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Why Do Structures Differ? Size 2005 Prentice Hall Inc. All rights reserved.Characteristics of large organizations:More specializationMore vertical levelsMore rules and regulationsSizeHow the size of an organization affects its structure. As an organization grows larger, it becomes more mechanistic.Why Do Structures Differ? Technology 2005 Prentice Hall Inc. All rights reserved.Characteristics of routineness (standardized or customized) in activities:Routine technologies are associated with tall, departmentalized structures and formalization in organizations.Routine technologies lead to centralization when formalization is low.Nonroutine technologies are associated with delegated decision authority.TechnologyHow an organization transfers its inputs into outputs.Why Do Structures Differ? Environment 2005 Prentice Hall Inc. All rights reserved.Key Dimensions-Capacity: the degree to which an environment can support growth.Volatility: the degree of instability in the environment.Complexity: the degree of heterogeneity and concentration among environmental elements.EnvironmentInstitutions or forces outside the organization that potentially affect the organizations performance.Changing Structural Characteristics of Modern CorporationPrentice Hall, 2000Chapter 858.5Changing Structural Characteristics (Table 8.3)Old Organizational DesignNew Organizational DesignOne large corporationMini-business units & cooperative relationshipsVertical communicationHorizontal communicationCentralized top-down decision makingDecentralized participative decision makingVertical integrationOutsourcing & virtual organizationsWork/quality teamsAutonomous work teamsFunctional work teamsCross-functional work teamsMinimal trainingExtensive trainingSpecialized job design focused on individualValue-chain team-focused job designSource:Adapted from B. Macy and H. Izumi, Organizational Change, Design, and Work Innovation: A Meta-Analysis of 131 North American Field Studies19611991, Research in Organizational Change and Development, Vol. 7, JAI Press (1993), p. 298. Reprinted with permission.5Question 1: What are theIndustrys Dominant Economic Traits?Market size and growth rateScope of competitive rivalryNumber of competitors and their relative sizesPrevalence of backward/forward integrationEntry/exit barriersProduct and Nature and pace of technological change customer characteristicsScale economies and experience curve effectsCapacity utilization and resource requirementsIndustry profitability6Table 3.2: Relevance ofKey Economic FeaturesEconomic FeatureMarket SizeMarket growth rateCapacity surpluses/shortagesIndustry profitabilityEntry/exit barriersProduct is big-ticket item for buyersStandard productsRapid technological changeCapital requirementsVertical integrationEconomies of scaleRapid product innovationStrategic ImportanceSmall markets dont tend to attract new firms; large markets attract firms looking to acquire rivals with established positions in attractive industries Fast growth breeds new entry; slow growth spawns increased rivalry & shake-out of weak rivalsSurpluses push prices & profit margins down; shortages pull them upHigh-profit industries attract new entrants; depressed conditions lead to exitHigh barriers protect positions and profits of existing firms; low barriers make existing firms vulnerable to entryMore buyers will shop for lowest priceBuyers have more power because its easier to switch from seller to sellerRaises risk; investments in technology facilities/equipment may become obsolete before they wear outBig requirements make investment decisions critical; timing becomes important; creates a barrier to entry and exitRaises capital requirements; often creates competitive & cost differences among fully vs. partially vs. non-integrated firmsIncreases volume & market share needed to be cost competitiveShortens product life cycle; increases risk because of opportunities for leapfroggingQuestion 2: What Is Competition Like and How Strong Are the Competitive Forces?To identifyMain sources of competitive forcesStrength of these forcesKey analytical toolFive Forces Model of CompetitionObjectiveFigure 3-4: Five ForcesModel of CompetitionSubstitute Products(of firms inother industries)Suppliers of Key InputsBuyersPotentialNewEntrantsRivalryAmongCompetingSellersAnalyzing the Five Competitive Forces: How to Do ItAssess strength of each of the five competitive forces (Strong? Moderate? Weak? )Rivalry among competitorsCompetition from substitute productsCompetitive threat from potential entrantsBargaining power of suppliers and supplier-seller collaborationBargaining power of buyers and buyer-seller collaborationExplain how each force acts to create competitive pressureWhat are the factors that cause each force to be strong or weak?Decide whether overall competition (the combined effect of all five competitive forces) is brutal, fierce, strong, normal/moderate, or weak10Rivalry Among Competing SellersUsually the most powerful of the five forcesThe big factor determining the strength of rivalry is how actively and aggressively are rivals employing the various weapons of competition in jockeying for a stronger market position and seeking bigger salesIs price competition vigorous?Active efforts to improve quality?Are rivals racing to offer better performance features? Are rivals racing to offer better customer service?Lots of advertising/sales promotions?Active efforts to build a stronger dealer network?Active product innovation?Active use of other weapons of rivalry?What Causes Rivalry to be Stronger?Active jockeying for position among rivals and frequent launches of new offensives to gain sales and market shareOne or more firms initiates moves to bolster their standing at expense of rivalsLots of firms that are relatively equal in size and capabilitySlow market growthIndustry conditions tempt some firms to go on the offensive to boost volume and market shareCustomers have low costs in switching to rival brandsA successful strategic move carries a big payoffCosts more to get out of business than to stay inFirms have diverse strategies, corporate priorities, resources, and countries of origin12Factors That Affect the Strength of RivalryRivalry is generally stronger when:Rivals are active in making fresh moves to increase sales and market shareBuyer demand is growing slowlyThe number of rivals ranges from at least 5 to upwards of 12 or more Rivals are of roughly equal size and capabilityBuyer costs to switch brands are lowOne or more rivals is dissatisfied with their current position and market share and make aggressive moves to improve their market prospectsWhen rivals have diverse strategies and objectives and are located in different countriesWhen one or two rivals have powerful strategies and other rivals are scrambling to stay in the gameRivalry is generally weaker when:Rivals move only infrequently or in a non-aggressive manner to draw sales and market share away from rivalsBuyer demand is growing rapidlyBuyer costs to switch brands are highThe Weapons of Competitive RivalryLower pricesMore appealing featuresBetter product performanceHigher qualityStrong brand image and appealBetter customer service capabilitiesWider product selectionBigger/better dealer networkStronger product innovation capabilitiesLonger warrantiesHigher levels of advertisingRivalry amongCompeting Sellers

