Chapter 5 / Week 5: SGM's and CPM's Flashcards
Strategic Group Analysis
Ebook pages 46-51 (ebook 44-49)
The best technique for revealing the market position of industry competitors is ______________
Strategic group mapping
Strategic group definition
consists of those industry members with similar competitive approaches and positions in the market.
Companies in the same strategic group can resemble one another in a variety of ways
1) They may have comparable product-line breadth,
2) sell in the same price/quality range,
3) employ the same distribution channels,
4) depend on identical technological approaches,
5) compete in much the same geographic areas, or
6) offer buyers essentially the same product attributes or similar services and technical assistance.
Strategic group mapping
is a technique for displaying the different market or competitive positions that rival firms occupy in the industry.
The procedure for constructing a strategic group map is straightforward:
How to conduct this
1) Identify the competitive characteristics that delineate strategic approaches used in the industry.
2) Plot the firms on a two-variable map using pairs of these variables.
3) Assign firms occupying about the same map location to the same strategic group.
4) Draw circles around each strategic group, making the circles proportional to the size of the group’s share of total industry sales revenues.
1) Identify the competitive characteristics that delineate strategic approaches used in the industry.
Typical variables used in creating strategic group maps are price/quality range (high, medium, low), geographic coverage (local, regional, national, global), product-line breadth (wide, narrow), degree of service offered (no frills, limited, full), use of distribution channels (retail, wholesale, Internet, multiple), degree of vertical integration (none, partial, full), and degree of diversification into other industries (none, some, considerable).
2) Plot the firms on a two-variable map using pairs of these variables.
Nothing more to add
3) Assign firms occupying about the same map location to the same strategic group.
Nothing more to add
Draw circles around each strategic group, making the circles proportional to the size of the group’s share of total industry sales revenues.
Nothing more to add
Several guidelines need to be observed in creating strategic group maps
Tips / Tricks for group maps
First, the two variables selected as axes for the map should not be highly correlated; if they are, the circles on the map will fall along a diagonal and reveal nothing more about the relative positions of competitors than would be revealed by comparing the rivals on just one of the variables.
Second, the variables chosen as axes for the map should reflect important
differences among rival approaches—when rivals differ on both variables, the locations of the rivals will be scattered, thus showing how they are positioned differently.
Third, the variables used as axes don’t have to be either quantitative or continuous; rather, they can be discrete variables, defined in terms of distinct classes and combinations.
Fourth, drawing the sizes of the circles on the map proportional to the combined sales of the firms in each strategic group allows the map to reflect the relative sizes of each strategic group
Fifth, if more than two good variables can be used as axes for the map, then it is wise to draw several maps to give different exposures to the competitive positioning relationships present in the industry’s structure—there is not necessarily one best map for portraying how competing firms are positioned.
Strategic group maps reveal
which companies are close competitors and which are distant competitors.
The second thing to be gleaned from strategic group mapping is that
not all positions on the map are equally attractive.
Two reasons account for why some positions can be more attractive than others:
1) Prevailing competitive pressures from the industry’s five forces may cause the profit potential of different strategic groups to vary
2) Industry driving forces may favor some strategic groups and hurt others.
1) Prevailing competitive pressures from the industry’s five forces may cause the profit potential of different strategic groups to vary
The profit prospects of firms in different strategic groups can vary from good to poor because of differing degrees of competitive rivalry within strategic groups, differing pressures from potential entrants to each group, differing degrees of exposure to competition from substitute products outside the industry, and differing degrees of supplier or customer bargaining power from group to group.
2) Industry driving forces may favor some strategic groups and hurt others.
Likewise, industry driving forces can boost the business outlook for some strategic groups and adversely impact the business prospects of others.
Mobility barriers
restrict firms in one strategic group from entering another more attractive strategic group in the same industry.
Studying competitors’ past behavior and preferences provides a valuable assist in
anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.
Michael Porter’s SOAR Framework for Competitor Analysis
points to four indicators of a rival’s likely strategic moves and countermoves.
