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Strategic Management
                   Market Dynamics




 Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-1
ETOP
             Environmental Threat and Opportunity Profile
                  Factor                  Impact             Importance              Opportunity   Threat
            Regulatory                       3                   8                      24
            Competitive                     -2                   7                                  -14
            External Alliance                7                   6                           42
            Internal Alliance               -6                   5                                  -30
            Entrepreneurial                 4                    5                           20
            Info Highway                     5                   4                           20
            Financial                       7                    4                           28
            Social                           2                   3                            6

In this ETOP factors are tailored and ordered as to their importance
Regulatory - tremendous opportunity to push for deregulation, led by STPI.
They have had their lesson and learned well
Competitive - AT&T, Sprint
External Alliance - solid, mutually reinforcing, long-term
Internal Alliance - source of friction and reduction of ability to react
Entrepreneurial - Stentor now much more entrepreneurial (all three elements)
Info Highway - mergers and acquisition for cable, cellular, infotainment
Financial - ability to increase leverage through debt
Social - universal access concept, downsizing, leanness all socially acceptable
                    Copyright by Authors Tom Koplyay and David Goldsmith July 1998     3-2
ETOP: Pros and Cons


                Pros                                                                   Cons
•   Help to determine the key                                        •      It doesn’t show the
    factors of threats and                                                  interactions between factors
    opportunities                                                    •      It can’t reflect the dynamic
•   Good tool to qualify the factors                                        environment
    related to company’s strategy                                    •      It’s a subjective analysis tool
•   Can consider many factors for
    each special case




                Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-3
Porter Competitive Analysis
   5 Forces Model of Competition

                                  FIRMS IN OTHER
                                   FIRMS IN OTHER
                              INDUSTRIES OFFERING
                               INDUSTRIES OFFERING
                              SUBSTITUTE PRODUCTS
                               SUBSTITUTE PRODUCTS




                                            RIVALRY
                                             RIVALRY
SUPPLIERS                                   AMONG
                                             AMONG                            BUYERS
 SUPPLIERS                                COMPETING                            BUYERS
                                           COMPETING
                                            SELLERS
                                             SELLERS




                                        POTENTIAL
                                         POTENTIAL
                                      NEW ENTRANTS
                                       NEW ENTRANTS




       Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-4
Porter Analysis
                                                     Substitutes
                                                      Substitutes




            Suppliers
             Suppliers                                     Market                         Customers
                                                                                           Customers
                                                           Market




                                                   New Entrants
                                                    New Entrants



Horizontal Forces       mature markets
Vertical Forces      growth markets
Vertical and Horizontal      competitive and changing markets

                   Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-5
Porter Competitive Analysis - Wal-Mart




                                 Discount Retailing
                                  Discount Retailing




                                                    New Entrants




      Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-6
Porter: NTI
                                                        Sat. Tech.
                                                         Sat. Tech.


                                                                                           Telephone or
                                                                                           Multimedia cost?
           Suppliers                                         AT&T
                                                              AT&T                           Baby Bells
            Suppliers                                         NTI                             Baby Bells
                                                               NTI




                                                         Siemens                            Low cost producer
                                                          Siemens
                                                           NEC
                                                            NEC                             Financial strength

Growth market
Price focus of customers - close to maturity
Strategic Factors: Flexibility, enhancement, uniqueness (product/service
combination), combine with GVA, new Porter needed?

                    Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-7
Porter’s Five Forces: Pros and Cons

                       Pros                                                                 Cons
•   It’s a good tool to identify the clear  •                                    It often produces the same
    competitive environment and the                                              recommendations for similar
    relationship for the five market forces                                      organizations
•   It is an useful analysis model for the •                                     It assumes relatively static
    new entrants and the existing                                                market structures.
    competitor inside the market            •                                    It provides a good framework
•   It helps the company design                                                  for analysis but does not really
    competitive strategies and make right                                        consider issues around
    decisions                                                                    implementing changes to
•   It surfaces the inverse relationship                                         reposition for strategic
    between profit margin or returns and                                         advantage.
    the intensity of competition            •                                    It can’t show how a company
•   It provides useful inputs for performing                                     performed relative to its
    other analysis                                                               competitors


                Copyright by Authors Tom Koplyay and David Goldsmith July 1998    3-8
Porter Competitive Analysis - Wal-Mart

                          Potential rate of growth in industry
                    Ease of entry of new firms into industry
                      Intensity of competition among firms
                                     Degree of product suitability
Degree of dependency on compl. Or supporting prod & srvcs
  Degree of bargaining power buyers and customers possess
  Degree of bargaining power suppliers and vendors possess
          Degree of technological sophistication in industry
                                   Rate of innovation in industry
                   General level of management capability
                                                                                       0     1   2   3   4   5   6   7   8




