We will combine our talents together to develop our skills which produce great projects. Each member will work to the best of their abilities, and help one another to succeed in the course Score at least 90% on all assignments, while maintaining a creative aspect Complete drafts one week in advance prior to deadline. Each member complete at least one standing-O. Get an A on every exam while maintaining a 100% group viewership of rerun episodes of America's Next Top Model

Meet every Sunday evening to develop creative ideas to present to Professor Neubaum for team special points. Meet every Wednesday night at Clodfelter’s to build team unity and morale.

“I think there is a world market for maybe five computers” Thomas Watson, Chairman of IBM, 1943

“There is no reason why anyone would want a computer in their home” Ken Olson, president, chairman, and founder of Digital Equipment Corporation, 1977

“This ‘telephone” has too many shortcoming to be seriously considered a means of communication. The device is inherently of no value to us.” Internal Memo, Western Union, 1876

“Everything that can be invented has been invented” Charles H. Duell, Commissioner of the U.S. Patents Office, 1899

“640K of RAM ought to be enough for anybody” Bill Gates, 1981

“I see no scenario whatsoever where Toyota will pass us in share” Chrysler Chief Dieter Zetsche, January 2002

“I see no scenario whatsoever where Toyota will pass us in share” Chrysler Chief Dieter Zetsche, January 2002 September 2003, “The Big Three” became GM, Ford, and Toyota

“Nothing important happened today” Journal entry made by King George III, July 4, 1776, the day the United States declared independence from England

“Competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness” “Analysis is the critical starting point of strategic thinking” “Skate to where the puck is going, not to where it has been”

External Analysis It’s not recognizing that change will occur that is the problem, it’s figuring out: what will happen? how it will affect us? what to do about it? Therefore, forecasting is necessary to predict direction and the effect of change

BROAD/REMOTE/MACROENVIRONMENT The Economy at Large Technology Political and Legal Suppliers Substitutes COMPANY Rival Firms Buyers New Entrants Societal Values and Lifestyles Demographics  IMMEDIATE INDUSTRY AND COMPETITIVE ENVIRONMENT

Broad/Remote/ Macroenvironment Segments Macroeconomic Demographic Political/Legal Technological Social Firms CAN NOT Directly Control Them ?

Each of these forces affect costs/prices, therefore, profitability Porter’s Five Forces Competitive Rivalry Power of Buyers Power of Suppliers Potential Entrants Substitute Products Each of these forces affect costs/prices, therefore, profitability

Substitute Products Rivalry Suppliers of Among Buyers Key Inputs (of firms in other industries) Suppliers of Key Inputs Rivalry Among Competing Sellers Buyers Potential New Entrants

{ Price Profits Porter’s 5-forces is all about margins - What factors increase/decrease margins, i.e., profitability. Costs

When industry structural variables are weak…... Prices can be kept high { Profits can soar Costs can be kept low

When industry structural variables are strong…... Prices will be pushed down { Profits shrink Costs will rise

If you were unable to find work and had to start making money, what kind of business would you start?

Which of these industries would be most difficult to enter Which of these industries would be most difficult to enter? Which would be relatively more easy? Airlines, automobile manufacturing, grocery store, pharmaceutical, beer brewing, restaurant, hair salon

Potential Entrants Firms enter when industries are attractive, unless they find themselves at an immediate disadvantage relative to incumbents. Firms can create “barriers to enter” Barriers of entry are desirable for entrenched firms

Barriers to Entry Economies of scale Access to technology & know-how Learning, costs, experience curves Product differentiation & loyalty Switching costs Capital & resource requirement Cost disadvantage independent of size Distribution Regulatory policies Threat of retaliation

Threat of Substitutes Product/service which fulfills similar need Price cap 3 Questions Are they available? Price-performance relationship? Can we switch?

Power of Buyers Who are the Buyers? - who provides our revenues? Can they force: lower prices, higher quality and service – affect the terms and conditions of the exchange? Based on two issues Price sensitivity significant “out of pocket” costs no differentiation exist in a competitive, low profit industry – every penny counts

Power of Buyers (cont.) Whether buyers can bargain down prices few buyers buyers are knowledgeable low switching costs backward integration is a valid threat

Competitive Force of Suppliers Who are the suppliers? Suppliers are a strong competitive force when: Only a few suppliers exist Few substitutes Buyers not important customers Suppliers provide a product crucial to production process, and/or significantly affects product quality It is costly to switch suppliers Forward integration a credible threat They can supply a component at a lower cost

Rivalry and Profitability Industry profitability is a collective good. Collective good is served by coordination Are there industries were pricing is coordinated? Incentive to violate

Usually the most powerful of the five forces How actively and aggressively are rivals employing competitive weapons in jockeying for a stronger market position and increasing sales? Is price competition vigorous? Active efforts to improve quality? Are rivals racing to offer better performance features? better customer service? Lots of advertising/sales promotions? Active efforts to build a stronger dealer network? Active product innovation? Active use of other weapons of rivalry?

