1. “Computers in the future may weigh no more than 1.5 tons”

2. “Computers in the future may weigh no more than 1.5 tons”
Popular Science Magazine, forecasting the relentless march of Science

3. In 1968, a 100 megabyte hard drive weighed 4,500 pounds cost more than $130,000

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

5. “But what….is it good for?”
Engineer at IBM, commenting on the microchip, 1968

6. “The idea is interesting and well-formed, but in order to earn better than a “C” the idea must be feasible”
Yale University Professor in response to Fred W. Smith’s paper proposing an overnight delivery service

7. FedEx now delivers well over 2 billion packages a year

8. “We don’t like their music and guitar music is on the way out”
Decca Records Company in rejecting the Beatles, 1962

9. “ Who the hell wants to hear actors talk”
H. M. Warner, 1927

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

11. “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

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

13. “640K of RAM ought to be enough for anybody”
Bill Gates, 1981

14. Subway opens a new store every 3 hours
Starbucks every 11 hours
Quiznos every 16 hours
WSJ, Oct 1, 2003

15. “I see no scenario whatsoever where Toyota will pass us in share”
Chrysler CEO, January 2002

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

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

18. Skate to where the puck is going, not to where the puck has been.
Competitive strategy must grow out a sophisticated understanding of the rules of competition that determine industry attractiveness.
Michael Porter
When an industry with a reputation for bad economics meets a manager with a reputation for excellence, it’s usually the industry that leaves with its reputation intact.
Warren Buffett
Skate to where the puck is going, not to where the puck has been.
Wayne Gretsky

19. 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

20. External Analysis 1) Analyze the environment 3) Competitive analysis
macroenvironment
industry environment
3) Competitive analysis
4) Identification of key success factors

21. Environment of the Firm
Macro Environment
Industry Environment
Potential
Entrants
Economic
Technology
Substitute
Products
Competitive
Rivalry
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Political
& Legal
Demographic
Sociocultural

22. Macroenvironment Technology Demographics Socioculture Demographic
Economic

23. 1) Technological Forces
Changes in technology that affect the workplace, and the products and services consumers expect
e.g., Information technologies, entertainment technologies, product technologies.

24. 2) Political/Legal Forces
Tax laws, minimum wages, environmental laws, labor laws, consumer protection, product liability, etc.

25. 3) Sociocultural Forces
Attitudes of society towards work, careers, products, services and consumer activism.
e.g., concern for quality of life, birth rates, woman in the work force, low-carb dieting, health consciousness, respect for intellectual property, desire for “green retailing”

26. 4) Demographic Forces Characteristics of the population
e.g., age, race, gender, sexual orientation and social classes
Domestically - falling birth rates, falling death rates, increase in minority populations
Internationally – birth rates are increasing in some of the poorest (and most underserved) populations of the world.

27. 5) Economic Forces
General health/wellbeing of the local, regional, national or global economy.
e.g., Interest rates, unemployment rates, consumer spending, confidence and savings, energy costs, personal disposable income, inflation rates, housing costs

28. Macroenvironment
Firms can not influence them, but they can have a significant influence on the firm, its industry, its strategy, and its performance
Cast a wide net and to identify the emerging trends
Then determine which factors are relevant, and how these changes will have an effect upon the firm.

29. Environment of the Firm
Macro Environment
Industry Environment
Potential
Entrants
Economic
Technology
Substitute
Products
Competitive
Rivalry
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Political
& Legal
Demographic
Sociocultural

30. ROIC Across Industries 1995-2004

31. 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

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

33. { Porter’s 5-forces is all about margins Price
What factors increase/decrease margins within an industry, thus affecting profitability.
Profits
Costs

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

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

36. What kind of businesses might you start?
Suppose you had to start a new business and start generating revenues…
… today
… in a week
… in 2 months
… in 1 year
What kind of businesses might you start?

