Chapter 6 / Week 6 (DFs & KSFs)

Question 1

Pages 42-46 What factors are driving industry change, and what impact will they have?

Answer 1

Pages 42-46 What factors are driving industry change, and what impact will they have?

Question 2

The nature and intensity of competitive and cooperative forces

Answer 2

are forces that are fluid and subject to change

Question 3

Industry life cycle

Answer 3

1) Takeoff
2) Rapid Growth
3) Maturity
4) Market saturation
5) Slowing Growth
6) Stagnation / decline

Question 4

Industry and competitive conditions change because

Answer 4

forces are enticing or pressuring certain industry participants (competitors, customers, suppliers, complementors) to alter their actions in important ways.

Question 5

Driving forces (DF)

Answer 5

are the major underlying causes of change in industry and competitive condition because they have the biggest influences in reshaping the industry landscape and altering competitive conditions.

Question 6

Where do driving forces originate?

Answer 6

most originate in the company’s more immediate industry and competitive environment.

Question 7

Driving-forces analysis has three steps:

Answer 7

(1) identifying what the driving forces are;
(2) assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive;
(3) determining what strategy changes are needed to prepare for the impact of the driving forces. All three steps merit further discussion

Question 8

Identifying the Forces Driving Industry Change

Answer 8

1) Changes in an industry’s long-term growth rate
2) Increasing globalization
3) Emerging new Internet capabilities and applications
4) Shifts in who buys the products and how the products are used.
5) Technological change and manufacturing process innovation.
6) Product innovation.
7) Marketing innovation.
8) Entry or exit of major firms
9) Diffusion of technical know-how across companies and countries
10) Changes in cost and efficiency.
11) Reductions in uncertainty and business risk
12) Regulatory influences and government policy changes.
13) Changing societal concerns, attitudes, and lifestyles.

Question 9

1) Changes in an industry’s long-term growth rate

Answer 9

Shifts in industry growth up or down have the potential to affect the balance between industry supply and buyer demand, entry and exit, and the character and strength of competition.

If entry barriers are low, then growth in demand will attract new entrants, increasing the number of industry rivals and changing the competitive landscape.

Question 10

2) Increasing globalization

Answer 10

Globalization can be precipitated by such factors as the blossoming of consumer demand in developing countries, the availability of lower-cost foreign inputs, and the reduction of trade barriers,

Significant differences in labor costs among countries give manufacturers a strong incentive to locate plants for labor-intensive products in low-wage countries and use these plants to supply market demand across the world.

Globalization is very much a driver of industry change in such industries as energy, mobile phones, steel, social media, public accounting, commercial aircraft, electric power generation equipment, and pharmaceuticals.

Question 11

3) Emerging new Internet capabilities and applications.

Answer 11

Mushrooming use of high-speed Internet service and Voice-over-Internet-Protocol (VoIP) technology, growing acceptance of online shopping, and the exploding popularity of Internet applica-tions (“apps”) have been major drivers of change in industry after industry.

Question 12

4) Shifts in who buys the products and how the products are used.

Answer 12

Shifts in buyer demo-graphics and the ways products are used can greatly alter competitive conditions. Longer life expectancies and growing percentages of relatively well-to-do retirees, for example, are driving demand growth in such industries as cosmetic surgery, assisted living residences, and vacation travel.

Question 13

5) Technological change and manufacturing process innovation.

Answer 13

Advances in technology can cause disruptive change in an industry by introducing substitutes or can alter the industry landscape by opening up whole new industry frontiers. For instance, revolutionary change in autonomous system technology has put Google, Tesla, Apple, and every major automobile manufacturer into a race to develop viable self-driving vehicles.

Question 14

6) Product innovation.

Answer 14

An ongoing stream of product innovations tends to alter the pattern of competition in an industry by attracting more first-time buyers, rejuvenating industry growth, and/or increasing product differentiation, with concomitant effects on rivalry, entry threat, and buyer power.

Question 15

7) Marketing innovation

Answer 15

When firms are successful in introducing new ways to market their products, they can spark a burst of buyer interest, widen industry demand, increase product differentiation, and lower unit costs—any or all of which can alter the competitive positions of rival firms and force strategy revisions.

Question 16

8) Entry or exit of major firms

Answer 16

Entry by a major firm thus often produces a new ball game, not only with new key players but also with new rules for competing. Similarly, exit of a major firm changes the competitive structure by reducing the number of market leaders and increasing the dominance of the leaders who remain.

Question 17

9) Diffusion of technical know-how across companies and countries.

Answer 17

As knowledge about how to perform a particular activity or execute a particular manufacturing technology spreads, products tend to become more commodity-like. Knowledge diffusion can occur through scientific journals, trade publications, onsite plant tours, word of mouth among suppliers and customers, employee migration, and Internet sources.

Question 18

10) Changes in cost and efficiency.

Answer 18

Widening or shrinking differences in the costs among key competitors tend to dramatically alter the state of competition. Declining costs of producing tablets have enabled price cuts and spurred tablet sales (especially riced models) by making them more affordable to lower-income households worldwide.

Question 19

11) Reductions in uncertainty and business risk

Answer 19

Many companies are hesitant to enter industries with uncertain futures or high levels of business risk because it is unclear how much time and money it will take to overcome various technological hurdles and achieve acceptable production costs (as is the case in the solar power indus-try).

Question 20

12) Regulatory influences and government policy changes.

