbetweenness (nodes that connect other nodes ) ncloseness (short paths to many nodes) 11 An ONA diagram 12 4

18 Environmental scanning(1) n Macro environment PEST,SLEPT,STEP n Micro-environment Competitors, suppliers, distributors, customers n Methods Ad-hoc (usually in response to crisis!) Regular scheduled Continuous 13 Macroenvironmental scanning npest (STEP, SLEPT) analysis Political (includes legal!) Economic Social (includes Green ) Technological 14 Political factors ntaxation nemployment/health and Safety law nregulation/deregulation ntrade restrictions and tariffs (or lack of them!) npolitical stability 15 5

19 Economic factors nconnected to political ones neconomic cycle ngrowth or recession? ninterest rates ninflation rates nexchange rates 16 Social factors ndemography nage distribution ngeographical distribution ncultural norms n How we live 17 Technology factors nrate of technological change nautomation ntechnology incentives nemerging technologies nlevels of R&D activity 18 6

20 Microenvironmental scanning ncompetitor analysis Competitor array Competitor profiling nconsumer analysis (market research) nproduct innovations 19 Competitor array example Key Industry Success Factors Weighting Competitor 1 rating Competitor 1 weighted Competitor 2 rating Competitor 2 weighted 1 - Extensive distribution Customer focus Economies of scale 4 - Product innovation Totals Should we include ourselves? 20 The SWOT matrix Opportunities Threats Strengths S-O strategies S-T strategies Weaknesses W-O strategies W-T strategies 21 7

21 SWOT Strategies n Strength-Opportunity Make use of strengths to grasp opportunities that fit them n Strength-Threat Identify ways to use strengths to minimise external threats n Weakness-Opportunity Overcome weaknesses to pursue opportunities n Weakness-Threat Prevent weaknesses from encouraging threats 22 Summary n SWOT analysis Assess and analyse strengths and weaknesses Seven S Value chain Organisational network analysis Assess and analyse opportunities and threats PEST analysis Competitor analysis Market research Devise strategies based on all four 23 Further reading nbennett Chapter 5 njohnson and Scholes chapters 3 and 4 nfor ONA ngeneral strategic management stuff t/6592/ 24 8

22 Management and Planning SEMESTER 1 September 2009 Session 3b Management and environmental audit Tutorial questions Conduct a quick and dirty environmental scanning exercise for your own organisation, using o STEP analysis o a competitor array. Conduct a quick and dirty management audit using one from o The seven-s model o Value chain analysis o ONA Suggest at least two strategies based on the above analysis and categorise them. Be prepared to discuss your solutions during next week s tutorial session. C:\Allwork\geoff\Modules\M&P\M&P session 3b tutorial - Managemenyt and environmental audit.doc Geoff Leese