Chapter 5 / Week 5: SGM's and CPM's

Question 1

Strategic Group Analysis

Answer 1

Ebook pages 46-51 (ebook 44-49)

Question 2

The best technique for revealing the market position of industry competitors is ______________

Answer 2

Strategic group mapping

Question 3

Strategic group definition

Answer 3

consists of those industry members with similar competitive approaches and positions in the market.

Question 4

Companies in the same strategic group can resemble one another in a variety of ways

Answer 4

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.

Question 5

Strategic group mapping

Answer 5

is a technique for displaying the different market or competitive positions that rival firms occupy in the industry.

Question 6

The procedure for constructing a strategic group map is straightforward:

How to conduct this

Answer 6

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.

Question 7

1) Identify the competitive characteristics that delineate strategic approaches used in the industry.

Answer 7

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).

Question 8

2) Plot the firms on a two-variable map using pairs of these variables.

Answer 8

Nothing more to add

Question 9

3) Assign firms occupying about the same map location to the same strategic group.

Answer 9

Nothing more to add

Question 10

Draw circles around each strategic group, making the circles proportional to the size of the group’s share of total industry sales revenues.

Answer 10

Nothing more to add

Question 11

Several guidelines need to be observed in creating strategic group maps

Tips / Tricks for group maps

Answer 11

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.

Question 12

Strategic group maps reveal

Answer 12

which companies are close competitors and which are distant competitors.

Question 13

The second thing to be gleaned from strategic group mapping is that

Answer 13

not all positions on the map are equally attractive.

Question 14

Two reasons account for why some positions can be more attractive than others:

Answer 14

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.

Question 15

1) Prevailing competitive pressures from the industry’s five forces may cause the profit potential of different strategic groups to vary

Answer 15

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.

Question 16

2) Industry driving forces may favor some strategic groups and hurt others.

Answer 16

Likewise, industry driving forces can boost the business outlook for some strategic groups and adversely impact the business prospects of others.

Question 17

Mobility barriers

Answer 17

restrict firms in one strategic group from entering another more attractive strategic group in the same industry.

Question 18

Studying competitors’ past behavior and preferences provides a valuable assist in

Answer 18

anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.

Question 19

Michael Porter’s SOAR Framework for Competitor Analysis

Answer 19

points to four indicators of a rival’s likely strategic moves and countermoves.

Question 20

Michael Porter’s SOAR Framework for Competitor Analysis four indicators

Answer 20

1) Rival’s Strategy
2) Objectives
3) Assumptions about itself and industry
4) Resources and capabilities

Question 21

behavioral proclivities

Answer 21

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.

Question 22

Current Strategy

Answer 22

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)?

Question 23

Objectives

Answer 23

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.

Question 24

Resources and Capabilities

Answer 24

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

Question 25

Assumptions

Answer 25

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.

Question 26

Performance Differences within the same Industry: Strategic Groups; Pages 127-130

Answer 26

Performance Differences within the same Industry: Strategic Groups; Pages 127-130

Question 27

Strategic group

Answer 27

The set of companies that pursue a similar strategy within a specific industry.

Question 28

Strategic groups differ from one another along important dimensions such as:

Answer 28

expenditures on research and development, technology, product differentiation, product and service offerings, market segments, distribution channels, and customer service.

Question 29

Strategic group model

Answer 29

A framework that explains differences in firm performance within the same industry.

Question 30

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.

Answer 30

within

Question 31

THE STRATEGIC GROUP MODEL How to do

Answer 31

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

Question 32

Competitive rivalry is strongest between firms that are within the same strategic group.

Answer 32

The closer firms are on the strategic group map, the more directly and intensely they are in competition with one another.

Question 33

The external environment affects strategic groups differently.

Answer 33

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.

Question 34

The five competitive forces affect strategic groups differently.

Answer 34

Yes sir

Question 35

Some strategic groups are more profitable than others.

Answer 35

Yes ma’ame

Question 36

Mobility barriers

Answer 36

Industry-specific factors that separate one strategic group from another

Question 37

Competitive Pressure
Systems Mapping and
Managing Multimarket
Contact

Answer 37

Competitive Pressure
Systems Mapping and
Managing Multimarket
Contact

Question 38

Measurement of interindustry rivalry has been proxied by factors affecting the degree of price competition in a market, such as :

Answer 38

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.

Question 39

The more two firms’ product or geographic markets overlap,

Answer 39

the more pressure they exert on each other.

Question 40

Once relevant rivals are identified and competitive pressures are quantified,

Answer 40

they are mapped with symbols.

Question 41

Thick, solid arrows indicate

Answer 41

strong pressure

Question 42

Thin or dotted arrows

Answer 42

indicate milder pressure

Question 43

Triangles may involve

Answer 43

Formal alliances or multimarket contacts that create mutual forbearance between all or just two of the members.

Question 44

In any industry, companies can develop competitive strategy by using a pressure map to answer two critical questions:

Answer 44

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?

Question 45

Industry leaders generally prefer stable systems and employ five time-tested mechanisms to achieve that stability:

Answer 45

1) checks and balances;
2) tit for tat;
3) shared power systems;
4) polarized blocs;
5) collective security arrangements.

Question 46

Checks and balances

Answer 46

Industry leaders simultaneously use
competitive pressure to hold ambitious competitors in check either by containing, constricting or undermining their growth and economic power.

Question 47

Tit for tat

Answer 47

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.

Question 48

Sharing power

Answer 48

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.

Question 49

Polarized blocs

Answer 49

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.

Question 50

Collective security arrangements

Answer 50

These stabilize relationships

among industry leaders and among lesser firms by giving all players an incentive for peaceful coexistence

Question 51

Allies can be

Answer 51

1) Surrogate attackers
2) Critical Supporters
3) Passive supporters
4) Flank protectors
5) Strategic umbrella’s

Question 52

1) Surrogate attackers

Answer 52

that help a company conserve its own resources by putting pressure on a desired target.

Question 53

2) Critical Supporters

Answer 53

that help the company apply pressure to a common rival

Question 54

3) Passive supporters

Answer 54

that refrain from pressuring the company while it puts

pressure on another firm

Question 55

4) Flank protectors

Answer 55

to relieve pressure on the company

Question 56

5) Strategic umbrella’s

Answer 56

To prevent pressure on the company

Question 57

Methods for realigning the

willingness of others to ally (or accept common targets) include:

Answer 57

1) the divide and conquer,
2) balancer
3) assimilator strategies.

Question 58

1) Divide and conquer

Answer 58

By separating central players from their
mutual forbearance or alliance relationships, each member of the
coalition can be induced to reassess its position

Question 59

2) Balancer

Answer 59

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.

Question 60

3) Assimilator

Answer 60

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.

Question 61

Corporate ecosystem

Answer 61

From inner to outer

Company>Competitive pressure map>Operating Environment >Strategic group maps > Remote Environment

Question 62

What can be learned from Strategic Group maps?

Advantages of SGM’s

Answer 62

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

Question 63

Competitive Pressure Maps (CPM)

Answer 63

Based on the POV of one firm
Only evaluates firms competing in your key market

Markets can be defined as:
geographic
product line
technologytarget customer market
Require market share and revenue data for each point of contact or overlap

Question 64

What can be learned from CPM

Answer 64

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

Question 65

mutual forbearance

Answer 65

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.

Question 66

Creating a CPM

Answer 66

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