Chapter 3 Worksheet

The concepts in this worksheet correspond directly with the text. If you do not understand the concept or need to refresh your memory, please refer to the text.

The purpose of the external analysis is to identify opportunities and threats for the industry you are analyzing. Do not focus on the company under analysis. Focus on the industry in which the company competes. Make sure your analysis of the facts leads to a logical determination of specific opportunities and threats associated with the criterion you are analyzing. Consider each criterion from a strategic perspective. Use the scientific method (data, analysis of the data (cause and effect logic) that leads to conclusions (opportunities or threats). State the specific nature of the opportunity or threat to strengthen your analysis and help you with your subsequent SWOT analysis.

Follow the quality of writing tips (e.g. expressions, word to avoid) listed on the back side of the memo grading rubric.

Refer to the examples of prior case analyses provided on the web site to assist you with understanding the desired quality of analysis and statement of opportunities and threats.

Macro-environment forces

Criteria / Facts / Analysis / Conclusions
The economy at large
(Address the economic conditions during the timeframe of the case.)
Legislative, regulatory and political environments
Population demographics
(Population demographics analysis relies on developing various categories of the population and analyzing their impact on the industry. Typical categories include gender, age, education level, geographic location, income, life stage, household size, occupation, and race. In addition to population demographics, this type of categorization includes geographic segmentation (region, city or country size, density), benefit segmentation (comfort, convenience, durability, health, luxury, safety, status), and volume segmentation (usage, loyalty status). Marketing is the usual company source for these types of analysis.)
Societal values and lifestyles
Ethno-graphics and psychographics
Technology

What are the Industry's dominant economic features?(Make sure you know the industry you are analyzing.)

Criteria / Facts / Analysis / Conclusions
Market size
Scope of the competitive rivalry
(The competitive scope criteria address geographic scope (Global, National, Regional, Local), product scope, market scope and so on.)
Market growth rate and position in the business cycle (development, growth, maturity, decline)
Number of rivals and their relative size
(Relative size refers to each rival’s market share based on total sales for the overall market or, when applicable, individual market segments.)
Number of buyers and their relative size
(Address the number of buyers in each market and market segment. Buyer size refers to the buyer’s volume of sales for the industry.)
Extent of rivals’ vertical integration (How far forward or backwards have the rivals extended their value chain?)
Extent of rivals’ horizontal integration
(Horizontal integration applies to using the synergies in your value chain to produce different products or provide services for a different industry or market segment.)
Types of distribution channels rivals use to access customers. (Do the channel types vary by customer segment?)
Pace of technological innovation in production process innovation
Pace of technological innovation in product introduction
Extent to which the rivals differentiate their products and/or services
Extent to which rivals use economies of scale in:

Purchasing
Manufacturing
Services
Transportation (logistics)
Marketing
Advertising
General and Administration
Other steps in the value chain (Refer to chapter 4 for the description of the value chain.)

Extent to which certain industry activities result from learning and experience curve effects
Capacity surplus or shortage in the industry
(Capacity refers to the total manufacturing output capability for the industry. Capacity surplus would indicate that the industry has the capability to produce more products than the market demands.)
Capital requirements and the ease of entry into or exit from the industry
Industry profitability
(The annual net profit margin for the industry.)
Degree of alliances
(You can provide additional economic features applicable to the industry you are analyzing.)

What is competition like and how strong are the competitive forces?

Criteria / Facts / Analysis / Conclusions
RIVALRY / Under this heading you are supposed to address how the criterion affects the rivalry between the competitors. When rivalry increases, it generally is a threat to the industry. When the rivalry decreases, it generally is an opportunity for the industry.
How many competitors are there in this industry?
What is the relative size (market share based on their percentage of industry sales) of each competitor?
What is the industry concentration ratio (C4)?
 Top 4 company’s sales
Industry sales
What is the product or service demand growth rate? (Use the industry’s total sales over multiple years to determine the industry growth rate. Use the rival’s sales over multiple years to determine individual growth rate.)
Are rivals using price cuts or other competitive weapons to boost unit volume?
Are the customer's switching costs low?
Are rivals launching moves to change their market share or industry position at the expense of other industry participants?
What are the payoffs for strategic moves?
Does it cost more to exit the industry than to continue participation?
How consistent are rivals strategic visions, strategic intents, objectives, strategies, resources and origins?
The greater the consistency, the more likely there is increased rivalry.
Are strong new entrants acquiring weaker rivals and launching well-funded, aggressive moves?
THREAT OF ENTRY / Under the heading of new entrants, your analysis should lead you to conclude that new entrants are likely or unlikely to challenge the existing firms in the industry. Therefore, new entrants are likely (threat) or unlikely (opportunity) to pose an opportunity or threat to the existing firms in the industry.
What economies of scale exist in each of the following areas:

Production
Purchasing
Inbound and outbound logistics
Advertising
Financing
Customer service
Raw materials
R&D
Other steps in the value chain?

