INDUSTRIAL AND COMPETITIVE ANALYSIS The two most important considerations in an industrial analysis of the company are:
- the conditions of the industry in an external environment, competitive capacities, internal strengths and weaknesses.
The analytical sequence occurs from the strategic evaluation of the external and internal situation of the company to the identification of the aspects that will be evaluated among various options for choosing the strategy.
The economic nature of each particular industry varies according to several factors:
The general volume and rate of market growth, the rate of technological change, the geographical boundaries of the market, the number and volumes of buyers and sellers, the degree of cost impact by economies and the types of distribution that are they employ to have access to the buyers.
Industrial and competitive analysis is aimed at developing the answers to seven questions, and these answers generate understanding of the environment that surrounds a company and, together, form the basis for adjusting the strategy to the changing conditions of the industry and realities. competitive.
Question 1: What are the dominant economic characteristics in the industry?
- Market volume Competitive rivalry (local, regional national international or global) The number of rivals, buyers and their relative volumes The frequency of backward and forward integration The types of distribution channels used to access Buyers The pace of technological change both in the innovation of the production process and in the introduction of new products.If the product (s) or service (s) of rival companies are highly differentiated or essentially identical. ease of entry and exit, if the industry requirements are higher and / or lower than normal.
The economic characteristics of an industry are important due to the implications they have for the strategy.
In industries characterized by continuous improvement, companies must dedicate enough time and money to research and development in order to maintain their technical expertise and innovative capacity alongside their competitors; an innovation strategy becomes a condition for survival.
Question 2: What is the competition like and how powerful are each of the five competitive forces?
The Five Forces of Competition model Even though competitive pressure in various industries is never exactly the same, the competitive process works in quite a similar way, allowing us to employ a common analytical frame of reference to measure the nature and the intensity of competitive forces.
The model of the five competitive forces of Professor Michael Porter, from the Harvard Business school, is a powerful instrument to systematically diagnose the main competitive pressures in the market.
The rivalry between companies competing in the industry.
In some industries the rivalry is centered on price competition, resulting in prices lower than the cost of production per unit, which imposes losses on most rivals. In other industries, rivalry is focused on factors such as performance characteristics, product innovation, quality and durability, warranties, after-sales service, and brand image.
The intensity of rivalry between competing companies is a function of the energy with which they employ tactics such as lowering prices, adding more striking features to the product, improving customer services, offering longer warranties, special promotions and introducing new products.
The main problem in most industries is that the success of any company's strategy depends in part on what kind of offensive and defensive maneuvers its rivals employ, and on the resources they can employ to support its strategic efforts. In other words, the "best" strategy for a company to achieve a competitive advantage depends on the capabilities and competitive strategies of rival companies.
Consequently, when a company takes a strategic move, its rivals often counter offensive or defensive. This pattern of action and reaction turns rivalry into a "war game" type contest.
The rivalry between companies competing in the industry.
- Regardless of the industry, there are several common factors that seem to influence the pace of rivalry between competing vendors. Capacity. Rivalry is usually more powerful when demand for the product increases slowly. Rivalry is more intense when industry conditions tempt competitors to use price reductions or other competitive weapons in order to increase volume. per unit.The rivalry is more powerful when the cost of the client to change brands is low.Rivalry is most powerful when one or more competitors are dissatisfied with their market position and initiate measures to improve their position at the expense of their rivals. Rivalry increases in proportion to the returns of a strategic measure.
Market attempts by some companies in other industries to attract customers to their own substitute products.
Companies in one industry are often in close competition with another because their products are good substitutes.
Eyeglass producers compete with manufacturers of contact lenses.
Wood stove producers with substitutes like kerosene and electric heaters.
The sugar industry competes with companies that produce artificial sweetener and corn honey.
The magnitude of competitive pressures on substitute products depends on three factors 1) Whether substitutes are available at an attractive price, 2) how satisfactory in terms of quality, performance and other relevant attributes 3) the ease with which buyers can prefer substitutes.