Answer 20

Government regulatory actions can often mandate significant changes in industry practices and strategic approaches—as has recently occurred in the world’s banking industry. New rules and regulations pertaining to government-sponsored health insurance programs are driving changes in the health care industry.

Question 21

13) Changing societal concerns, attitudes, and lifestyles

Answer 21

Emerging social issues as well as changing attitudes and lifestyles can be powerful instigators of industry change. Growing concern about the effects of climate change has emerged as a major driver of change in the energy industry. Concerns about the use of chemi-cal additives and the nutritional content of food products have been driving changes in the restaurant and food industries. Shifting societal concerns, atti-tudes, and lifestyles alter the pattern of competition, favoring those players that respond with products targeted to the new trends and conditions.

Question 22

While many forces of change may be at work in a given industry, no more than ________ or ________ are likely to be true driving forces powerful enough to qualify as the major determinants of why and how the industry is changing

Answer 22

three or four

Question 23

The most important part of driving-forces analysis is

Answer 23

to determine whether the collective impact of the driving forces will increase or decrease market demand, make competition more or less intense, and lead to higher or lower industry profitability

Question 24

The second step in driving-forces analysis is to determine whether the prevailing change drivers, on the whole, are acting to make the industry environment more or less attractive. Three questions need to be answered:

Answer 24

1. Are the driving forces, on balance, acting to cause demand for the industry’s product to increase or decrease?
2. Is the collective impact of the driving forces making competition more or less intense?
3. Will the combined impacts of the driving forces lead to higher or lower industry profitability

Question 25

The third step in the strategic analysis of industry dynamics—where the real payoff for strategy making comes—is for managers to draw some conclusions about

Answer 25

what strategy adjustments will be needed to deal with the impacts of the driving forces.

Question 26

Pages 49-50 What are the industry’s key factors?

Answer 26

Pages 49-50 What are the industry’s key factors?

Question 27

Key success factors

Answer 27

Are the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are essential to surviving and thriving in the industry

The particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak competitor—and between profit and loss

Question 28

To indicate the significance of KSFs another way,

Answer 28

How well the elements of a company’s strategy measure up against an industry’s KSFs determines whether the company can meet the basic criteria for surviving and thriving in the industry.

Question 29

Do KSF’s change or stay the same?

Answer 29

Key success factors vary from industry to industry, and even from time to time
within the same industry, as change drivers and competitive conditions change.

Question 30

An industry’s key success factors can always be deduced by asking the same three questions:

Answer 30

1. On what basis do buyers of the industry’s product choose between the competing brands of sellers? That is, what product attributes and service characteristics are crucial?
2. Given the nature of competitive rivalry prevailing in the marketplace, what resources and competitive capabilities must a company have to be competitively successful?
3. What shortcomings are almost certain to put a company at a significant competitive disadvantage

Question 31

Only rarely are there more than five key factors for competitive success.

Answer 31

And even among these, two or three usually outrank the others in importance

Question 32

Gamble & Thompson (2011). Essentials of Strategic Management: The Quest for Competitive Advantage

Answer 32

Gamble & Thompson (2011). Essentials of Strategic Management: The Quest for Competitive Advantage

Question 33

To survive and prosper in an industry, a firm must meet two criteria:

Answer 33

1) It must supply what customers want to buy

2) It must survive competition

Question 34

We can start by asking two important questions

Answer 34

1) What do our customer want?

2) What does the firm need to do to survive competition

Question 35

1) What do our customer want?

Answer 35

To answer this you must not look at customers as a source of buying power and a threat to profits, but as the raison d’etre of the industry and its underlying source of profit (lower price?)

Question 36

2) What does the firm need to do to survive competition

Answer 36

To answer this you need to examine the nature of competition in the industry
How intense is the competition and what is its key dimensions (Price too low will not be competitive and profitable)

Question 37

Steps to evaluate potential DFs

Answer 37

Step One: What is changing in Remote and Industry Environment? Are any common DFs noticeable?

Step two: Are the forces significant enough to cause fundamental change to industry structure or operations?

Step three: Identify possible impact/outcome of DFs – demand, competition, profits as well as overall industry attractiveness

Step four: Select 3 most significant DFs.

Question 38

Analyzing Industry-Specific Driving Forces

Answer 38

Identify forces likely to exert greatest influence over next 1 - 3 years (short term), or longer

Assess impact
Is the DF individually or collectively acting to make the industry more or less attractive?
Is the DF causing demand for product to increase or decrease?
Is the DF acting to make competition more or less intense?
Will the DF lead to higher or lower industry profitability?

Determine what strategy changes are needed to prepare for the anticipated change

Question 39

Usually no more than 3 -4 factors qualify as MAJOR drivers of change.v

Answer 39

Others can have minor or longer term implications IBISWORLD’s External Drivers are not typically DFs

Question 40

Determine Key Success Factors (KSFs)

Answer 40

KSFs are competitive factors that most affect every industry player’s ability to prosper and be competitively successful

What shortcomings are almost certain to put a company at significant competitive disadvantage?
KSFs are attributes that spell the difference betweenProfit and loss
Thriving or surviving
KSFs are unique to each industry

Typically only 4-5 KSFs, outrank all others

Question 41

Categories of Customer Needs

Answer 41

Marketing:
Breadth of product line and selectionBrand name and brand loyaltyCourteous personal customer serviceFast, accurate technical assistanceConsistent qualityGuarantees and warrantiesClever promotionE-commerce

Distribution
Convenient locationsNational and global distribution network Online purchase options (ISP or company-owned)