Efforts of rivals to gainbetter market position, higher sales and market share,and competitiveadvantagePrinciple of Competitive MarketsCompetitive jockeying among rival firms is dynamic and ever-changing As industry members initiate new offensive and defensive movesAs emphasis swings from one mix of competitive weapons to another14Competitive Force of Potential EntrySeriousness of threat depends onBarriers to entryReaction of existing firms to entryBarriers exist whenNewcomers confront obstaclesEconomic factors put potential entrant at a disadvantage relative to incumbent firmsFactors Affecting the Threat of EntryPotential New EntrantsThe Rivalry Among Competing SellersCompetitive pressures coming from the threat of entry of new rivalsEntry threats are weaker whenThe pool of entry candidates is smallEntry barriers are highExisting competitors are struggling to earn good profitsThe industrys outlook is risky or uncertainBuyer demand is growing slowly or is stagnant

Entry threats are stronger whenThe pool of entry candidates is largeEntry barriers are low or can be readily hurdled by the likely entry candidatesWhen existing industry members are looking to expand their market reach by entering product segments or geographic areas where they currently do not have a presenceIndustry members are earning attractive profitsBuyer demand is growing rapidlyCommon Barriers to EntrySizable economies of scaleInability to gain access to specialized technologyExistence of strong learning/experience curve effectsStrong brand preferences and customer loyaltyLarge capital requirements and/or other specialized resource requirementsCost disadvantages independent of sizeDifficulties in gaining access to distribution channelsRegulatory policies, tariffs, trade restrictions17Principle of Competitive MarketsThreat of entry is stronger when:Entry barriers are lowSizable pool of entry candidates existsIncumbents are unwilling or unable to contest a newcomers entry efforts Newcomers can expect to earn attractive profitsCompetitive Force ofSubstitute ProductsSubstitutes matter when customers are attracted to the products of firms in other industries Concept

Eyeglasses vs. Contact LensSugar vs. Artificial SweetenersNewspapers vs. TV vs. InternetE-mail vs. Overnight Delivery vs Snail mail (U.S. Post Office)ExamplesHow to Tell Whether SubstituteProducts are a Strong ForceSales of substitutes are growing rapidlyProducers of substitutes plan to add new capacity Profits of producers of substitutes are up

Factors Affecting Competition from SubstitutesCompetitive pressures coming from the attempts of companies outside the industry to win buyers over to their productsFirms in Other Industries Offering Substitute ProductsRivalry amongCompeting Sellers