Michael Porter’s SOAR Framework for Competitor Analysis four indicators
1) Rival’s Strategy
2) Objectives
3) Assumptions about itself and industry
4) Resources and capabilities
behavioral proclivities
what competitive moves a rival is likely to make and how they are likely to react to the competitive moves of your company—its probable actions and reactions.
Current Strategy
To succeed in predicting a competitor’s next moves, company strategists need to have a good understanding of each rival’s current strategy, as an indicator of its pattern of behavior and best strategic options.
Questions to consider include: How is the competitor positioned in the market? What is the basis for its competitive advantage (if any)? What kinds of investments is it making (as an indicator of its growth trajectory)?
Objectives
An appraisal of a rival’s objectives should include not only its financial performance objectives but strategic ones as well (such as those concerning market share)
Poorly performing rivals are virtually certain to make fresh strategic moves.
Resources and Capabilities
A rival’s strategic moves and countermoves are both enabled and constrained by the set of resources and capabilities the rival has at hand. Thus a rival’s resources and capabilities (and efforts to acquire new resources and capabilities) serve as a strong signal of future strategic actions (and reactions to your company’s moves). Assessing a rival’s resources and capabilities involves sizing up not only its strengths in this respect but its weaknesses as well
Assumptions
How a rival’s top managers think about their strategic situation can have a big impact on how the rival behaves. Banks that believe they are “too big to fail,” for example, may take on more risk than is financially prudent. Assessing a rival’s assumptions entails considering its assumptions about itself as well as about the industry it participates in.
Performance Differences within the same Industry: Strategic Groups; Pages 127-130
Performance Differences within the same Industry: Strategic Groups; Pages 127-130
Strategic group
The set of companies that pursue a similar strategy within a specific industry.
Strategic groups differ from one another along important dimensions such as:
expenditures on research and development, technology, product differentiation, product and service offerings, market segments, distribution channels, and customer service.
Strategic group model
A framework that explains differences in firm performance within the same industry.
The rivalry among firms _______ the same strategic group is generally more intense than the rivalry among strategic groups: Intra-group rivalry exceeds inter-group rivalry.
within
THE STRATEGIC GROUP MODEL How to do
1) Identifying the most important strategic dimensions such as expenditures on research and development, technology, product differentiation, product and service offerings, cost structure, market segments, distribution channels, and customer service. These dimensions are strategic commitments based on managerial actions that are costly and difficult to reverse.
2) Choosing two key dimensions for the horizontal and vertical axes, which expose important differences among the competition
3) Graphing the firms in the strategic group, indicating each firm’s market share by the size of the bubble with which it is represented
Competitive rivalry is strongest between firms that are within the same strategic group.
The closer firms are on the strategic group map, the more directly and intensely they are in competition with one another.
The external environment affects strategic groups differently.
During times of economic downturn, for example, the low-cost airlines tend to take market share away from the legacy carriers.
This implies that external factors such as recessions or high oil prices favor the companies in the low-cost strategic group.
The five competitive forces affect strategic groups differently.
Yes sir
Some strategic groups are more profitable than others.
Yes ma’ame
Mobility barriers
Industry-specific factors that separate one strategic group from another
Competitive Pressure
Systems Mapping and
Managing Multimarket
Contact
Competitive Pressure
Systems Mapping and
Managing Multimarket
Contact
Measurement of interindustry rivalry has been proxied by factors affecting the degree of price competition in a market, such as :
1) the number and concentration of competitors,
2) the rate of growth in demand, the industry’s capital intensity and fixed costs,
3) the lack of differentiation,
4) switching costs,
5) the diversity of strategic groups within the industry and the magnitude of exit barriers.
The more two firms’ product or geographic markets overlap,
the more pressure they exert on each other.
Once relevant rivals are identified and competitive pressures are quantified,
they are mapped with symbols.
Thick, solid arrows indicate
strong pressure
Thin or dotted arrows
indicate milder pressure
Triangles may involve
Formal alliances or multimarket contacts that create mutual forbearance between all or just two of the members.
In any industry, companies can develop competitive strategy by using a pressure map to answer two critical questions:
1) If the current pressure pattern continues, what position will my firm ultimately hold?
2) How can my firm stabilize or shift the direction of pressure to reduce (or enhance) the predicted impact of the current pressure system?