Rivalry – What drives it? Numerous, equally balanced competitors Perceptions of high payoff from competitive actions Slow growth, excess capacity High fixed, storage, obsolescence costs High exit barriers Diversity of competitors Low switching costs Lack of differentiation

Porter’s..in conclusion Determines the attractiveness of industry Can we influence any of these structural attributes? Static model & Hypercompetition If the pace of transformation is rapid, if entry rapidly undermines the market power of dominant firms, if innovation speedily transforms industry structure by changing process technology, creating new substitutes, and by shifting the basis on which firms compete, then there is little merit in using industry structure as a basis for analyzing competition and profit.

Porter’s Five Forces - Two Examples Campus Bookstore Rivals? - Entry Barriers? - Substitutes - Supplier Power - Buyer Power - Profitable? PCs Rivals - Entry Barriers - Substitutes - Supplier Power - Buyer Power - Profitable ?

Industries and Segments What is a segment? Different segments….. posses different combinations of 5-forces therefore: reward different strategies possess different levels of profitability Therefore, not all firms can effectively compete across multiple segments

What Forces Are at Work to Change Industry Conditions? Industries change because forces are driving industry participants to alter their actions Driving forces are the major underlying causes of changing industry and competitive conditions

Common Types of Driving Forces Changes in long-term industry growth rate Changes in who buys the product and how they use it Product innovation Technological change/process innovation Marketing innovation Entry or exit of major firms Diffusion of technical knowledge

Common Types of Driving Forces Increasing globalization of industry Changes in cost and efficiency Market shift from standardized to differentiated products (or vice versa) New regulatory policies and/or government legislation Changing societal concerns, attitudes, and lifestyles Changes in degree of uncertainty and risk

National Jewelry Retailers Price Cartier Tiffany Nordstroms Sachs Burdines Dillards Jerrods Marks & Morgan Sears JCP Zales Kay Target Pawn Shop Chain-by-the-Foot Carts WalMart Kmart Breadth of Product Line

National Jewelry Retailers Price Cartier Tiffany Nordstroms Sachs Strategic Groups identify Burdines Dillards Closest Rivals Jerrods Marks & Morgan Sears JCP Zales Kay Target Pawn Shop Chain-by-the-Foot Carts WalMart Kmart Breadth of Product Line

National Jewelry Retailers Price Cartier Tiffany Nordstroms Sachs Strategic Groups identify Burdines Dillards Mobility Barriers Jerrods Marks & Morgan Sears JCP Zales Kay Target Pawn Shop Chain-by-the-Foot Carts WalMart Kmart Breadth of Product Line

National Jewelry Retailers Price Cartier Tiffany Nordstroms Sachs Strategic Groups identify Burdines Dillards Jerrods Marks & Morgan Sears JCP Zales Kay Untapped Niches Pawn Shop Chain-by-the-Foot Carts WalMart Kmart Breadth of Product Line

National Jewelry Retailers Price Cartier Tiffany Nordstroms Sachs Strategic Groups identify Burdines Dillards Jerrods Marks & Morgan Sears JCP Zales Kay Untapped Niches Target Pawn Shop Chain-by-the-Foot Carts WalMart Kmart Breadth of Product Line

What strategic moves are rivals likely to make? - Competitive Analysis Important in concentrated industries Benefits forecast future actions, predict reactions can we influence rivals’ behavior?

Four Steps of CA Identify their strategy Identify the objectives Identify their assumptions Identity their capabilities Strategy Objectives Assumptions Capabilities Strategic Action

What are the Key Success Factors? KSFs are product attributes, competencies, competitive capabilities, and market achievements with the greatest direct bearing on profitability opportunities for competitive advantage

Example: KSFs for Beer Industry Utilization of brewing capacity -- to keep manufacturing costs low Strong network of wholesale distributors -- to gain access to retail outlets Clever advertising -- to induce beer drinkers to buy a particular brand

Identifying Key Success Factors (KSFs) - vary by segment Automotive Industry