Competitive pressures from substitutes are stronger when Good substitutes are readily available or new ones are emergingSubstitutes are lower priced relative to the performance they deliverBuyers have low costs in switching to substitutes Buyers grow more comfortable with using substitutesCompetitive pressures from substitutes are weaker when: Good substitutes are not readily available or dont existSubstitutes are higher priced relative to the performance they deliverBuyers have high costs in switching to substitutes Principle of Competitive MarketsCompetitive threat of substitutes is stronger when they are:Readily available Attractively pricedBelieved to have comparable or better performance featuresCustomer switching costs are low22Competitive Pressures From Suppliersand Supplier-Seller CollaborationWhether supplier-seller relationships represent a weak or strong competitive force depends onWhether suppliers can exercise sufficient bargaining leverage to influence terms of supply in their favorExtent and competitive importance of collaborative partnerships between one or more sellers and their suppliers

Competitive Force of SuppliersSuppliers are a strong competitive force when:Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product qualityIt is costly for buyers to switch suppliersThey have good reputations and growing demandThey can supply a component cheaper than industry members can make it themselvesThey do not have to contend with substitutesBuying firms are not important customersFactors Affecting Supplier Bargaining PowerRivalry Among CompetingSellersCompetitive pressures stemming from supplier bargaining power and seller-supplier collaboration Suppliers of Raw Materials, Parts, Components, or Other Resource InputsSupplier bargaining power is stronger whenSeller switching costs to alternative suppliers are highSome suppliers are a threat to integrate forward into the business of their customersNeeded inputs are in short supply

Supplier bargaining power is weaker whenSeller switching costs to alternative suppliers are lowThere is a surge in the availability of suppliesGood substitute inputs exist or new ones emergeSupplier-seller collaboration or partnering provides attractive win-win opportunities

Competitive Pressures: Collaboration Between Sellers and SuppliersRival sellers are forming long-term strategic partnerships with select suppliers toPromote just-in-time deliveries and reduced inventory and logistic costsSpeed availability of next-generation componentsEnhance quality of parts being suppliedReduce suppliers costs which paves way for lower prices on items suppliedCompetitive advantage potential may accrue to industry rivals doing the best job of managing supply-chain relationships

Principle of Competitive MarketsSuppliers are a stronger force the more they can exercise power over:Prices chargedQuality and performance of items suppliedReliability of deliveriesCompetitive Pressures From Buyersand Seller-Buyer CollaborationWhether seller-buyer relationships represent a weak or strong competitive force depends onWhether buyers have sufficient bargaining leverage to influence terms of sale in their favorExtent and competitive importance of collaborative partnerships between one or more sellers and their customersCompetitive Force of BuyersBuyers are a strong competitive force when:They are large and purchase a sizable percentage of industrys productThey buy in large quantitiesThey can integrate backwardIndustrys product is standardizedTheir costs in switching to substitutes or other brands are lowThey can purchase from several sellersProduct purchased does not save buyer money

Competitive Pressures: Collaboration Between Sellers and BuyersPartnerships are an increasingly important competitive element in business-to-business relationshipsCollaboration may result in mutual benefits regardingJust-in-time deliveriesOrder processingElectronic invoice paymentsOn-line sharing of sales at the cash registerCompetitive advantage potential may accrue to industry rivals who do the best job of managing seller-buyer partnershipsFactors Affecting Buyer Bargaining PowerBuyers Competitive pressures stemming from buyer bargaining power and seller-buyer collaboration Rivalry Among CompetingSellers Buyer bargaining power is stronger whenBuyer switching costs to competing brands are lowBuyers are large and purchase in large quantitiesQuantity and quality of information available to buyers improvesSome buyers are a threat to integrate backward into the business of sellersBuyer demand is weak or decliningBuyer bargaining power is weaker whenBuyer switching costs to competing brands are highThere is a surge in buyer demandSeller-buyer collaboration or partnering provides attractive win-win opportunities

Principle of Competitive MarketsBuyers are a stronger competitive force the more they have leverage to bargain over:PriceQualityServiceOther terms and conditions of saleStrategic Implications of theFive Competitive ForcesCompetitive environment is unattractive from the standpoint of earning good profits when:Rivalry is strongEntry barriers are lowand entry is likelyCompetition from substitutes is strongSuppliers and customers have considerable bargaining powerStrategic Implications of theFive Competitive ForcesCompetitive environment is ideal from a profit-making standpoint when:Rivalry is moderateEntry barriers are highand no firm is likely toenter Good substitutes do not existSuppliers and customers are in a weak bargaining positionCoping With theFive Competitive ForcesObjective is to craft a strategyTo insulate firm from competitive forcesTo help make the rules, placing added pressure on rivalsWhich allows firm to define the business model for the industry

