Pindelski_Competitive_Strategies
.pdfThe fourth group consists of businesses with a high level of specialization, high level of vertical integration, offer a narrow product range, high quality products at a good price and good customer service.
The formation and description of the strategic groups’ map enables a better insight into the sector, its main players, the groups they are concentrated in and the relationships taking place between them. It all enables the selection and better understanding of the mobility barriers within a sector and focusing on the competition by the businesses belonging to the same group as they are the ones, not the whole industry, who affect a business most.
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Questions and discussions
1.Specify the principles of drawing strategic groups’ maps.
2.Which types of strategic groups can be differentiated?
3.In what situations can the analysis of strategic groups be particularly useful?
4.Define the competitors of your business or university. What competition dimensions can be given here? What strategic groups are formed thereupon?
Case study 12
Jamko – construction materials manufacturer
In Poland, near Warsaw and in the whole Mazowieckie Province, businesses dealing in the production both for business, institutional as well as individual customers operate. Jamko are a relatively young business trying to enter the local market. The possibilities to have their own material base are rather limited, winning the customers is not easy either as the business operating on the market have already managed to accustom the customers to their offers. Jamko does not have any strictly defined strategy of action yet. The first measure they decided to take is the analysis of the industry and the mutual relationships between the businesses functioning therein, which may appear helpful when trying to determine the performance strategy.
Upon analysis of the five forces, it was conspicuous that this is a really diverse sector consisting of numerous (ca. 80) businesses. There is a fierce fighting in this sector - for customers, for influences, while the selection of the proper strategy of action decides the future of such buisinesses’. The strategic groups’ analysis should be started with definition of the barriers of entrance and exiting for new manufacturers.
The entrance barrier is the access to materials that determines the businesses’ product offer and forms their costs. The businesses are supplied with materials in several different ways:
•They have their own material bases that provide them with the necessary materials;
•They get materials from other domestic material bases;
•They import materials that have been largely processed;
•They get materials from several different sources.
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An entrance barrier also is presented by competitive operations in the sector. It is expressed by the marketing activity of the businesses. The effects of marketing and sales wars also affect their market position and profitability. In relation to the marketing strategies performed by businesses within the sector the following businesses can be distinguished:
•Having well developed marketing strategies providing well considered actions including without limitation comprehensive customer service;
•Standard marketing strategies aimed at the increase of product and service sales to the customers;
•Inconsistent marketing strategies resulting from the changes taking place on the market that are planned and performed with delay.
We can find a dependency between development and adaptation of marketing strategy and the competitive position. However, the access to raw materials is not meaningless here. On this foundation strategic groups could be determined. The businesses within the sector form five major groups, each of which are of a different nature.
The first group consists of businesses with large production potential and good market position resulting from their long-term presence on the market and traditional correlations with the customers. The businesses of the first group hold a large material base, which enables them to maintain a good market position, in spite of the lack of preand post-sales service and rather narrow and shallow range of products offered on the market. The second group occupies a position very close to that of the first group, however it is better developed marketing that distinguishes it. In addition, the businesses of this group offer good customer service and a wider range of services.
The third group of businesses have very restricted marketing. They offer highly specialized services and products, which are related to the lack of their own material base. The businesses mainly use imported, expensive, highly processed materials.
The fourth group of businesses offer modern products and conduct really aggressive marketing actions. The businesses of this group have various sources of material supplies.
The fifth group is the most diversified one, because the businesses included therein do not try to build an advantage in the scope of material supply policy or in relation to the marketing sphere.
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Discussion questions
1.Based on the information given, please:
•define the sector’s dimensions, according to which the strategic groups are to be distinguished,
•draw a strategic groups’ map for the sector discussed.
2.Please, describe the direction for development for businesses attributed to the particular groups.
3.Based on the strategic groups’ analysis results, please develop the strategy of action for Jamko. Where is the opportunity for it and what should be avoided? In which direction should it develop? How should it use its strong points and how should it level the deficiencies?
Further readings
To be read and study by yourself . You can discuss the papers, materials and conclusions during the next class.
1.C. S. Fleisher, B. E. Bensoussan, (2003) Strategic and Competitive Analysis, Prentice Hall 2003.