                      Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-9
Competitive Environment Analysis



1. Potential rate of growth of industry (in real terms)
0-3% ___ 3-6% ___ 6-9 % ___ 9-12% ___ 12-15% ___ 15-18% ___ 18-21% ___ >21% ___

2. Ease of entry of new firms into industry
No barriers- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Virtually impossible to enter

3.Intensity of competition among firms
Extemely competitive- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Almost no competition

4. Degree of product substitutability
Many substitutes available- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -No substitutes

5. Degree of dependency on complementary or supporting products and services
Highly dependent-___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Virtually independent




                  Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-10
Competitive Environment Analysis



6. Degree of bargaining power buyers and customers possess
Buyers dictate terms- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Selling firms dictate terms

7. Degree of bargaining power suppliers and vendors possess
Suppliers dictate terms- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Buying firms dictate terms

8. Degree of technological sophistication in industry
High-level technology- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Very low-level technology

9. Rate of innovation in industry
Rapid innovation- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Almost no innovation

10. General levels of management capability
Many very capable managers- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Very few capable
                                                                                 managers




                        Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-11
Competitive Sustainability Analysis

             Class                                                                Product

Class 1 - Slow Cycle Resources                                               Marlboro’s
KSF: nurturing of protected market,
    defending and building the brand
Class 2 - Standard Cycle Resources                                            Lesser Brands
KSF: Economies of Scale
     Market share/control
     Building product loyalty
      introducing new products to attack leader’s brand
Class 3 - Fast Cycle Resources                                               Financial Products
KSF: market timing and intelligence


          Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-12
Strategic Map - Industry

             High
                          Price Club
Diversification



                                                                          Wal-Mart


                                                   K-Mart

                                  Sears
           Low
                    Low                                                                 High
                                 Competitive Capability


                     Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-13
Strategic Map - Industry
                                                  AECL - CANDU


        High             Westinghouse
                                  $288M                                General Electric
                                       Siemens                            $4,303M
Diversification



                                        $1,792M




                                                Framatome ABB
                                                  $984M   $590M
                                                                                     AECL


 Low
                  Low                                                                 High
                               Competitive Capability



                   Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-14
Porter’s Diamond
  Determinants of National Advantage
                                        Firm, Strategy,
                                        Structure, and
                                           Rivalry




       Factor                                                                         Demand
     Conditions                                                                      Conditions




                                           Related and
Wal-Mart                                   Supporting
                                            Industries

             Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-15
Industry Value Chain


     PC Industry
     Intel                                           PC Makers                       Microsoft
     Chips                                           Hardware                        Software

Value captured by each player
       •value captured by neighbours influence competitive
       dynamics of PC makers
       •Intel & Microsoft capture high % of value
       •PC makers are squeezed and are forced to compete on
       volume because of low margins
             Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-16
Economies of ‘S’
•   Scale               (inputs,throughput, outputs)
•   Scope               (production, technology, marketing, channels, core,
                                   competencies/capabilities)
•   Strength            (relative market share, branding power, shelf power)
•   Structure           (market/product linkages,decision flow, value chain
                                   management)
•   Speed               (response time to market, product cycle time rate of
                                   technology absorption)
•   Strategy            (optimal/minimal changes, Strategic design criteria)
•   Synergy             (association with clusters, joint ventures, strategic
                                   alliances, coopetition)
•   Span                (ability to focus on business: functional similarity,
                        geographic dispersion, functional complexity,
                        need for direction, need for coordination, planning
                        demands, managerial help)
•   Sales               (learning curve, experience curve)
•   State               (organizational / product / production lifecycle)
                Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-17
Economies of ‘S’
                                         Market Phase

                                                                 Economy (input based, budgets)

Organization   Effectiveness                                             Administration
               (output based)                        Mgr
                  Entrepreneur                                   Efficiency (throughput based)



                                                       Market Push (cost leader)

                                                                    Mature
               Market Pull
Market Phase   (focus)     Competitive

                              Intro                       Market Test (differentiation)




               Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-18
Key Success Factors - Giant Tiger


Niche market: Good value for $
Distribution channel cross docking
Good financial position
Flexible experienced buyers
Main street locations
Franchisee relationship




           Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-19
Key Success Factors - Cross Keys
Key Success Factors                                Measures
Corporate credibility:                             Trade show recognition, speaking
                                                   invites, # of RFP’s
Technological reputation:                          Quality/reliability/performance
Market Share:                                      Revenue growth, # RFP’s
Company morale:                                    Turnover, employee interaction
Recruiting effectiveness:                          Average # of ongoing vacancies, #
                                                   of qualified applicants per vacancy
Productivity:                                      Revenue per employee
Sales effectiveness:                               Contracts signed per # RFP’s
                                                   answered
Marketing effectiveness:                           Sales team approval, # of leads
Growth management:                                 Turnover, recruiting, productivity,
                                                   employee morale

         Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-20
Critical Success Factors - Maclaren Industries


   •Quality of product and service
   •Ability to compete based on price in weak
   markets
   •Ability to meet the customer’s recycled content
   requirement




       Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-21
Key Success Factors - Mitel


Dynamic product base
  Innovation
  Address segmentation
Excellent service
Distribution
  Be on the short list of suppliers for major customers
  Each segment with appropriate channels
Economic value




     Copyright by Authors Tom Koplyay and David Goldsmith July 1998   3-22

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Part3 strategy

  • 1. Strategic Management Market Dynamics Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-1
  • 2. ETOP Environmental Threat and Opportunity Profile Factor Impact Importance Opportunity Threat Regulatory 3 8 24 Competitive -2 7 -14 External Alliance 7 6 42 Internal Alliance -6 5 -30 Entrepreneurial 4 5 20 Info Highway 5 4 20 Financial 7 4 28 Social 2 3 6 In this ETOP factors are tailored and ordered as to their importance Regulatory - tremendous opportunity to push for deregulation, led by STPI. They have had their lesson and learned well Competitive - AT&T, Sprint External Alliance - solid, mutually reinforcing, long-term Internal Alliance - source of friction and reduction of ability to react Entrepreneurial - Stentor now much more entrepreneurial (all three elements) Info Highway - mergers and acquisition for cable, cellular, infotainment Financial - ability to increase leverage through debt Social - universal access concept, downsizing, leanness all socially acceptable Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-2
  • 3. ETOP: Pros and Cons Pros Cons • Help to determine the key • It doesn’t show the factors of threats and interactions between factors opportunities • It can’t reflect the dynamic • Good tool to qualify the factors environment related to company’s strategy • It’s a subjective analysis tool • Can consider many factors for each special case Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-3
  • 4. Porter Competitive Analysis 5 Forces Model of Competition FIRMS IN OTHER FIRMS IN OTHER INDUSTRIES OFFERING INDUSTRIES OFFERING SUBSTITUTE PRODUCTS SUBSTITUTE PRODUCTS RIVALRY RIVALRY SUPPLIERS AMONG AMONG BUYERS SUPPLIERS COMPETING BUYERS COMPETING SELLERS SELLERS POTENTIAL POTENTIAL NEW ENTRANTS NEW ENTRANTS Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-4
  • 5. Porter Analysis Substitutes Substitutes Suppliers Suppliers Market Customers Customers Market New Entrants New Entrants Horizontal Forces mature markets Vertical Forces growth markets Vertical and Horizontal competitive and changing markets Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-5
  • 6. Porter Competitive Analysis - Wal-Mart Discount Retailing Discount Retailing New Entrants Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-6
  • 7. Porter: NTI Sat. Tech. Sat. Tech. Telephone or Multimedia cost? Suppliers AT&T AT&T Baby Bells Suppliers NTI Baby Bells NTI Siemens Low cost producer Siemens NEC NEC Financial strength Growth market Price focus of customers - close to maturity Strategic Factors: Flexibility, enhancement, uniqueness (product/service combination), combine with GVA, new Porter needed? Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-7
  • 8. Porter’s Five Forces: Pros and Cons Pros Cons • It’s a good tool to identify the clear • It often produces the same competitive environment and the recommendations for similar relationship for the five market forces organizations • It is an useful analysis model for the • It assumes relatively static new entrants and the existing market structures. competitor inside the market • It provides a good framework • It helps the company design for analysis but does not really competitive strategies and make right consider issues around decisions implementing changes to • It surfaces the inverse relationship reposition for strategic between profit margin or returns and advantage. the intensity of competition • It can’t show how a company • It provides useful inputs for performing performed relative to its other analysis competitors Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-8
  • 9. Porter Competitive Analysis - Wal-Mart Potential rate of growth in industry Ease of entry of new firms into industry Intensity of competition among firms Degree of product suitability Degree of dependency on compl. Or supporting prod & srvcs Degree of bargaining power buyers and customers possess Degree of bargaining power suppliers and vendors possess Degree of technological sophistication in industry Rate of innovation in industry General level of management capability 0 1 2 3 4 5 6 7 8 Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-9