Product Differentiation* Capital Requirements* Switching Costs*Access to Distribution Channels*Cost Disadvantages Independent of Scale* Government Policy*Expected Retaliation* Economies of Scale*Barriers to EntryBarriers to EntryThreat of New Entrants

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4012*Supplier industry is dominated by a few firms*Buyer is not an important customer to supplier*Suppliers product is an important input to buyers product*Suppliers products are differentiatedSuppliers are likely to be powerful if:*Suppliers products have high switching costs*Supplier poses credible threat of forward integration Suppliers exert power in the industry by:* Threatening to raise prices or to reduce qualityPowerful suppliers can squeeze industry profitability if firms are unable to recover cost increasesSuppliers products have few substitutes*Bargaining Power of Suppliers*4116* Playing firms off ofeach otherBuyers compete with supplying industry by:* Bargaining down prices* Forcing higher qualityBuyer groups are likely to be powerful if:*Buyers are concentrated or purchases are large relative to sellers sales*Purchase accounts for a significant fraction of suppliers sales*Products are undifferentiated*Buyers face few switching costs*Buyers industry earns low profits*Buyer presents a credible threat of backward integration*Product unimportant to quality*Buyer has full informationBargaining Power of Buyers4218Products with similar function limit the prices firms can charge*Products with improving price / performance tradeoffs relative to present industry productsKeys to evaluating substitute products:For Example:Electronic security systems in place of security guardsFax machines or e-mailed attachments in place of overnight mail deliveryThreat of Substitute Products4321Threat of New EntrantsThreat of Substitute ProductsThreat of New EntrantsBargaining Power of BuyersBargaining Power of SuppliersPorters 5 Forces Model of CompetitionRivalry Among Competing Firms in Industry

*4423Occurs when a firm is pressured or sees an opportunity*Price competition often leaves entire industry worse offIntense rivalry often plays out in the following waysJockeying for strategic position*Using price competition*Staging advertising battles*Increasing consumer warranties or service*Making new product introductions*Advertising battles may increase total industry demand, but may be costly to smaller competitors*Rivalry Among Existing Competitors4524Cutthroat competition is more likely to occur when*Numerous or equally balanced competitors*Slow growth industry*High fixed costs*Lack of differentiation or switching costs*High storage costs*Capacity added in large increments*High strategic stakes*High exit barriers*Diverse competitorsRivalry Among Existing Competitors4624*Specialized assetsHigh Exit Barriers are economic, strategic and emotional factors which cause companies to remain in an industry even when future profitability is questionable.Fixed cost of exit (e.g., labour agreements)*Strategic interrelationships*Emotional barriers*Government and social restrictions*Rivalry Among Existing Competitors4727Question 3: What Forces Are atWork to Change Industry Conditions?Industries change because forces are driving industry participants to alter their actionsDriving forces are the major underlying causes of changing industry and competitive conditions Analyzing Driving Forces1. Identify those forces likely to exert greatest influence over next 1 - 3 years Usually no more than 3 - 4 factors qualify as real drivers of change2. Assess impactWhat difference will the forces make - favorable? unfavorable?Common Types of Driving ForcesInternet and e-commerce opportunitiesIncreasing globalization of industryChanges in long-term industry growth rateChanges in who buys the product and how they use itProduct innovationTechnological change/process innovationMarketing innovation50Common Types of Driving ForcesEntry or exit of major firmsDiffusion of technical knowledgeChanges in cost and efficiencyMarket shift from standardized to differentiated products (or vice versa)Regulatory policies / government legislationChanging societal concerns, attitudes, and lifestylesChanges in degree of uncertainty and risk51Environmental ScanningMonitoring and interpreting sweep of social, political, economic, ecological, and technological events to spot budding trends that could eventually impact industryDefinitionPurposeRaise consciousness of managers about potential developments that couldHave important impact on industry conditionsPose new opportunities and threatsQuestion 4: Which Companies are in Strongest / Weakest Positions?One technique for revealing the different competitive positions of industry rivals is strategic group mappingA strategic group consists of those rivals with similar competitive approaches in an industryStrategic Group MappingFirms in same strategic group have two or more competitive characteristics in commonSell in same price/quality rangeCover same geographic areasBe vertically integrated to same degreeHave comparable product line breadthEmphasize same types of distribution channelsOffer buyers similar servicesUse identical technological approaches54Procedure for Constructing aStrategic Group MapSTEP 1: Identify competitive characteristics that differentiate firms in an industry from one anotherSTEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristicsSTEP 3: Assign firms that fall in about the same strategy space to same strategic groupSTEP 4: Draw circles around each group, making circles proportional to size of groups respective share of total industry sales55Example: Strategic Group Map of the Video Game IndustryTypes of Video Game Suppliers/Distribution ChannelsOverall Cost to Players of Video GamesLow(Coin-operated equipment) Medium (Console players cost $100-$300)High (Use PC)Arcades Home PCsVideo game consolesOnline/InternetSony, Sega, Nintendo, several othersArcade operatorsPublishers of games on CD-ROMsMSN Gaming Zone, Pogo.com, America Online, HEAT, Engage, Oceanline, TENGuidelines: Strategic Group MapsVariables selected as axes should not be highly correlatedVariables chosen as axes should expose big differences in how rivals competeVariables do not have to be either quantitative or continuousDrawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic groupIf more than two good competitive variables can be used, several maps can be drawn57Interpreting Strategic Group MapsDriving forces and competitive pressures often favor some strategic groups and hurt othersProfit potential of different strategic groups varies due to strengths and weaknesses in each groups market positionThe closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be58

