Strategic Management Essays, The quality of your answer is much more important than its quantity. You do not need to use in-text citation, nor reference in answering the questions.
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Who killed ofo? (2/4)
Major competitors include Mobike, Bluegogo, and Xiaoming
Mobike was acquired by a HK-listed company (Meituan Dianping, China's largest provider of on- demand online services) for $2.7 billion in April 2018.
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Who killed Ofo? (3/4)
D bbed a one of he fo r China ne in en ion and ne Uber , ofo la nched i business in 2015.
https://www.youtube.com/watch?v=O- yCzVgD9Vs
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Who killed Ofo? (4/4)
ofo has raised over US$ 2 billion between 2015 and 2018, deployed over 10 million of bicycles in 250 cities in 20 countries by 2017 Ofo is on the brink of bankruptcies due to its cash- burning and its ability to pay debt since July 2018. Over 10 million of Chinese users were waiting for refunding of their deposit.
What factors at the industry level drive the ind r performance or profi abili ?
Competition, cars, scooters, suppliers, new entrants?
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Learning Objectives
After studying this module, you should be able to: Use Porter s fi e forces anal sis in order to
define the attractiveness of industries and sectors and to identify their potential for change. Identify successful strategic groups. Under and Por er structure conduct
performance perspective or Industrial organisation / positioning perspective.
A dominant strategic management perspective
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External environment or factors: Macro and industry environment
Internal factors or environment
Two broad sets of factors primarily determine an organisational performance: internal and external environment
Organisational performance
Production Marketing
Human Resources
R&D The firm
Logistics Services
Info system
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Industries, markets and sectors
An industry is a group of firms producing products and services that are essentially the same. For example, automobile industry and airline industry.
A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany).
A sector is a broad industry group (or a group of markets) especially in the public sector (e.g. the health sector)
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Industry (competitive) environment and Por er fi e force frame ork
Po e fi e fo ce framework helps identify the attractiveness of an industry in terms of five competitive forces:
the threat of entry, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the extent of rivalry between competitors. The fi e force con i e an ind r r c re .
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The Po e fi e fo ce f ame o k (1)
Figure 2.2 The five forces framework
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The five forces framework (1)
The Threat of Entry & Barriers to Entry The threat of entry is low when the barriers to entry are high and vice versa.
The main barriers to entry are: Economies of scale/high fixed costs (e.g., steel industry, airline) E perience and learning (e.g., pharmace ical ind r R&D pending) Access to supply and distribution channels Differentiation and market penetration costs Government restrictions (e.g. licensing)
Entrants must also consider the expected retaliation from organisations already in the market
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The five forces framework (2)
Threat of Substitutes Customers will switch to alternatives (and thus the threat increases) if:
Substitutes compete for industry profit, but from outside of the industry The price/performance ratio of the substitute is superior
(e.g. aluminium maybe more expensive than steel but it is more cost efficient for some car parts)
The substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from one city centre to another)
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How do the threat of new entrants and substitutes affect the profitability of the residential aged care industry?
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The five forces framework (3)
The bargaining power of buyers Buyer power is likely to be high when:
Buyers are concentrated e.g., Coles buys milk from a large number of farmers
Buyers have low switching costs e.g., Universities contract travel agency for their services
Buyers can supply their own inputs (backward vertical integration)
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The five forces framework (4)
The bargaining power of suppliers
Supplier power is likely to be high when: The suppliers are concentrated (few of them), (e.g., iron ore suppliers to the steel industry) Suppliers provide a specialist or rare input (e.g., Intel). Switching costs are high (it is disruptive or expensive to change suppliers). Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel agents).
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How do the bargaining power of suppliers and the bargaining power of users affect the profitability of the residential aged care industry?
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The five forces framework (5)
Rivalry between competitors The degree of rivalry is increased when :
Competitors are of roughly equal size Competitors are aggressive in seeking leadership The market is mature or declining There are high fixed costs The exit barriers are high There is a low level of differentiation
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How does the rivalry affect the profitability of the residential aged care industry?
