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Industry Analysis

Conduct a Porter’s Five Forces Analysis

Discuss each of the forces and how the CapSim sensor industry fairs relative to each force and the subfactors that impact each force.
Note: you may have to make some assumptions based on the context of the simulation when reaching conclusions about some forces/subfactors.
Example #1: For the Power of Suppliers, a subfactor asks about how many raw material suppliers there are for the industry. We can assume that because of the boundary conditions/constraints all teams were under with respect to suppliers (e.g., no team could change suppliers or negotiate prices with suppliers) that there are very few and perhaps only one supplier to the sensor industry. Based on that assumption that subfactor would lead to an increase in the Power of Suppliers. Be sure to describe this type of information/assumptions.
Example #2: For the Power of Buyers, a subfactor asks if there is a large/small number of buyers. It is difficult to know if the number is large or small because we do not have a comparison industry. However, we do know that the number is growing each round (by 14% for the industry), so if the number if not large now, it is at least becoming large in the future. That would lead us to conclude that, at best, this subfactor would not necessarily increase/decrease buyer’s power strongly now, but in the future it should decrease their power at least slightly.
Example #3: For the Power of Buyers, a subfactor asks if the industry’s offerings are differentiated or standard. Because all teams have the capability of creating products that are identical, no true product differentiation exists. This increases the Power of Buyers.
Example #4: For the Intensity of Rivalry, a subfactor asks if there are high exit barriers. No companies have the ability to leave the industry, suggesting exit barriers are high, which increases the Intensity of Rivalry.

Industry Analysis

Use the Porter’s Five Forces Conclusion Matrix to Determine Industry Attractiveness and the Industry’s Prospects for Long-term Profitability

Describe how at least two forces impacted how the team made some decisions

Power of Suppliers (note: when suppliers have power they can force their prices up and/or quality down):
Suppliers’ industry dominated by a small number of firms
Suppliers sell unique or highly differentiated products
Suppliers are not threatened by substitutes
Suppliers threaten forward integration
Firms are not important customers for suppliers
Power of Buyers (note: when buyers have power they can force industry prices down and/or quality up):
Number of buyers is small
Because there are few buyers, they can have more power over those providing the goods. Large-volume buyers are also powerful.
Products sold to buyers are undifferentiated and standard
If the goods are commodities, buyers can find alternative products
Buyers are not earning significant economic profits
If buyers are not earning high economic profits, they are 1) likely to be price sensitive, and 2) their simple ability to afford higher-priced goods is low.
Buyers threaten backward (vertical) integration
If buyers can easily backward integrate (e.g., produce the goods or perform the service themselves) this gives them power

Porter’s Five Forces

Threat of Substitutes
Substitutes are products/services from other industries that viably serve the same function as products/services in the focal industry
Determined by:
The availability of substitutes from other industries (e.g., in the auto manufacturing industry, substitutes come in the form of public transportation, bicycles, flying, walking, etc.).
Threat of New Entrants:
Barriers to entry, some examples of which can include:
Economies of scale
Product differentiation
Capital requirements
Switching costs faced by customers Access to distribution channels (e.g., if the entrant cannot secure a way to distribute it’s product, it is a barrier to their entry)
Cost advantages independent of scale (e.g., other cost advantages other than capturing economies of scale)
Government regulation of entry

Porter’s Five Forces

Intensity of Rivalry:
Large number of competing firms that are roughly the same size
This leads to price competition
Slow industry growth
Lack of product differentiation
High exit barriers
Specialized assets
Fixed costs of exit (e.g., labor agreements)
Strategic interrelationships
Governmental and social restrictions
Large production capacities
If, in order to obtain economics of scale, production capacity must be added in large increments, an industry is likely to experience periods of oversupply after new capacity comes online. This leads to price cutting.

Porter’s Five Forces

Porter’s Five Forces:
Conclusion/Outcome Analysis

Based on your analysis, rate each force from -5 (really bad, poor profit potential to +5 (great, excellent profit potential)

Five Forces Overall Analysis

Intensity of Rivalry Rating:

Power of Suppliers Rating:

Power of Buyers Rating:

Threat of New Entrants Rating:

Threat of Substitutes Rating:

Sum of Ratings:

Scores between +10 to +25  Generally Attractive and High Profit Potential Scores between -6 to +9  Generally Moderately Attractive and Moderate Profit Potential Scores less than -6  Generally Unattractive and Low Profit Potential

Internal Environment Analysis

Complete the resource matrix so that it lists all of the tangible and intangible resources your firm possesses. Select a handful of these resources and describe them in your presentation.

