Lecture 6 :- Understanding : Driving forces

Strategic Management:

 

Understanding : Driving Forces,Strategic Group Mapping &Key Success Factors

 

Factors driving Industry Change …

 

All industries are characterised by trends and new development that gradually or speedily produce changes important enough to require a strategic response from participating firms.

 

Also Industries go thru a life cycle changes- its difference stages and hence the Industry change….but it is far from complete

 

There are more causes…..that need to be identified and their impact to be understood.

 

The Concept of Driving Force:

 

Industry conditions change because important forces are driving industry participants (competitor, customer, or suppliers) to alter their actions; the driving forces in an industry are the major underlying causes of changing industry and competitive conditions- they have the biggest influence on how the industry landscape will be altered. Some originate in the outer ring of macro-environment and some originate from the inner ring.

 

Driving forces Analysis:

 

1. Identifying what the driving forces are
2. Assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive 
3. Determining what strategy changes are needed to prepare for the impact of the driving forces

 

Identifying an Industry’s Driving Forces:

 

1) Emerging new internet Capabilities and Applications 

Got into every days biz operation and social fabric of life all across the world.

Increasing internet usage & Speed->Growing internet shopping

Companies using online technology

Collaborate closely with suppliers and streamline their supply chain

Revamp internal operations and squeeze our cost saving

Manufacturer-> website-> Direct customers.

All Biz->Extend Geographical Reach

Low cost increases the no. of online rival and hence the compitition of online v/s brick and mortar sellers.

Internet gives customer-> Power to research the product offering and shop the market for the best Value.

untig Ability of Consumer to download Music from internet has reshaped traditional music retailers

• Emails has eroded fax services and first class mail delivery revenues of govt postal services world wide
• Videoconferencing has eroded the demand of biz travels
• Online cources offering have the potential of revolutionise higher education

Internet will feature faster speed, dazzling applications and over a billion connected gadgets performing an array of functions thus driving firther industry and competitive changes

 

Internet related impacts vary from industry to industry

 

2) Increasing Globalisation:

 

Competition begin to shift from regional & national focus to an inernational or global focus
Industry members begin seeking out customers in foreign market
Production activities begin to migrate to countries where costs are lowest
Global competition really starts when one or more ambitious Companies precipitate a race for world wide market leadership.

 

Globalization happens:-

 

• Blossoming of customer and demand in more and more countries
• Action of govt to reduce the trade barrier .Europe,Latin America and Asia
• Significant difference in labour cost ->locate plant e.g China, india , Singapore, Maxico and Brazil ¼ of those in US, Germany and Japan

 

Eg.Industires :- Credit Card, CellPhone, Digital Camera, Golf and Ski Equipment, Motor Vehicles, Steel, Petrolium, Personal Computers, Vedio Games, Public Accounting and Text Publishing….

 

 

3)   Changes in an Industry Long Term Growth Rate.

 

Shift in industry growth or are driving force for industry change, affecting the balance between industry supply and buyer demand, entry and exit of the firms

 

Increase in buyers demand triggers a race among established firms and new comers to capture the new sales opportunities, in turn will launch offensive strategies to broaden customer base and grow significantly

 

Decrease or slow down in rate at which demand is growing firms fight for their market share

 

If industry sales suddenly turns flat competition itencify, consolidation takes shapes by mergers and acquisations,

 

Stagnating sales forces both weak and strong firms to sell their biz to those who elect to stick-> forces to close inefficient plants and retrench to small prod base…

 

4)     Changes in who buys the Product and how they use it:

 

Shift in buyer demographics-New ways of using product- firms broaden or narrow their product line-diff sales & promotion…

 

Downloading Music From Internet-Storing Music Files on HD & PC, Burning CD-forced to reexamin the traditional music stores-also have stimulated the sales of Disc burners and blank discs.

 

PC & Internet- Banks to expand their electronics bill payment services and retailers to move more of their customer services online

 

 

5)    Product Innovation:

 

Rivals racing to be first to introduce the new product or product enhancement after another.