2.Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980
Bibliography
1.Combe C., Introduction to Management, Oxford University Press, Glasgow, 2014
2.Hunt S.M., Competition In the Major Home Appliance Industry 1960 – 1970, Harvard University 1972 (unpublished Ph.D. dissertation)
3.Obłój K., Strategia organizacji, Analiza grup strategicznych, PWE, Warszawa 2007
4.Porter M. E. What is Strategy, [in:] HBR’s 10 Must Reads, Harvard Business Review Press, Boston 2011, p.1-38
5.Porter M.E., Competitive Advantage: Creating and Sustaining Superior Performance, 1st ed., Free Press, New York, 1998
6.Porter M.E., Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, New York, 1998
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7.Stabryła A., Zarządzanie strategiczne w teorii i praktyce firny, WN PWN, Warsaw 2012
7.Michael Porter’s Five Forces that shape any market19.
Pre-class readings:
1. Frank Robert J., George Jeffrey P., Narasimhan Laxman, (2004), When your competitor delivers more for less. Value players will probably challenge your company. How will you respond?, McKinsey Qaterly, February 2004,
Article available on: http://www.mckinseyquarterly.com/When_your_competitor_delivers_more_for_less_1 383
Task: Prepare a short presentation demonstrating the main thesis, assumptions and conclusions of the article.
Additional questions to be answered and/or discussed after pre-class readings:
1. |
What drives companies to deliver to their customers more for less ? |
|
2. |
What differentiates |
markets where competition is strong to those where |
|
competition is weak |
? |
3.Are there on the market some groups of companies where the competition is stronger or is the competition between all the companies present on the market ?
4.How does one discover and describe groups of more or less similar companies aiming at the same market spots ?
19 The chapter is based on: Porter, M.E. (1979), How Competitive Forces Shape Strategy, Harvard Business Review, March/April 1979
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7.1. Porter’s five forces - overview
An interesting method of analyzing the environment, the centre whereof being the business after all, was presented by M.E. Porter. He has somewhat predetermined a set of factor groups affecting each organization on any market. The versatility wins both followers and opponents for the method as everything is slightly relative here and depends on the type of competitive position the entity would occupy the relationships between various entities and market forces. The author determined five basic forces that shape the present and future competitiveness of business, namely (see fig.10):
•bargaining force of suppliers,
•bargaining force of customers,
•barriers to entry and exit,
•threat of substitute products or services,
•intensity of competition within the sector.
The model is usually presented as a centrally located business and a set of five forces affecting it. However, the influence is usually marked unilaterally, suggesting that the particular forces shape the market and the firm, while the latter has no possibility to influence them, or such possibilities are largely restricted.
The model of forces (depicted on fig.10) affecting the market, sector or business (force fields) in management appears through numerous approaches, theories and concepts. So it has a much wider range of applications than recognized by M. Porter. Nevertheless, he proposed a set of substantial forces, named and specified, relatively easily identifiable. In consequence, he largely simplified the analysis itself. In the force field analysis the basic issue is their identification and settling which forces influence the sector and businesses and how.
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Fig.10 M. Porter’s Model of 5 Forces of Competition
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Substitutes |
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exit berieerrs |
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Industry |
Industry and |
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company in the |
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Competition |
bareers entry Industry
Legend: Bargaining power of suppliers, Sector and organization within the sector, Competition
Source: the authors’ own paper referring to: Porter Michael E., Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, New York, 1998
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7.2. Entry and exit barriers.
Threats analysis of new entry into an industry. Entry profitability analysis.
Pre-class readings:
2.Frank Robert J., George Jeffrey P., Narasimhan Laxman, (2004), When your competitor delivers more for less. Value players will probably challenge your
company. How will you respond?, McKinsey Qaterly, February 2004,
Article available on: http://www.mckinseyquarterly.com/When_your_competitor_delivers_more_for_less_1 383
Task: Prepare a short presentation demonstrating the main thesis, assumptions and conclusions of the article.
Additional questions to be answered and/or discussed after pre-class readings:
5.What drives companies to deliver to their customers more for less?
6.What distinguishes markets where competition is strong and to them where competition is weak?
7.Are there on the market some groups of companies where the competition is stronger or is the competition between all the companies present on the market?
