Strategy and Industry Analysis

1. Strategy and Industry Analysis GBUS 600 SWOT PEST and Strategy

2. What you have NOT thought about will come back to haunt you!

3. PEST • Political factors include areas such as tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability. • Economic factors are growth, interest rates, foreign conditions, exchange rates, and prices. • Social factors often look at the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. • Technological factors include ecological and environmental aspects. Technological factors look at elements such as R&D activity, automation, technology incentives and the rate of technological change.

4. SWOT • Internal – This is company specific! • Strengths • Weaknesses • External • Opportunities • Threats

5. Goal! • To achieve AND sustain an above average rate of return. • HOW? • Position your company where the industry is the weakest. What do others NOT do? • Exploit changes in the FORCEs. • Rearrange the forces in you favor.

6. Industry (Porter) Overview! • What forces are powerful and can reduce profits and what forces are weak and can be exploited. • 5-forces • Entry • Buyer power • Seller power • Substitutes • Rivalry

7. Entry • Supply-side: huge fixed costs (scale). • Demand-side: buyer loyalty (scale). • Switching costs. • Capital requirements • Inventory • Financing • Distribution channels • GOVERNMENT!

8. Supplier Power • Switching costs • Limited substitutes • Forward integration Who are your suppliers?

9. Buyer Power • Few buyers • Price sensitive (elasticity of demand) • Large share of budget • Limited income • Quality does NOT matter much • Easy substitutes

10. Rivalry • Numerous competitors • Slow growth • Difficult to exit • Homogeneity

11. Substitutes • There is a substitute for everything! • Definition of industry matters. • Switching costs? • Price-performance tradeoff.

12. Common Pitfalls* • Defining the industry too broadly or too narrowly. • Making lists instead of engaging in rigorous analysis. • Paying equal attention to all of the forces rather than digging deeply into the most important ones. • Confusing effect (price sensitivity) with cause (buyer economics). • Using static analysis that ignores industry trends. • Confusing cyclical or transient changes with true structural changes. • Using the framework to declare an industry attractive or unattractive rather than using it to guide strategic choices. *Porter, Michael E., “The Five Competitive Forces that Shape Strategy.” Harvard Business Review – reprint, January 2008, p.16.

13. STRATEGY • Any good strategy starts with a statement of where you are going! – a VISION! • Mission – why we exist, what we do. • Values – what we believe in (ethics, green, …) • Vision – what we want to be!

14. Your Strategy • If it is the same as any competitors, you do not have one. • GOALS – SMART • Specific, measurable, assessable, reasonable, time bound. • Scope – whom do we serve? • Benefits of a strategy?