The availability of substitutes inevitably invites customers to compare quality and performance, as well as price. For example, ski boat manufacturers face powerful competition from water bikers for their attributes.
The potential entry of new competitors
The lower the price of the substitutes or originals, the better their quality and performance and the lower the costs of the change for the user, the more intense the competitive pressures exerted by the products.
The bargaining power and leverage that suppliers can exercise.
Whether an industry's suppliers are a powerful or weak competitive force depends on market conditions in the supplier's industry and the importance of the product they provide. Competitive buyer-related pressures tend to be minimal as long as the items provided are common goods that are available on the open market to a large number of suppliers with wide capacity.
Suppliers also tend to have less leverage to negotiate price and other terms of sale when the industry in which they are supplying their products is a major customer. In such cases, the well-being of suppliers is closely linked to that of their main customers. Thus, suppliers have a great incentive to protect and improve the competitiveness of their customers, through reasonable prices, exceptional quality, and continuous advances in the technology and performance of the items provided.
The bargaining power and leverage that buyers of the product can exercise.
As with suppliers, the competitive strength of buyers can range from powerful to weak. Buyers have considerable leverage in the negotiations in various cases. The most obvious is when buyers are large companies that purchase much of the output from an industry. Typically, bulk purchases provide a buyer with enough leverage to obtain price concessions and other favorable terms.
Question 3: What are the drivers of change in the industry and what impact will they have?
While it is important to judge what stage of growth an industry is in, it is best to identify the factors causing fundamental adjustments in the industry and competition. The conditions of industry and competition change because forces are in motion that create incentives or pressures for change. The dominant forces are known as the driving forces, because they have the greatest influence on the kinds of changes that will take place in the structures and environment of the industry.
The most common driving forces:
- Changes in the long-term growth rate of the industry. Upward or downward shifts in growth are a force for industry change because they affect the balance between industry supply and buyer demand, income and output, and how difficult it will be for a business get additional sales. Changes in who buys the product and in the way they use it.Changes in buyer demographics and new ways to use the product can alter the state of competition, by imposing certain adjustments on customer service offerings (credit, technical assistance, maintenance and repair), opening the way to sell the product through different distributors and retail agencies, encouraging producers to expand / reduce their product lines and bringing different sales and promotion approaches into play. Product innovation. Product innovation can disrupt the structure of competition by expanding an industry's customer base, revitalizing growth, and broadening the degree of product differentiation among rival vendors. Technological change.Advances in conference calling technology can dramatically alter an industry landscape, enabling the manufacture of new and / or better products at lower cost, and open new frontiers for the entire industry. Marketing innovation. When companies are successful in introducing new ways to sell their products, they can spark buyer interest, expand industry demand, increase product differentiation, or lower unit costs. Entry or exit of the main companies. The entry of one or more foreign companies in a market previously dominated by domestic companies, almost always disrupts competitive conditions. Dissemination of practical technical knowledge. As knowledge about how to perform an activity or run manufacturing technology spreadsheets spreads, any competitive advantage based on the technology the companies originally owned erodes. Increase in the globalization of the industry. Industries move towards globalization for several reasons. One or more prominent companies at the national level can initiate aggressive long-term strategies to gain a dominant market position globally. Changes in cost and efficiency. Increasing or decreasing differences in cost and efficiency among key competitors tends to significantly alter the state of competition. The emerging buyer preferences for differentiated products instead of a generic product (or a standardized product instead of highly differentiated products). Sometimes a growing number of buyers decide on a standard “one size fits all” type product, at a budget price, a better opportunity than brands with a premium price, personalized service. Regulatory influences and changes in government policy. Regulatory and government actions can often force significant changes in industry practices and strategic approaches. Deregulation has been a powerful pro-competition force in the airline, banking, natural gas, telecommunications and utility utilities industries. Society's changing concerns, attitudes, and lifestyles. Emerging social aspects and changing attitudes and lifestyles can lead to variations in the industry. Reductions in uncertainty and business risk. An industry is characterized by a cost structure that has not been tested and by an uncertainty about the potential volume of the market, how much time and money it will take to overcome technological problems and which will be the distribution channels in which it must be incorporated..
