EXTERNAL ANALYSIS, CHAPTER 2 DR. MARK FRUIN FALL 2009 BUSINESS 189

FURLOUGH DAY CHANGE FURLOUGH RULES DO NOT ALLOW BACK-TO-BACK FURLOUGH DAYS UNIVERSITY HAS MANDATORY FURLOUGH DAY ON OCTOBER 19 MY FURLOUGH DAY WILL SWITCH FROM OCT 20 TO OCT 27 SO, CLASS READINGS STAY THE SAME BUT THE DAY WHEN I DON’T LECTURE EVEN WHILE PPT SLIDES ARE POSTED IS OCTOBER 27!

WHY IS THE BEER INDUSTRY SO CONCENTRATED? DECREASING DEMAND INCREASED ADVERTISING SPENDING INCREASING LOGISTICAL EXPENSES –Not in book INCREASES IN MINIMUM EFFICIENT SCALE (ECONOMIES OF SCALE) INCREASING ADVANTAGES OF OPERATIONAL FLEXIBILITY; CHANGEOVER AND SET-UP TIMES (ECONOMIES OF SCOPE) –Not in book

BEFORE DOING SWOT INDUSTRY DEFINITION –? –TEXTBOOK VS. EMPIRICAL DEFINITION SECTOR DEFINITION –? MARKET SEGMENTS DEFINITION –? –AGAIN, TEXTBOOK VS EMPIRICAL DEFINITION EXAMPLE: FIGURE ON PAGE 44

CHANGING INDUSTRY BOUNDARIES WHY DO INDUSTRY BOUNDARIES CHANGE? –TEXTBOOK ANSWERS CHANGING CUSTOMER NEEDS CHANGING/EVOLVING TECHNOLOGY –REAL LIFE ANSWERS MARKET POWER ECONOMIC CONDITIONS INFLATE OR DEFLATE RIVALRY & DEGREE OF COMPETITION

INDUSTRY BOUNDARIES CUSTOMER NEEDS EVOLVE NEW TECHNOLOGIES EMERGE TYPICALLY, WE THINK THAT TECHNOLOGIES DRIVE INDUSTRIES WHILE CUSTOMER NEEDS DRIVE MARKET SEGMENTS

SWOT FOR COB, 2009 SWOT FOR COB STRATEGIC GROUPS? SEPARATE UNDERGRAD & GRADUATE? WHAT CAN & SHOULD BE DONE TO MOVE UP IN RANKINGS? ROLE OF STRATEGIC INTENT HOW FAR CAN ONE GO WITH SWOT?

PORTERS 5 FORCES MODEL 5 FORCES MODEL & GENERIC COMPETITIVE STRATEGIES MODEL ARE KEY PORTER CONCEPTS –UNDERSTAND AND BE ABLE TO DIAGRAM BOTH –TEXTBOOK’S 5 FORCES FIGURE IS LESS ROBUST THAN USUAL MODEL THAT PROVIDES A LOT OF DETAILS/ITEMS FOR EACH FORCE

DRIVERS OF 5 FORCES & GENERIC COMPETITIVE STRAT RISK OF ENTRY BY COMPETITORS THREAT OF SUBSTITUTES (NEW TECHNOLOGIES) BARGAINING POWER OF SUPPLIERS –HOW MANY, BIG, RARE, LOCKED IN & INDEPENDENT BARGAINING POWER OF BUYERS –HOW MANY, BIG, LOCKED IN & INDEPENDENT RIVALRY (MIDDLE BOX) –4Ss (ABSOLUTE & RELATIVE COST ADVANTAGES) –BRAND LOYALTY –SWITCHING COSTS –GOVERNMENT REGULATION –BARRIERS TO ENTRY (& TO EXIT)

COMPLEMENTORS OR VALUE NET PORTER’S MODEL IS INDUSTRY- SPECIFIC/FOCUSED ON ONE INDUSTRY OFTEN, INDUSTRIES ARE INTERRELATED OR CONNECTED AT THE HIP –IN THIS CASE, THE TWO INDUSTRIES SHOULD BE ANALYZED TOGETHER –EXAMPLES: AUTO INDUSTRY VS COMPUTERS

STRATEGIC GROUPS GROUPS OF COMPANIES THAT PURSUE SIMILAR STRATEGIES WITHIN THE SAME INDUSTRY AND MARKET SEGMENTS BUT AT ODDS WITH FIRMS THAT PURSUE DIFFERENT BUSINESS MODELS/MARKET SEGMENTS IN THE SAME INDUSTRY MOBILITY BARRIERS = WITHIN-INDUSTRY FACTORS THAT INHIBIT ABILITY TO MOVE BETWEEN STRATEGIC GROUPS EXAMPLES?

IMPLICATIONS OF STRATEGIC GROUPS PRODUCTS IN THE SAME GROUP ARE SEEN AS DIRECT SUBSTITUTES –RIVALRY IS HEIGHTENED –MARGINS MAY BE SQUEEZED EACH STRATEGIC GROUP MAY FACE DIFFERENT OPPORTUNITIES & THREATS (IN THE SAME INDUSTRY) MOBILITY BARRIERS INHIBIT MOVEMENT BETWEEN STRATEGIC GROUPS

INDUSTRY ANALYSIS DISTINGUISH BETWEEN FRAGMENTED AND CONCENTRATED INDUSTRIES INDUSTRY LIFE CYCLE MODEL IS FOR “CONCENTRATED” INDUSTRIES WHAT DRIVES INDUSTRIES? DON’T BE FOOLED BY SMOOTH LINE/ CURVE OF THE STANDARD I.LC. MODEL

INDUSTRY LIFE CYCLE ANALYSIS EMBRYONIC GROWTH INDUSTRY SHAKEOUT MATURE DECLINE

LIMITATIONS OF I.L.C. MODEL LIFE CYCLE IS GENERALIZATION INNOVATIONS ARE OF VARIOUS SORTS INNOVATIONS CAN TRANSFORM INDUSTRY DYNAMICS OVEREMPHASIZES INDUSTRY EFFECTS UNDEREMPHASIZES FIRM DIFFERENCES & STRATEGIC GROUP DIFFERENCES

MACRO-ECONOMIC ENVIRONMENT ILC EFFECTS & RIVALRY TAKE PLACE WITHIN ECONOMIC & INSTITUTIONAL ENVIRONMENTS ROLE OF MACROECONOMIC EFFECTS? ROLE OF INSTITUTIONAL ENVIRONMENT? OTHERS –DEMOGRAPHIC FORCES –GLOBAL COMPETITION –POLITICAL & LEGAL FORCES: CO-EVOLUTIONARY EFFECTS ON COMPETITION

CLOSING CASE: WHY PHARMA INDUSTRY SO PROFITABLE? 16.45% ROIC BETWN ; EXPLAIN USING LAST WEEK’S FORMULA HIGH (AND INCREASING) DEMAND PATENT PROTECTION HIGH R&D COSTS –1 OUT OF 1,000 TESTED COMPOUNDS ENTER CLINICAL TRIALS; 1 IN 5 REACHING TRIALS ENTER MARKET –ONCE IN MKT, 3 OF 10 RECOUP R&D, MKT COSTS AND MAKE A PROFIT RISK OF FAILURE HIGH HIGH COMPLEXITY OF GETTING TO MARKET POLITICAL PRESSURES ON PRICES MARKET ACCESS & MRKTG COSTS