(Please note that synergies across the value chains of related diversified corporations also constitute economies of scale.)
Cost and resource disadvantages independent of economies of scale
What are the learning curve and experience effects to enter the industry?
Inability to match the technology and specialized know-how of firms already in the industry. How accessible is the industry's technology?
Brand preferences and customer loyalty
What are the capital requirements to enter?
What other resource requirements are necessary to enter?
Ability to build a network of distributors or retailers and securing adequate shelf space
What regulatory policies apply?
What tariffs and trade restrictions apply?
Ability or inclination of the industry’s incumbents to launch vigorous initiatives
SUBSTITUTES / Under the heading of substitutes, your analysis should lead you to conclude that substitutes are likely or unlikely to challenge the existing products the industry produces. Therefore, substitutes are likely (threat) or unlikely (opportunity) to pose an opportunity or threat to the existing firms in the industry.
What is the availability of attractively priced substitutes?
Do buyers view the substitutes as being comparable or better in terms of quality?
Do buyers view the substitutes as being comparable or better in terms of performance?
Do buyers view the substitutes as being comparable or better in terms of ______(You fill in the attribute or attributes that are specific to the product or service.)?
Can buyers easily switch to the substitutes?
SUPPLIERS / Please note, this section applies to the companies that supply the industry under analysis.
Is the item or service a commodity available on the open market from many suppliers who are capable of filling the order?
Are there only a few large suppliers to the industry?
Is it difficult or costly to switch from one supplier to another or to switch to attractively priced substitutes?
Are needed inputs in short supply?
Do certain suppliers provide a differentiated input that enhances the performance or quality of the industry’s products?
Do certain suppliers provide equipment or services that deliver valuable cost saving efficiencies to industry members in operating their production processes?
Do suppliers provide an item that accounts for a sizable fraction of the costs of the industry’s products?
Are the industry members major customers of suppliers?
Does an outside supplier provide a cost advantage over vertical integration?
Does an outside supplier provide other advantages over vertical integration?
What types of working relationships exist? Start by listing the types of working relationships that exist. Then, focus on the strategic importance of relationships with suppliers in this industry. Are these relationships of strategic value for the competitors in the industry? If so, why and how do the relationships impact the competitive structure and environment of the industry?
BUYERS / Please note, this section applies to the companies that purchase goods or services from the industry under analysis. Buyers include any purchaser downstream from the industry.
What is the cost to the buyer of switching to a competitor or a substitute?
How many buyers are there in this industry?
What is the relative size (based on the amount they purchase) of each buyer?
What is the buyer's knowledge level?
Can the buyers threaten the industry with backward integration?
Are the industry's products discretionary purchases?

Crafting and Executing Strategy: Concepts and Cases, McGraw-Hill. NY. 17th Edition

Chapter 3 Worksheet

What is (and how are they) causing the industry's competitive structure and business environment to change?

Criteria / Industry competitive structure
Your analysis determines how the drivers of change are altering the industry's competitive structure.
List the facts associated with the criteria and the industry structure. / Industry business environment
Your analysis determines how the drivers of change are altering the industry's competitive business environment.
List the facts associated with the criteria and the industry’s competitive environment. / Analysis / Conclusions
Internet and new e-commerce opportunities
Increasing globalization of the industry
Long term industry growth rate
Who buys the product and how do they use it
Product innovation
Technological change
Marketing innovation
Entry of major firms
Exit of major firms
Diffusion of technical know-how
Cost and efficiency
Growing buyer preferences for differentiated products instead of a commodity product
Regulatory and government policy changes
Societal concerns, attitudes and lifestyle changes
Reductions in uncertainty and risk

Crafting and Executing Strategy: Concepts and Cases, McGraw-Hill. NY. 17th Edition

Chapter 3 Worksheet

What market positions do industry rivals occupy and which companies are in the strongest/weakest positions?