Question 5: What Strategic Moves Are Rivals Likely to Make Next?A firms own best strategic moves are affected byCurrent strategies of competitorsFuture actions of competitors Profiling key rivals involves gathering competitive intelligence about theirCurrent strategiesMost recent movesResource strengths and weaknessesAnnounced plansCompetitor AnalysisSuccessful strategists take great pains in scouting competitors to Understand their strategiesWatch their actionsEvaluate their vulnerability to driving forces and competitive pressuresSize up their resource strengths and weaknesses and their capabilitiesTry to anticipate rivals next moves63Table 3.3: Categorizing Objectivesand Strategies of CompetitorsCompetitive ScopeStrategic IntentMarket Share ObjectiveCompetitive PositionStrategic PostureCompetitive Strategy LocalBe dominant leaderAggressive expansion via acquisition & internal growthGetting stronger; on the moveMostly offensive RegionalOvertake industry leaderWell-entrenchedMostly defensive NationalBe among industry leadersExpansion via internal growthStuck in the middle of the packCombination of offensive & defensive MulticountryMove into top 10Expansion via acquisitionGoing after a different positionAggressive risk-taker GlobalMove up a notch in rankingsHold on to present shareStruggling; losing groundConservative followerMaintain current positionGive up present share to achieve short-term profitsRetrenching to a position that can be defended Just surviveStriving for low-cost leadershipFocusing on market nichePursuing differentiation based onQualityServiceTechnology superiorityBreadth of product lineImage & reputationMore value for the moneyOther attributesThe Advantages and Disadvantages of Different Entry ModesCopyright 2001 Houghton Mifflin Company. All rights reserved.Entry ModeAdvantagesDisadvantagesExportingAbility to realize location and experience-curve economiesHigh transport costsTrade barriersProblems with local marketing agentsLicensingLow development costs and risksInability to realize location and experience-curve economiesInability to engage in global strategic coordinationLack of control over technologyFranchisingLow development costs and risksInability to engage in global strategic coordinationLack of control over qualityJoint venturesAccess to local partners knowledgeShared development costs and risksPolitical dependencyInability to engage in global strategic coordinationInability to realize location and experience-curve economiesLack of control over technologyWholly owned subsidiariesProtection of technologyAbility to engage in global strategic coordinationAbility to realize location and experience-curve economiesHigh costs and risksTABLE 8.2The Advantages and Disadvantages of Different Strategies for Competing GloballyCopyright 2001 Houghton Mifflin Company. All rights reserved.StrategyAdvantagesDisadvantagesInternationalTransfer of distinctive competencies to foreign marketsLack of local responsivenessInability to realize location economiesFailure to exploit experience-curve effectsMultidomesticAbility to customize product offerings and marketing in accordance with local responsivenessInability to realize location economiesFailure to exploit experience-curve effectsFailure to transfer distinctive competencies to foreign marketsGlobalAbility to exploit experience-curve effectsAbility to exploit location economiesLack of local responsiveness