8.How does one discover and describe groups of more or less similar companies aiming at the same market spots?
The sector’s attractiveness, whether seen from the point of view of an entity belonging to it or the candidate, is largely dependent on the potential or very realistic possibility of the arrival of entities that may become the competitors in the sector. According to the sector’s life cycle analysis already presented, the arrival of new competitors is associated with its phase. At earlier stages of market and sector development, before any rigid standards were formed, the barriers to entry are low or moderate, there are no dominating brands and suppliers, the competitors may appear unexpectedly, in a poorly foreseeable manner.
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The lower is the number of problems with entering the marker the more probable it is that there will be more competitors and the market is thereby diversified. This is due to the barriers to entry and, to a lesser extent, the barriers to exit.
The barriers to entry to the market condition the speed and force of competitors appearing therein, if any. Depending on the fact whether the analysis is carried out for a firm already present on the market or one being in the process of entering the market, the assessment of barriers to entry will be different. As a rule, the entity present on the market operates towards creating as higher barriers as possible to all the others. While entering the market, in turn, low barriers are desirable. Such barriers arise both in relation to the market development and its maturity, capital intensity of business, production volume, desired market share and the number of users, but also in consequence of state governments’ actions and of other institutions regulating and law and economy. The barriers to entry may include, without limitation:
•Financial barrier for businesses demanding significant investments, particularly initial ones. An example could be airlines, steelworks, power plants, motorways, or owners of mobile telephony infrastructure. The necessity to incur immense costs at the very beginning, largely restricts the possibility to enter the market and sometimes causes the establishment of natural monopolies or oligopolies, in fact.
•The economies of scale barrier related to the necessity to achieve a certain production level in order to cover the costs (mainly fixed) and reach the Break Even Point)20. Along with the growth of production volume, the unit costs of a product drop. In numerous industries the large volume of production or services provided is the basic requirement for reaching profitability. An example here is a restaurant that must have a defined number of guests in order to maintain its infrastructure. The aircraft manufacturers also must produce and sell an appropriate number of their products per year in order to cover the high fixed costs. The barrier is fairly strong, particularly on mature markets where the sales of some volumes may be related to the difficult and often long-term winning of market shares.
•The experience barrier built by the experience curve. Like economies of scale, along with the development of skills, knowledge and experience in a sector, a
20 Break Even Point profitability threshold determining the limit between loss and profit. It is the intersection point between the income and total cost curves.
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more efficient deposition of resources and better way of their organization become possible. In consequence the variable costs may be reduced, production and service provision proceed in a more efficient way, the recognition of customers’ demands is better and the firm moves within the sector more efficiently.
•The barrier combining the financial issues, economies of scale and experience curve is the financial situation barrier, disregarding experience and scale. There are industries in which the cost advantage is independent of the scale effect. This may result from a better, more efficient, patented production technology, inventories purchased before exchange rate change, exceptionally beneficially negotiated contracts, better access to raw materials, bargain purchases of production means or taking over the warehouses of a competitor becoming bankrupt or other events.
•Barrier of access to distribution channels representing an immensely effective access barrier to the market, built by some suppliers through exclusive contracts with distributors. They are formed somewhat naturally through the monopolization of commerce by the trading network.
•Product diversification is a barrier consisting in the creation of a wide product portfolio reaching various sub-segments and specific requirements of relatively small groups of customers determined, for example by the shopping situation. The rise of the barrier is mainly due to the contribution of businesses with significant technological, production and service provision potential, with a recognized brand and good reputation. Each entrant into the sector with such a barrier must face the necessity to create a wide range of products diversified to a certain extent. It is usually related to the fact that the customers have already defined their preferences and will search for a substantial offer. This is the situation, for example, on the sparkling drinks market, where in addition to the standard cola type drink, diet drinks have been prepared, of various flavours, with extra or a reduced value of some components, etc. Each new entrant will be forced then to face the already formed loyalty of some buyers not only to the existing brand, but also to the type of product and the method of its selection. The strategies that appear include the return to the original, simplest solutions, as if directed to the mass market. However, it usually reaches the sentimental buyers who want to remember the old looks or the “real” taste of the product.
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