  • 10. Competitive Environment Analysis 1. Potential rate of growth of industry (in real terms) 0-3% ___ 3-6% ___ 6-9 % ___ 9-12% ___ 12-15% ___ 15-18% ___ 18-21% ___ >21% ___ 2. Ease of entry of new firms into industry No barriers- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Virtually impossible to enter 3.Intensity of competition among firms Extemely competitive- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Almost no competition 4. Degree of product substitutability Many substitutes available- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -No substitutes 5. Degree of dependency on complementary or supporting products and services Highly dependent-___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Virtually independent Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-10
  • 11. Competitive Environment Analysis 6. Degree of bargaining power buyers and customers possess Buyers dictate terms- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Selling firms dictate terms 7. Degree of bargaining power suppliers and vendors possess Suppliers dictate terms- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Buying firms dictate terms 8. Degree of technological sophistication in industry High-level technology- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Very low-level technology 9. Rate of innovation in industry Rapid innovation- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Almost no innovation 10. General levels of management capability Many very capable managers- ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ : ___ -Very few capable managers Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-11
  • 12. Competitive Sustainability Analysis Class Product Class 1 - Slow Cycle Resources Marlboro’s KSF: nurturing of protected market, defending and building the brand Class 2 - Standard Cycle Resources Lesser Brands KSF: Economies of Scale Market share/control Building product loyalty introducing new products to attack leader’s brand Class 3 - Fast Cycle Resources Financial Products KSF: market timing and intelligence Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-12
  • 13. Strategic Map - Industry High Price Club Diversification Wal-Mart K-Mart Sears Low Low High Competitive Capability Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-13
  • 14. Strategic Map - Industry AECL - CANDU High Westinghouse $288M General Electric Siemens $4,303M Diversification $1,792M Framatome ABB $984M $590M AECL Low Low High Competitive Capability Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-14
  • 15. Porter’s Diamond Determinants of National Advantage Firm, Strategy, Structure, and Rivalry Factor Demand Conditions Conditions Related and Wal-Mart Supporting Industries Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-15
  • 16. Industry Value Chain PC Industry Intel PC Makers Microsoft Chips Hardware Software Value captured by each player •value captured by neighbours influence competitive dynamics of PC makers •Intel & Microsoft capture high % of value •PC makers are squeezed and are forced to compete on volume because of low margins Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-16
  • 17. Economies of ‘S’ • Scale (inputs,throughput, outputs) • Scope (production, technology, marketing, channels, core, competencies/capabilities) • Strength (relative market share, branding power, shelf power) • Structure (market/product linkages,decision flow, value chain management) • Speed (response time to market, product cycle time rate of technology absorption) • Strategy (optimal/minimal changes, Strategic design criteria) • Synergy (association with clusters, joint ventures, strategic alliances, coopetition) • Span (ability to focus on business: functional similarity, geographic dispersion, functional complexity, need for direction, need for coordination, planning demands, managerial help) • Sales (learning curve, experience curve) • State (organizational / product / production lifecycle) Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-17
  • 18. Economies of ‘S’ Market Phase Economy (input based, budgets) Organization Effectiveness Administration (output based) Mgr Entrepreneur Efficiency (throughput based) Market Push (cost leader) Mature Market Pull Market Phase (focus) Competitive Intro Market Test (differentiation) Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-18
  • 19. Key Success Factors - Giant Tiger Niche market: Good value for $ Distribution channel cross docking Good financial position Flexible experienced buyers Main street locations Franchisee relationship Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-19
  • 20. Key Success Factors - Cross Keys Key Success Factors Measures Corporate credibility: Trade show recognition, speaking invites, # of RFP’s Technological reputation: Quality/reliability/performance Market Share: Revenue growth, # RFP’s Company morale: Turnover, employee interaction Recruiting effectiveness: Average # of ongoing vacancies, # of qualified applicants per vacancy Productivity: Revenue per employee Sales effectiveness: Contracts signed per # RFP’s answered Marketing effectiveness: Sales team approval, # of leads Growth management: Turnover, recruiting, productivity, employee morale Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-20
  • 21. Critical Success Factors - Maclaren Industries •Quality of product and service •Ability to compete based on price in weak markets •Ability to meet the customer’s recycled content requirement Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-21
  • 22. Key Success Factors - Mitel Dynamic product base Innovation Address segmentation Excellent service Distribution Be on the short list of suppliers for major customers Each segment with appropriate channels Economic value Copyright by Authors Tom Koplyay and David Goldsmith July 1998 3-22