 

Competition changes->attracting more 1st time buyers ->Rejuvenating ind growth, creating wider or narrow prod differentiation.

 

Strong market position of Successful innovators at the cost of slow innovators

 

Eg. Degital Cameras, Golf Glub, Video games, Toys and Prescription Drugs.

 

 

6)     Technology Change & Manufacturing Process Innovation

 

Advances in the technology can dramatically alter an industry’s landscape.

 

Gives birth to new and better products at lower costs opening up new industry frontier.

 

Identifying an Industry’s Driving Forces: Technology change contd..

 

Eg.

 

• Internet based phones are stealing large number of customers from using traditional telepone co world wide( high cost technology, hard weird connections via overheads and underground telephone lines
• Flat screen technology are killing CRT monitors
• LCD and Plasma screen tech are driving CRT tech further
• Digital tech driving huge change in camera and film industry
• MP3 technology is transforming how people listen to music.

 

 7) Marketing Innovation :

Successful in introducing new ways to MARKET their products: 

• Spark a burst in buyer interest
• Widen industry demand
• Increase product differentiation
• Lower unit cost

Any or all of which can alter the competitive position of rival firm

Eg.

On line marketing of Electronics goods

Music artist mkting their own website V/s contract with recording Studios….

 

 

 

8) Entry or Exit of Major Firms

 

Entry of one or more foreign co. into a geographic market once dominated by domestic firms shakes up the competitive scenario.

 

Pushes the competition to new direction

 

Bring in new rules of competiting

 

 

 

Exit:- Reduces the no of mkt leaders, dominance of existing players and rush to capture existing firm’s customers.

 

9) Diffusion of Technical Know how across more companies and more countries.

 

As the knowledge spreads, the competitive advantage of existing firm originally possessing it erodes.

 

It happens thru Scientific Journals, Trade Publications, On site Plant tours, Word of mouth, Employees Migration, and internet sources

 

Tehnology knowledge license / Royaltee fees

 

Cross border technology transfer has made the once domestic industries of automobile, tires, consumer electronics, telecommunication and computers truly global

 

10) Change in cost and efficiency

 

Widening or shrinking differences in the costs among key compititors tend to dramatically alter the state of compitition

Low cost fax and e mail put mounting pressure on the ineffecient and high cost operation of Postal Dept.

Shrinking cost of differences in producing multifeatured mobiles is turning the mobile phone market into comodity business and making more buyers to base Price as their Purchase decision

 

11) Growing buyer preferences for differentiated products instead of a commodity product

 

When buyers taste and preferences start to diverge, sellers can win a loyal following by providing different vairants and taste then the compotitors.

 

Eg.

 

• Beer
• Automobile

 

12) Reduction in uncertainty and Business Risk.

 An emerging industry is typically characterised by much uncertainty and risk in terms of time and efforts required to coverup with the investments.

Emerging industries tend to atract only risk-taking entrepreneurial companies. over time how ever, if the business model of industry pioneers proves profitable and market demand for the product appears durable, more conservative firms are usually enticed to enter the market. Often the later enterants are large & financially strong looking to invest into attractive growth industry.

 

Low biz risk and less industry uncertainty also affect competition in international market.  In the early stage the co. enters foreign mkt with a conservatie approach with less risky strategies like exporting, licensing, joint marketing agreement and JV with local companies. 

As time goes and the co accumulates experience, it starts moving boldly and independently making acquisitions, constructing their own plantss, puting their own sales and mkting capabilities to build strong competitive position...

 

13)    Regulatory Influence and government Poliy Changes.

Govt regulatory actions can often forces significant changes in industry practices and strategic approaches.

Deregulation has proved to be a potent pro competitive force in the airline, banking, natural gas, telecommunications,  and electric utility industries.

Govt  efforts to reform MEDICARE and HEALT Insurance have become potent driving forces in the health care industry.

 

14)    Changing Societal Concerns, attitudes and life styles...