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3.4 Mapping Strategic Groups

L E A R N I N G O B J E C T I V E S

1. Understand what strategic groups are.

2. Learn three ways that analyzing strategic groups is useful to organizations.

The analysis of the strategic groups in an industry can offer important insights to executives.

Strategic groups are sets of firms that follow similar strategies to one another.Hunt, M. S. 1972.

Competition in the major home appliance industry 1960–1970. (Unpublished doctoral dissertation).

Harvard University, Cambridge, MA; Short, J. C., Ketchen, D. J., Palmer, T., & Hult, G. T. 2007. Firm,

strategic group, and industry influences on performance. Strategic Management Journal, 28, 147–167.

More specifically, a strategic group consists of a set of industry competitors that have similar

characteristics to one another but differ in important ways from the members of other groups (Figure

3.15 "Strategic Groups").

Understanding the nature of strategic groups within an industry is important for at least three reasons.

First, emphasizing the members of a firm’s group is helpful because these firms are usually its closest

rivals. When assessing their firm’s performance and considering strategic moves, the other members of

a group are often the best referents for executives to consider. In some cases, one or more strategic

groups in the industry are irrelevant. Subway, for example, does not need to worry about competing for

customers with the likes of Ruth’s Chris Steak House and P. F. Chang’s. This is partly because firms

confront mobility barriers that make it difficult or illogical for a particular firm to change groups

over time. Because Subway is unlikely to offer a gourmet steak as well as the experience offered by fine-

dining outlets, they can largely ignore the actions taken by firms in that restaurant industry strategic

group.

Second, the strategies pursued by firms within other strategic groups highlight alternative paths to

success. A firm may be able to borrow an idea from another strategic group and use this idea to improve

its situation. During the recession of the late 2000s, midquality restaurant chains such as Applebee’s

and Chili’s used a variety of promotions such as coupons and meal combinations to try to attract

budget-conscious consumers. Firms such as Subway and Quiznos that already offered low-priced meals

still had an inherent price advantage over Applebee’s and Chili’s, however: There is no tipping expected

at the former restaurants, but there is at the latter. It must have been tempting to executives at

Applebee’s and Chili’s to try to expand their appeal to budget-conscious consumers by experimenting

with operating formats that do not involve tipping.

Third, the analysis of strategic groups can reveal gaps in the industry that represent untapped

opportunities. Within the restaurant business, for example, it appears that no national chain offers both

very high-quality meals and a very diverse menu. Perhaps the firm that comes the closest to filling this

niche is the Cheesecake Factory, a chain of approximately 150 outlets whose menu includes more than

200 lunch, dinner, and dessert items. Ruth’s Chris Steak House already offers very high quality food; its

executives could consider moving the firm toward offering a very diverse menu as well. This would

involve considerable risk, however. Perhaps no national chain offers both very high quality meals and a

very diverse menu because doing so is extremely difficult. Nevertheless, examining the strategic groups

in an industry with an eye toward untapped opportunities offers executives a chance to consider novel

ideas.

K E Y TA K E AWAY

Examination of the strategic groups in an industry provides a firm’s executives with a better

understanding of their closest rivals, reveals alternative paths to success, and highlights

untapped opportunities.

E X E R C I S E S

1. What other colleges and universities are probably in your school’s strategic group?

2. From what other groups of colleges and universities could your school learn? What specific

ideas could be borrowed from these groups?