TransnationalAbility to exploit experience-curve effectsAbility to exploit location economiesAbility to customize product offerings and marketing in accordance with local responsivenessReaping benefits of global learningDifficulties in implementation because of organizational problemsTABLE 8.1Choosing an Investment Strategy at the Business LevelStage of the Industry Life CycleStrong CompetitivePositionWeak CompetitivePositionEmbryonicShare buildingShare buildingGrowthGrowthMarket concentrationShakeoutShare increasingMarket concentration or harvest/liquidationMaturityHold-and-maintain or profitHarvest or liquidation/divestitureDeclineMarket concentration or harvest (asset reduction)Turnaround, liquidation,or divestitureCopyright 2001 Houghton Mifflin Company. All rights reserved.TABLE 6.2Predicting Moves of RivalsPredicting rivals next moves involvesAnalyzing their current competitive positionsExamining public pronouncements about what it will take to be successful in industryGathering information from grapevine about current activities and potential changesStudying past actions and leadershipDetermining who has flexibility to make major strategic changes and who is locked into pursuing same basic strategy68Question 6: What are the Key Factors for Competitive Success?Competitive elements most affecting every industry members ability to prosper Specific strategy elementsProduct attributesResourcesCompetenciesCompetitive capabilitiesKSFs spell the difference betweenProfit and lossCompetitive success or failureIdentifying IndustryKey Success FactorsAnswers to three questions pinpoint KSFsOn what basis do customers choose between competing brands of sellers?What resources and competitive capabilities does a seller need to have to be competitively successful?What does it take for sellers to achieve a sustainable competitive advantage?KSFs consist of the 3 - 5 really major determinants of financial and competitive success in an industry70Table 3.3: Common Types ofKey Success FactorsDistribution-relatedMarketing-relatedSkills-relatedOrganizational capabilityOther typesTechnology-relatedManufacturing-relatedScientific research expertise; Product innovation capability; Expertise in a given technology; Capability to use Internet to conduct various business activitiesLow-cost production efficiency; Quality of manufacture; High use of fixed assets; Low-cost plant locations; High labor productivity; Low-cost product design; Flexibility to make a range of productsStrong network of wholesale distributors/dealers; Gaining ample space on retailer shelves; Having company-owned retail outlets; Low distribution costs; Fast deliveryFast, accurate technical assistance; Courteous customer service; Accurate filling of orders; Breadth of product line; Merchandising skills; Attractive styling; Customer guarantees; Clever advertisingSuperior workforce talent; Quality control know-how; Design expertise; Expertise in a particular technology; Ability to develop innovative products; Ability to get new products to market quicklySuperior information systems; Ability to respond quickly to shifting market conditions; Superior ability to employ Internet to conduct business; More experience & managerial know-howFavorable image/reputation with buyers; Overall low-cost; Convenient locations; Pleasant, courteous employees; Access to financial capital; Patent protectionExample: KSFs for Beer IndustryUtilization of brewing capacity -- to keep manufacturing costs lowStrong network of wholesale distributors -- to gain access to retail outletsClever advertising -- to induce beer drinkers to buy a particular brandExample: KSFs for Apparel Manufacturing IndustryFashion design -- to create buyer appealLow-cost manufacturing efficiency -- to keep selling prices competitiveExample: KSFs for Tin andAluminum Can IndustryLocating plants close to end-use customers -- to keep costs of shipping empty cans lowAbility to market plant output within economical shipping distancesStrategic Management PrincipleA sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor!75Question 7: Is the IndustryAttractive or Unattractive and Why?Develop conclusions about whether the industry and competitive environment is attractive or unattractive, both near- and long-term, for earning good profitsObjectivePrincipleA firm uniquely well-suited in an otherwise unattractive industry can, under certain circumstances, still earn unusually good profitsThings to Consider inAssessing Industry AttractivenessIndustrys market size and growth potentialWhether competitive conditions are conducive to rising/falling industry profitabilityWill competitive forces become stronger or weaker Whether industry will be favorably or unfavorably impacted by driving forcesPotential for entry/exit of major firmsStability/dependability of demandSeverity of problems facing industryDegree of risk and uncertainty in industrys future77Conducting an Industry andCompetitive Situation AnalysisTwo things to keep in mind1. Evaluating industry and competitive conditions cannot be reduced to a formula-like exercise--thoughtful analysis is essential2. Sweeping industry and competitive analyses need to done every 1 to 3 years 78

82The Basis for Good Strategic DecisionsIntuition + AnalysisEffective Strategic Decisions1999 Prentice Hall82