Question 4: What are the companies that occupy the strongest / weakest competitive positions?
One technique to reveal the competitive positions of the participants in an industry is the map of the strategic groups. This analytical tool is the bridge between the study of the industry as a whole and the position of each company separately, it is most useful when an industry has so many competitors that it is not practical to examine each of them.
The procedure to prepare a map of the strategic groups and decide which companies belong to each strategic group consists of:
- To identify the characteristics that differentiate companies in industries, the common variables are: price / quality (high, average, low), geographic coverage (local, regional, national, global), degree of vertical integration (none, partial, total), breadth of the product line (broad, limited), use of distribution channels (one, several, all) and degree of service offered (basic, limited, full service).Assign companies that have similar strategies to the same group strategic.circle each strategic group by matching them to be proportionate to the respective volume of the group's share of total industry sales revenue.
Generally, while the strategic groups are closer to each other on the map, the more powerful the competitive rivalry between the member companies tends to be. Certainly the companies that are part of the same strategic group are the closest rivals but those that follow are in the immediately adjacent groups. Often strategic group companies that are far apart on the map hardly compete.
For example, both Tiffany's and Wal-Mart sell gold and silver jewelry, but the prices and quality of their products are too different to generate any competition between them. For the same reason, Timex is not a significant rival competitor to Rolex, and Subaru is not a close competitor to Lincoln or Mercedes-Benz.
Question 5: What strategic steps are rivals likely to take?
Unless a company pays attention to what competitors are doing, it ends up running blind; A company cannot hope to overcome the maneuvers of its rivals without verifying its actions without understanding its strategies and without anticipating the measures it is likely to take later. Just like in sports, studying rivals is essential. The strategies that rivals use and the actions they may take later have a direct bearing on a company's best strategic measures - that is, whether it needs to defend itself against specific actions taken by rivals, or whether rivals' measures provide an opening for a new offensive drive.
Often, there are certain factors in a company's external environment that are external to a company that pose a threat to its profitability and market position: the emergence of cheaper technologies, the introduction of new or better products than rivals'. entry of low-cost foreign competitors into the market, new regulations, vulnerability to an increase in interest rates, the potential for a bad acquisition, unfavorable demographic changes, and other such factors. The manager's job is to identify threats to the future well-being of the company and evaluate what strategic actions can be taken in order to neutralize them or lessen their impact.
Question 3: Are the company's prices and costs competitive?
Company managers are often surprised when a competitor reduces the price to "incredibly low" levels, or when a new market member offers a very low price. However, the competitor may not be trying to "invade the market with low-priced products," buy their market share, or take a desperate step to gain sales; perhaps it simply has considerably low costs.
One of the most telling signs of whether the company's business option is powerful or precarious is if its prices and costs are competitive with those of its rivals in the industry.
IMPLEMENTATION OF THE STRATEGY: POLICY BUDGETS, BEST PRACTICES, SUPPORT SYSTEMS AND REWARDS.
- Reallocate resources to match budgetary and staff requirements to the new strategy. Establish policies and procedures that support the strategy. Institute best mechanisms and practices for continuous improvement. Install support systems that allow company staff to lead Carry out your strategic functions day after day. Employ motivational practices and incentive compensation methods that increase commitment to good execution.
- Reallocate resources to match budgetary and staff requirements to the new strategy.
There must be a broad conjunction of organizational units, especially those responsible for carrying out activities essential to the strategy, must have sufficient numbers of appropriate personnel, and must be assigned sufficient operating funds to carry out their work efficiently and they must have funds to invest in the necessary operating systems.
