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Week 3
January 28, 2020 12:09 PM
Case...Strategic Implication
• So What? A strategic implication statement for the tool you completed i.e.
• In the so what portion, say for example what is the impact on PESTEL on Netflix?
• It's a global, complicated, complex industry.
• Think about the presence in different countries, what's the impact? Social factors - customers
across the world, their needs across the world, how will it have an impact on netflix.
• Choose the 3/4 factors absolutely critical and important, and how it has an impact on netflix.
• Rule of thumb: Choose 3 things
• PESTEL analysis? Is it favourable to operate in this industry - how is profitability impacted?
• Dominant features of Industry analysis? Is it a good industry to be in?
○ What is the structure? How many players? Are they relevant? Is the size
increasing/decreasing?
• Driving Forces? What will change and impact the industry in the near future? (high level analysis -
level of the industry)
• Porter's 5 forces. Attractiveness of industry, in this case for an existing player.
○ Threat and new entrance was low so it was an attractive industry
○ Don't say in-between, low
What are Driving Forces?
• Will the collective impact of the driving forces increase or decrease:
○ Market demand
• We have a portion of consumers, segmentation, different types of consumers, is it a
segmented market or not?
○ Competition
• Increased competition among the players already there - intensive competitive
○ Industry profitability
• We know whether the size is increasing, they told us something about the trends
• Are their new consumers in? Where?
• Answer all 3!!!!!!
External Analysis
• Why do we care?
○ We want to know what's the level of the industry
• Positions firms to take advantage of attractive growth opportunities
• Shifts competitive battle in company's favour
• Anything else?
○ We want to make the changes before competition forces us, you want to be ahead of the
race.
○ Innovate, temporary advantages, never want to be caught in the competency trap situation
○ Expecting and monitoring change -> manage competency trap (what the market is doing)
○ Keeps the company grounded, lets them know it makes sense
• External environment impacts company's success by about 20%
○ Almost 80% is all internal
○ Want to be relevant all the time
TODAY
• What are the industry's key success factors (KSF analysis)
• How are the industry rivals positioned in the market (Strategic Group Map Analysis)
• Industry Life Cycle
• Is the industry outlook conductive to good profitability (summary of findings)
• How are industry rivals positioned against each other competitive positioning plot?
○ Choose
Key Success Factors (KSF)
• What do customers want? Who are they?
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○ Phone example: Camera quality, storage, battery life, price, quality, communication,
compatibility
○ WRITE 6 THINGS ABSOLUTELY CRITICAL FOR CUSTOMERS - REQUIRED
• What is the Competition providing (how can the firm survive)
○ How are we fulfilling the gap better?
○ Choose the 3/4 things you are very good at
○ Of the 6 things the customers absolutely want, as a firm choose 3 things you're very good at
doing
○ Link it back to your own skills inside the firm
Example:
KSF (Portable Music) --> What do customers want? What does competition provide?
• Storage space
○ Portable
• Carry my music
○ Cost per song (willing to pay my price)
• Download music
• Quality of music
• Cheaper quality (walkman)
IPOD Example:
• Doing the same thing everyone else is doing is not enough
• Download + charge (fireware) --> exponentially increase ability to do that
• Portable --> super portable --> decrease the size of device (thin)
• Design/Fashion
○ Neat, not meant for everyone, kind of status symbol
• What do the customers want? But adding my own factor
Key Success Factors (KSF) Cont
• Represent the difference between
○ Strong vs. Weak
○ Success and Failure
• Vary from industry to industry, and overtime in the same industry
Industry Rival Positions
• Strategic Group: industry members with similar competitive approach / position:
○ Comparable product line breadth
○ Emphasize the same distribution channels
○ Depend on similar technological approaches
○ Offer same product attributes to buyers
○ Offer similar services / technical assistance
• Do you miss out?
○ When you choose, there are different competitive positions.
○ Draw more than one competitive positioning plot
○ Draw 2 plots
Competitive Positioning Plot/Strategic group map:
• To construct a strategic group map, draw from KSFs analysis:
○ Identify the KSFs in the industry
○ Plot the firms on a two-variable map using pairs of the competitive characteristics
• Example
○ Price/quality range (high, medium, low)
○ Geographic coverage (local, regional, national, global)
○ Product-line breadth (wide, narrow)
○ Degree of services offered (no frills, limited, full)
○ Distribution channels (retail, wholesale, Internet, multiple)
○ Degree of vertical integration (none, partial, full) --> in terms of netflix --> original content
Best Practices - Creating Strategic Group Maps
1. Variables selected as map axes not highly correlated
2. Variables should reflect important sizable differences among rivals.
3. Variables may be quantitative, continuous, discrete, and/or defined in terms of district classes and
combinations.
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4. Drawing group circles proportional to firms sales in each group reflect relative sizes of each
strategic group.
The Value of Strategic Group Maps
• Useful in identifying which industry members are close rivals vs. Distant rivals
• Not all map positions are equally attractive or feasible:
○ Competitive pressures from industry's 5 forces may influence profit potential or different
strategic groups
○ Industry driving forces may favour some strategic groups and hurt others
• E.g., microbreweries don't want to expand geographically and want to stay local
• Industry Evolution (Gort and Keppler)
• Industry analysis --> useful to say starting phase, growth phase (netflix)
8. Is the industry outlook conductive to good profitability
1. Examine how the industry's current and recent level of competition and profitability are a
consequence of its present structure --> 5 forces & driving forces of change
2. Identify a significant trend that is changing the industry's structure --> Driving forces of change, of
the 3 what is the 1 thing that absolutely will make a difference
3. Is the industry consolidating? (Is the industry being controlled more and more by fewer players)
4. Are new players seeking to enter? (5 F)
5. Are the industry's product become more differentiated or more commoditized?
6. Will additions to industry capacity outstrip growth of demand?
7. Identify which of the five forces of competition is most likely to be impacted by the structural
changes and how?
8. From the above answers identify 3 reasons why the industry is either conductive or not to make a
profit for Netflix?
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