37. Potential New 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

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

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

40. Substitutes and Business Definition
How we define our business defines our substitutes and our rivals
Carbonated Soft Drink
Soft Drinks
Beverages
Many Substitutes
Few Substitutes
Few Rivals
Many Rivals

41. Buyers Who are your key buyers? - who provides our revenues?
Can they force:
lower prices, higher quality and service – affect the terms and conditions of the exchange?
When do you, as a consumer, have power?

42. Buyers What affect buyers’ power? Volume/Frequency of purchase
Portion of buyer’s costs
Lack of differentiation
Low switching costs
Self-source or backwards integration
Criticality
Buyers’ knowledge
Buyers’ profitability

43. Suppliers Who are you key suppliers?
Suppliers are a strong competitive force when:
Only a few suppliers exist
Few substitutes
Buyers not important customers to suppliers
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

44. 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

45. 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?

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

47. Industries and Segments
What is a segment?
Different segments…..
posses different combinations of 5-forces
therefore:
reward different strategies
possess different levels of profitability

48. Segments in the Automotive Industry
Economy Luxury
Which segment is more attractive? Why?

49. Segments in the Automotive Industry
Economy Luxury
More Rivalry
More Substitutes
More Entrants
More Buyer Power

50. Porter’s..in conclusion
Attractiveness of industry/segment
current industry
adjacent segments
industries you might consider entering
Which forces possess the greatest influence?
Can we influence them?

51. Application
Break into groups, and conduct a Porter’s five forces analysis on one of the following industries
Airlines
Automobile manufacturing
Fast food
Grocery store
Soft drink

52. 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.

53. 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

54. 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

55. 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

56. Competitor Analysis

57. Strategic group mapping
A strategic group consists of those rivals with similar competitive approaches in an industry

58. National Jewelry Retailers
Price
National Jewelry Retailers
Quality

59. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Quality

60. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Tiffany
Quality

61. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Tiffany
Jerrods
Quality

62. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Tiffany
Jerrods
Marks & Morgan
Quality

63. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Tiffany
Jerrods
Marks & Morgan
Zales
Quality

64. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Tiffany
Jerrods
Marks & Morgan
Zales
Kay
Quality

65. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Tiffany
Jerrods
Marks & Morgan
Zales
Kay
WalMart
Quality

66. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Tiffany
Jerrods
Marks & Morgan
Zales
Kay
WalMart
K-Mart
Quality

67. National Jewelry Retailers
Price
National Jewelry Retailers
Cartier
Tiffany
Jerrods
Marks & Morgan
Zales
Kay
WalMart
K-Mart
Quality

68. National Jewelry Retailers Cartier Tiffany Nordstroms Sachs
Price
National Jewelry Retailers
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

69. National Jewelry Retailers Cartier Tiffany Nordstroms Sachs
Price
National Jewelry Retailers
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

70. National Jewelry Retailers Cartier Tiffany Nordstroms Sachs
Price
National Jewelry Retailers
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

71. National Jewelry Retailers Cartier Tiffany Nordstroms Sachs
Price
National Jewelry Retailers
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

72. National Jewelry Retailers Cartier Tiffany Nordstroms Sachs
Price
National Jewelry Retailers
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

73. National Jewelry Retailers Cartier Tiffany Nordstroms Sachs
Price
National Jewelry Retailers
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

74. Other Dimensions for Strategic Group Maps
Vertical integration
Geographic scope
R&D Expenditures
Customer Service
Number of outlets
Reputation
Can even be categorical (e.g., Mexican, Italian, pizza, subs, chicken)

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

76. Competitive Analysis
Important in concentrated industries (few, large share competitors)
Benefits
forecast future actions, predict reactions
can we influence rivals’ behavior?

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

78. 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

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

80. Information Gathering
1) Identify your informational needs
2) Generate a list of information sources
3) Determine who will monitor collection of information and assign tasks appropriately
4) Collect, store and disseminate
Organizations can gain 80% of the information the need about their rivals from current customers, suppliers and employees.