Implementers must also be willing to shift resources from one area to another to support new initiatives and strategic priorities. A change in strategies almost always requires budget reallocation.
Implementation managers need to be active and energetic in transferring resources, reducing some areas, increasing others and broadly funding activities that play a critical role in the new strategy. They must exercise their power to allocate their resources to make things happen and make the difficult decisions to end projects and activities that are no longer justified.
- Establish policies and procedures that support the strategy.
Changes in strategy usually require some changes in work practices and in the way operations are carried out. When people are asked to alter established procedures and behavior, this always disrupts the internal order of things.
It is normal for areas of resistance to develop and for people to show some degree of stress and anxiety about how the changes will affect them, especially when those changes can eliminate jobs.
Questions are likely to arise about what activities need to be performed in a rigidly prescribed manner and where there should be some freedom for independent action.
New or newly revised policies and procedures help provide top-down guidance to operations managers, supervisory personnel, and employees on how certain things need to be done.
New or recently revised policies and procedures help align actions and behavior with strategy across the organization, setting limits on independent action and channeling individual trends and group efforts on the intended trajectory.
New or recently revised policies and procedures help to impose the necessary consistency in the way particular activities essential to the strategy are performed in geographically dispersed operations.
- Institute the best mechanisms and practices for continuous improvement.
If the value chain activities are to perform as effectively and efficiently as possible, each department and unit needs to establish a comparison process of how well they perform on specific tasks and activities, against the companies with the best performance in industry or in the world.
Analysts have attributed the quality of many Japanese products to the dedicated application of total quality control principles. In fact, quality improvement processes today have become an important part of implementing strategies linked to defect-free manufacturing, superior product quality, and total customer satisfaction globally.
Management's interest in quality improvement programs typically originates in the company's production areas: manufacturing and assembly at manufacturing companies, ATM transactions at banks, registrations, and order shipments at Catalog companies or customer interaction in service organizations.
The administrative objective is to ignite in people a burning desire to employ their wits in initiatives to progressively improve the way tasks are performed. He also preaches that there is nothing good enough and that everyone has a responsibility to participate in continuous improvement.
- Install support systems that allow company personnel to carry out their strategic functions day after day.
The company's strategies cannot be properly implemented or executed without having various support systems for business operations.
Supportive and cutting-edge systems not only facilitate better strategy execution, but strengthen organizational capabilities enough to promote a competitive advantage over rivals.
For example: A company with a differentiation strategy based on superior quality has additional capacity if it has systems to train personnel in quality techniques and product quality monitoring, as well as to ensure that all Items meet quality standards.
For example: FedEx has a computerized parcel tracking system that can instantly report the location of any given package in its transit-delivery process. It has a communications system that allows it to coordinate its 21,000 trucks throughout the United States.
- Employ motivational practices and incentive compensation methods that increase commitment to good performance.
Strategies cannot be implemented and executed with real efficiency unless organizational units and individuals are committed to the task. Company managers typically seek to achieve an organization-wide commitment to carry out the strategic plan by motivating people and rewarding them for good performance.
An administrator must be more than simply communicating how important new strategic practices and performance objectives are to the future well-being of the organization.
To achieve continuous and energetic employee engagement, management must be resourceful in designing and employing both monetary and other motivational incentives.
The more an administrator understands what motivates his subordinates and relies on motivational incentives as an instrument for the implementation of the strategy, the greater the commitment of employees to good execution of their daily tasks in the strategic plan. of the company.
For example: At several Japanese companies, employees meet regularly to listen to motivational speeches, sing motivational songs, and sing company songs.
For example: In GE Medical System, a program called Quick Thanks! Allow an employee to nominate any colleague to receive a gift of a $ 25 certificate redeemable at certain restaurants and stores, as a token of appreciation for a job well done.
It is proven that the colleagues who are most reluctant to praise their colleagues are the executives.
Bibliography:
Book: Strategic Administration, Eleventh, Edition: Mc GRAW-HILL
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