High

PriceMedium

Low

narrowbroad

market scope

Develop additional strategic group maps using additional criteria such as quality, image, value added, resources available, or competitive advantages. Price, quality and image are not the only factors that you can use for developing strategic group maps to determine which companies are in the strongest and weakest positions. You will probably find that some companies are stronger on some dimensions while weaker on others.

Determine the opportunities and threats arising from the application of this tool (pages 89-90). Do the industry driving forces and competitive pressures favor some strategic groups and hurt others? Does the profit potential of different strategic groups vary due to the strengths and weaknesses in each group's market position?

What strategic moves are rivals likely to make next?

List the competitors / What are the competitor’s strategies? Which is the best suited for the driving forces? Which strategies are weak or flawed? / Which competitors are poised to gain market share? Which competitors will lose ground? / What is their strategic intent (dominant leader, overtake the leader, top 5, move up a position, maintain position, survive)? / Which rivals need to increase sales and market share? What strategic options are they most likely to pursue (see page 86)? / Which rivals have strong incentive (and resources) to make major strategic changes? Which rivals are locked in to their strategies? / Which rivals are likely acquisition targets? Which rivals are looking to acquire a weaker competitor? / Which rivals are strong candidates to expand their product/service offerings and/or enter new product segments ? / Based on your analysis of the preceding questions, what are the respective rivals’ most likely strategic moves?

What are the key factors for competitive success (in this industry)?

How does each competitor fare on each success factor? To use this tool, start by determining which of the KSFs apply. Then provide your justification for choosing these KSFs. Generally, there are less than ten (10) KSFs applicable to an industry. Then assess each of the industry competitor's capabilities for the KSF. Please note there is space provided for three competitors. You should add the number of columns necessary to evaluate all of the competitors in an industry. You should also add industry specific KSFs when they apply.

Competitor / Competitor / Competitor
You can provide your justification for selecting the KSFs underneath the KSF. / What is their capability for this factor? / Analysis and conclusions / What is their capability for this factor? / Analysis and conclusions / What is their capability for this factor? / Analysis and conclusions
Technology related KSFs
Scientific research and expertise
Technical capability to make innovative improvements in production processes
Product innovation quality
Expertise in a given technology
Internet expertise
Manufacturing (production of the product or service) related KSFs
Low-cost production efficiency
Manufacturing quality
High fixed asset utilization
Low cost plant locations
Access to adequate supplies of skilled labor
High labor productivity
Low cost product (service) design and engineering
Manufacturing flexibility
Distribution related KSFs
(Note: This applies to inbound and outbound logistics.)
Network strength
Electronic (Internet) tracking
Ample space on retailer's shelves
Company owned retail outlets
Low distribution costs
Speed of distribution
Marketing related KSFs
Fast, accurate technical service
Customer service
Accurate buyer order filling
Breadth of product line and selection
Merchandising skills
Attractive styling/packaging
Guarantees and warranties
Advertising
Skills related KSFs
Workforce talent
Quality control know-how
Design expertise
Expertise in a particular technology
Ability to develop innovative products and product improvements
Speed of getting new products to market
Organizational capability KSFs
Superior information systems
Ability to respond quickly to shifting market conditions
Use of the Internet and Enterprise Information systems
Overall experience
Managerial know-how
Other KSFs
Image and reputation
Overall low cost
Convenient retail locations
Pleasant employees in all customer contact positions
Access to financial capital
Patent protection
Others?

Is this industry attractive and what are its prospects for above-average profitability?

Criteria / Facts / Analysis / Conclusions
Industry growth potential
Does competition permit adequate profit potential?
Does competition lead to stronger or weaker forces?
Will the prevailing driving forces positively or negatively impact profit potential?
What are the future uncertainties and risks for this industry?
How severe are the problems (e.g. regulatory, environmental, buyer demand, capacity, increased competition) the industry faces?
What is the company's relative competitive potential in this industry?
What is the company's ability to capitalize on its competitor's weaknesses?
Can the company defend against or is it insulated from the factors that make this industry unattractive?
How well do the company's capabilities match the industry's KSFs?
What is the severity of the issue(s) or problem(s) facing this industry?
If a corporation, will continued participation in this industry positively or negatively impact its ability to compete in other industries?

Crafting and Executing Strategy: Concepts and Cases, McGraw-Hill. NY. 17th Edition

Chapter 3 Worksheet