BU 481: Session 3 and 4
Today’s Learning Objectives
• Assessing the Industry/Environment-Strategy
• Tools for Industry and Environment Analysis
• Incorporate in Readings:
– Textbook Chapters 4 & 5
– Article: “How Competitive Forces Shape Strategy”
• Apply theory/frameworks
– Case: IMAX: Larger than Life
Class 2: Recap
What is Strategy?
Role of the General Manager
• Performance Matrix: Organizational Health/Operating Performance
• Balanced Scorecard: Kaplan and Norton
• Financial Measures
• Vision Framework: Collins and Porras
• “Firm or group of firms that produce and/or sell the same or similar products/services to the same market” • No definitive rule as to where to draw the industry boundaries, but try to avoid being:
– Too inclusive: Factors that differ across heterogeneous markets cannot be detected
– Too exclusive: Important threats are missed
Key Questions Regarding the Industry and
What are the industry’s dominant economic traits?
How strong are competitive forces?
What market positions do rivals occupy?
What moves will they make next?
What forces are driving change in the industry?
What are the key factors for competitive success?
How attractive is the industry from a profit perspective? Industry Analysis
Industry analysis objectives:
1. Understand where value is being derived in industry (industry value system)
2. Understand drivers of profitability
3. Understand why some industries are more attractive than others
4. Understand macro-economic influences/trends
5. Understand key success factors
Industry value chain/value system
Porter’s 5-forces model
Key success factors
New economy models (Apple A/B)
Global industry status
• Complementary coverage between them
• Key Point: Know when to use each one based on characteristics!
1. Industry Value System (External)
• A chain of activities / steps that links raw materials through to the final product being delivered
– Objective is to add value at each step
• Each activity in the chain has revenues, costs and profits • A firm performs a limited number of activities in the value system
Value System: Vertical Integration – Backward & Forward
Firm Value Chain (Internal)
• System of interdependent activities performed by a firm
– Primary Activities
– Support Activities
• Linkage of the activities can lead to competitive advantage in two ways: – Optimization
• Goal is to maximize value created and develop a long-term competitive advantage that is valuable, rare, difficult to copy and the company is organized to exploit.
• We’ll cover this in more depth during our internal analysis
(Chateau des Charmes case)
Industry Value System vs. Firm Value Chain
Industry Value System
Firm’s Value Chain
Why the Value System and Value Chain Matter
• The value created by a system and chain are measured by what the consumer/end user pays
• This value covers all costs and provides all profits to those in the chain
• Different chains may receive different value
• Helps determine what part of the value system you want to be
2. Porter’s Five Forces Model (Industry)
“Industry structure has a strong influence in defining the rules of the competitive game as well as the strategies available to the firm.”
“Industry structure can shift gradually over time….competition continually works to drive down the rate of return on invested capital…”
Source: M. Porter. “Industry structure and competitive strategy, Keys to profitability” HBR
The 5 Forces