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Interpreting industry analyses
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How do the industry structure (five forces) influence the profitability of the Australian early learning industry? (1/3)
The threat of new entrance (Medium to high) It is quite easy to entre the EL (child care) industry
as it requires a small capital to set it up.
The bargaining power of suppliers (Medium) Main supplier to the industry is educators.
Educators and other learning assistants accounts for two-third of the total cost of the industry. University qualification of educators is required. Thus, the supply of educators can be limited.
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How do the industry structure (five forces) influence the profitability of the Australian early learning industry? (2/3)
The bargaining power of buyers The buyers (usually parents) are individual
with little power; (Low) The federal government provides a substantial
amount of funding (Subsidy can be up to 85% depending on the family income) to the ECL industry; it is a strategic power with a high bargaining power. (High)
The threat of substitute (medium) Home learning can be an alternative option
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How do the industry structure (five forces) influence the profitability of the Australian early learning industry? (3/3)
The rivalry (Medium) A large number of , but fragmented, child care
providers/centres existed. Competition is quite intensive, coupled with the low birth rate and immigration)
Therefore, the industry can be quite competitive. Moreover the action from the government needs to be watched and responded strategically.
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Industry analysis for the Australian early learning industry
Ind r life c cle and Por er fi e force
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Implications of five forces analysis
Identifies the attractiveness of industries which industries/markets to enter or leave.
Identifies strategies to influence the impact of the forces, for example, building barriers to entry by becoming more vertically integrated.
The forces may have a different impact on different organisations (or strategic group) e.g. large firms can deal with barriers to entry more easily than small firms.
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Industry environment analysis A brief summary
Understanding the purpose of this analysis to predict the attractiveness/profitability of the industry
analysed
Be clear about the level (unit) of the analysis The entire industry as a whole (a strategic group)
Using the analytical framework 5-force analysis To use it for analysing the strength of each force
through assessing key relevant factors within each force
Predicting the industry attractiveness/profitability in the future and developing strategies to shape the structure
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Strategic Groups
Strategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases.
These characteristics are different from those in other strategic groups in the same industry or sector.
There are many different characteristics that distinguish between strategic groups.
Strategic groups can be mapped on to two dimensional charts maps. These can be useful tools of analysis.
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Characteristics for Identifying Strategic Groups
Scope of activities Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels Degree of vertical integration
Resource commitment Extent of branding Marketing effort Extent of vertical integration Product quality Technological leadership Organisational size
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Breadth of product lineNarrow Wide
Low
High Q
ua lit
y Toyota Ford
GM
Chrysler
Honda
Nissan
Mercedes
BMW
Ferrari
Porsche
Hyundai Kia
Great Wall
The World Automobile Industry: Strategic Groups
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Why is the concept of strategic group useful?
Understanding competition - enables focus on direct competitors within a strategic group, rather than the whole industry. (e.g. Coles will focus on Woolworth) Analysis of strategic opportunities - helps identify attractive
ra egic pace i hin an ind r and h chart the future direc ion of firm ra egie . Anal sis of mobilit barriers i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group. It also helps a firm identify groups those competitive position may be marginal or tenuous think through the implications of each industry trend for the strategic group as a whole
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S a egic po i ioning o compe i i e perspective
There are two broad ways to competition Externally foc ed or ra egi ing : b po i ioning o r firm against your competitors, suppliers, users, and potential entrants Internally-foc ed or economi ing : b impro ing internal efficiency or innovation.
Market positioning or competitive view (Po e positioning perspective)
The external environment is a key determinant of strategy and performance, and A firm performance is a function of industry and firm
specific effect.
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Module 3 summary
Industries and sectors can be analysed in terms of Porter’s five forces barriers to entry, substitutes, buyer power, supplier power and rivalry. Together, these determine industry or sector attractiveness.
In the inner layer of the environment, strategic group analysis, market segment analysis and the strategy canvas can help identify strategic gaps or opportunities.
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Reading for next week
Chapter 4 in the textbook Resources and capabilities Assignment 2 Guide in the Course Canvas
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