Understanding and Analyzing Competition

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Understanding and Analyzing Competition
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• Analysis is the critical starting point of
  strategic thinking Kenichi Ohmae

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Review

• Analysis E?C
• Types of evidence (facts, opinions, calculations,
  reasoning)
• Evaluating evidence (credibility, sufficiency,
  relevancy)
• Tools of analysis
• Quantitative
• Calculating new numbers, percentages and ratios,
  breaking down numbers per and by, and
  statistics
• Qualitative
• Organizational frameworks
• Visualization
• Integrated
• Ifthenreasoning

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Review

• Tools of analysis
• Organizational frameworks
• 3 circles (The organization, its marketplace and
  the broader environment)
• SWOT
• Porters 5 Forces of Competition

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Competition

• What is competition?
• The vying among businesses in a particular
  market or industry to best satisfy consumer
  demands and earn profits (18)
• Competition is a driving factor in business
• Facilitates choice for consumers (quality, cost,
  speed)
• Promotes efficient and productive use of scarce
  resources
• Competition and strategy
• An important part of industry and competitive
  analysis is to delve into the industrys
  competitive process to discover the main sources
  of competitive pressure and how strong each
  competitive force is. This analytical step is
  essential because managers cannot devise a
  successful strategy without understanding the
  industrys competitive character from Industry
  and Competitive Analysis by Thompson and
  Strickland

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Competition

• Competition succeeding in the market!
• Firms compete by leveraging strengths and
  mitigating weaknesses to capitalize on
  opportunities and avoid threats

Broader Environment
Marketplace
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Organization
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Competition

• Analyzing competition is central to a managers
  job
• Michael Porters 5 Forces conceptual framework
  is an effective analytic tool

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Competition

• Understand your position in the supply chain

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Porters 5 Forces
Threat of Substitutes
Orient your perspective to the rivalry of
producers between suppliers and buyers
Deconstruct competition into individual forces to
understand the favourability of each
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Power of Suppliers
Power of Buyers
Rivalry

• Industries change
• Action and reaction of rival producers
• Give and take of advantage within supply chain
• Externalities (new entrants and substitute
  products)

Determine the overall favourability of the sum of
forces
Threat of New Entrants
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Porters 5 Forces
Low
Favourable When competitive forces are not
strong, the structure of an industry is
attractive for earning profits
Threat of Substitutes
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Low
Low
Low
Power of Suppliers
Power of Buyers
Rivalry
Low
Threat of New Entrants
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Porters 5 Forces
High
Unfavourable The stronger the collective impact
of competitive forces, the lower the combined
profitability of participant firms
Threat of Substitutes
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Intense
High
High
Power of Suppliers
Power of Buyers
Rivalry
High
Threat of New Entrants
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Application

• Atlantic Superstore offered a promotion of 20
  coupon for purchases over 150. Shortly
  thereafter Sobeys offered a comparable promotion
  of 20 coupon for purchases over 100. These
  events represent which of Porters five forces in
  action?
• Rivalry
• Buyer Power
• Supplier Power
• Threat of New Entrants
• Threat of Substitutes

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Application

• In 2008, during the height of crude oil and
  gasoline prices, Wilsons Fuels threatened to
  stop delivering gasoline to retail stations in
  remote rural areas, because it was too expensive.
  This event is an example of which of Porters
  five forces, pertaining to rural retail gas
  stations?
• Rivalry
• Buyer Power
• Supplier Power
• Threat of New Entrants
• Threat of Substitutes

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Application

• Due to increasing cell phone service charges
  Skype introduced a new WiFi phone, which allows
  for free calling over wireless networks. This is
  an example of which of Porters five forces
  pertaining to traditional cell phone companies?
• Rivalry
• Buyer Power
• Supplier Power
• Threat of New Entrants
• Threat of Substitutes

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Competition
Other forces shaping competition
Broader Environment
Marketplace
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Innovation and Technical Change
Government Regulation
TS
R
SP
BP
Labour supply
Provision of Finance
TNE
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Porters 5 Forces

• 5 Forces works from the perspective of
• a manager in an existing firm in the industry
• a manager thinking about entering an industry
• Industries are typically composed of varying and
  changing forces
• Favourability depends on composition of forces,
  and the strengths and weaknesses of the
  organization
• To contend successfully against competitive
  forces, managers must
• Leverage strengths, mitigate weaknesses,
  capitalize on opportunities and avoid threats

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Admin

• Coupons for clickers
• Wednesdays class Scotia Aqua Farms case
• Cases
• Accurate description of a real-life situation in
  which a manager (you) must analyze and make
  decisions
• Promotes
• Discussion-based learning
• Learning by doing
• Holistic learning
• Role of the analyst the case method
• Define the Issue faced by the firm
• Analyze (E?C) these issues
• Determine alternatives and decision criteria
• Make one or more recommendations re the issue
• Assess the implications (money, time, people) of
  your recommendations

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Case preparation

• 1. Overview case
• Who, what, why, when
• Skim subtitles, exhibits, case body, questions
• 2. Analyze case
• Issues
• Tools and questions
• E.g. Porters 5 Forces
• 3. Develop Recommendations (TBD)

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Happy Thanksgiving!
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