Identify 2-3 capabilities that your firm possesses and describe what resources from your resource matrix are being combined to complete that capability (e.g., task/action).

Internal Environment Analysis

Use the VRIO model to evaluate each capability you have identified to determine if any is a core competency. Remember a core competency exists when you can answer yes to each of the four VRIO criteria (note you may or may not have a core competency). Explain how each capability does/does not meet the VRIO criteria. Be specific as you answer each VRIO question (e.g., do not just give a yes/no answer). Finally, describe the competitive and performance implications expected from each capability as a result of this analysis.

In the previous steps of the internal environment analysis you have, in essence, created three lists: 1) a list of resources, 2) a list of capabilities and 3) a list of core competencies (if you have any). The final step is to organize each resource, capability and core competency into the Value Chain (e.g., where each would be used in completing Value Chain activities). Be sure to show where all of the resources, capabilities and core competencies (if you have any) would be used in the Value Chain, noting that some things may be listed across more than one activities. Select a handful to discuss in your presentation regarding how they add/detract value to your company. If you discuss any that detract value, describe what the team could have done to lessen the value-detracting effects.

Resources: Two Types

Tangible Resources: Assets that can be seen and quantified
Financial	Cash; capacity to raise equity; borrowing capacity
Physical	Modern plant and facilities; favorable manufacturing locations; access to raw materials
Technological	Stock of technology like trade secrets; innovative production processes; patents, copyrights, trademarks
Organizational	The firm’s formal reporting structure, formal planning, controlling, and coordinating systems
Intangible Resources: Assets rooted in the firm’s history and that have accumulated over time
Human	Knowledge, trust, employee experience and skills; organizational routines
Innovation & Creativity	Ideas, scientific skills; innovation capacities
Reputation	Brand name; quality and reliability reputation; supplier relations

Combining Resources to Create Capabilities

Capabilities exist when resources are purposely integrated to achieve a specific task or set of tasks.
Example 1: Wal-Mart uses tangible resources from its distribution centers + its MIS infrastructure to create capabilities in distribution and inventory management
Example 2: Southwest uses it intangible resources of HR’s organizational routines + physical resources of planes and landing gates to create a logistics management

Resource 1

Resource 2

Capability

Firms should emphasize these capabilities and implement strategies that rely on these capabilities

Using Barney’s Four Criteria/VRIO to Assess the Potential for a Sustainable Competitive Advantage

According to Barney, a supportive answer to each question would indicate the firm can sustain a competitive advantage and that a capability is a core competency
Below is how to apply the criteria and the associated outcomes

Firms should NOT emphasize these capabilities in strategy development and implementation

Using the Four Criteria , Competitive Implications, and Performance Implications
Valuable?	Rare?	Costly to Imitate?	Non-substitutable?	Competitive Implications	Performance Implications
No	Disadvantage	Below-average returns
Yes	No	Parity	Average returns
Yes	Yes	No	Temporary Advantage	Above-average returns (at least for some amount of time)
Yes	Yes	Yes	Yes	Sustained Advantage	Above-average returns

Using Barney’s Four Criteria to Assess the Potential for a Sustainable Competitive Advantage

Valuable: Does the capability enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat thereby creating value for customers? Describe.
Rarity: Is a capability currently possessed by only a small number of competing firms (e.g., a minority of firms in the industry and/or are you the only firm that can do this)?
Inimitability: Do firms without the capability face a cost disadvantage in obtaining or developing it? [is what the firm doing difficult to imitate?] Explain.
Nonsubstitutable: Does the capability lack a strategic equivalent (e.g., are there any other resources that can be combined to achieve the same outcome? Explain.

VRIO analysis to assess competitive and performance implications of the firm’s capabilities
Capability Name Example:	Valuable?	Rare?	Costly to Imitate?	Non-substitutable?	Competitive Implications	Performance Implications
Market development capability	Yes	Yes	No	--	Temporary Advantage	Above-average returns (at least for some amount of time)
Capability to design quality products	Yes	No	--	--	Parity	Average returns

How Business Models Emerge:
Porter’s Value Chain

The Value Chain: proposes that each activity can either add or subtract value for the firm. Activities supported by capabilities that are core competencies should be value adding and completed internally. Activities that require capabilities that are not core competencies of the firm generally subtract value and should be outsourced.

(Production)

(Firm Infrastructure)