Industry leaders generally prefer stable systems and employ five time-tested mechanisms to achieve that stability:
1) checks and balances;
2) tit for tat;
3) shared power systems;
4) polarized blocs;
5) collective security arrangements.
Checks and balances
Industry leaders simultaneously use
competitive pressure to hold ambitious competitors in check either by containing, constricting or undermining their growth and economic power.
Tit for tat
Individual leaders sequentially discipline potential
rivals when they threaten the current pressure pattern, as American Airlines did when it acted as enforcer during the early ’90s, using selective fare wars to keep the other supercarriers off its turf.
Sharing power
Leaders achieve a consensus that no major competitor will attempt to disrupt the pressure system, as the Big
Three Supercarriers did in the late 1990s.
Each is free to pursue
growth in new areas and to poach on nondominant players that
are not cooperating with the coalition. However, if one of the
leaders gains too much power, it will be ostracized and lose its
influence.
Polarized blocs
These are modified shared-power systems.
When there are two or more leaders in an industry, they can enter into shared power arrangements in separate blocs of opposing alliances.
Unlike shared power systems, a polarized bloc may
include industry nonleaders.
Polarized blocs compete with each
other, but strongly encourage nonaligned players to join the
blocs.
Collective security arrangements
These stabilize relationships
among industry leaders and among lesser firms by giving all players an incentive for peaceful coexistence
Allies can be
1) Surrogate attackers
2) Critical Supporters
3) Passive supporters
4) Flank protectors
5) Strategic umbrella’s
1) Surrogate attackers
that help a company conserve its own resources by putting pressure on a desired target.
2) Critical Supporters
that help the company apply pressure to a common rival
3) Passive supporters
that refrain from pressuring the company while it puts
pressure on another firm
4) Flank protectors
to relieve pressure on the company
5) Strategic umbrella’s
To prevent pressure on the company
Methods for realigning the
willingness of others to ally (or accept common targets) include:
1) the divide and conquer,
2) balancer
3) assimilator strategies.
1) Divide and conquer
By separating central players from their
mutual forbearance or alliance relationships, each member of the
coalition can be induced to reassess its position
2) Balancer
A balancer throws its weight back and forth between
rivals, enabling it (or the firm that encouraged it to get into the
balancing act) to influence the rivals’ positioning and movement.
3) Assimilator
This strategy is based on acquiring the tacit or formal alliance partners of your rivals, balancers and/or your rivals’
rivals. Assimilation can be accomplished through merger and
acquisition or through exclusive supply or distribution contracts.
Corporate ecosystem
From inner to outer
Company>Competitive pressure map>Operating Environment >Strategic group maps > Remote Environment
What can be learned from Strategic Group maps?
Advantages of SGM’s
Explain why driving forces and competitive pressures often favor some strategic groups and hurt others
Show profit potential of different strategic groups can vary due to strengths and weaknesses in each group’s market position
Illustrate degree of rival between companies and strategic groups
Which companies are close rivals
Some companies may not “compete” at all
Competitive Pressure Maps (CPM)
Based on the POV of one firm
Only evaluates firms competing in your key market
Markets can be defined as: geographic product line technologytarget customer market Require market share and revenue data for each point of contact or overlap
What can be learned from CPM
Gain insight on who has the potential and incentive to make or avoid future retaliation/pressure
Find threats, allies, acquisition targets and new opportunities
Determine:
Who is applying pressure and what type of pressure Where is pressure being applied
Situations of mutual forbearance
mutual forbearance
Example:
Company A and Company B are key rivals. Each has a key market and a foothold in market of their rival.This reflects mutual forbearance. They know that any incursions into the main market of their rival would result in retaliatory actions in their own main market.
Creating a CPM
Symbols have specific meaning
Companies are circles
Relative size of circle represents the relative size of firms.
Tactical or formal alliances are shown by connecting lines
Pressure is indicated by arrows showing the direction of the pressure.
Fat, thin, dashed arrows show strong, medium or weak pressure, respectively
Put the focal firm or most aggressive rival at the centre or organize by firm size and market coverage
Maps can reflect many different elements
