Strategic Group Analysis

Presented by Stephanie Richardson Elena Wellard

Background
Subset

of industry analysis Developed in early 1970s Porters Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1980

Strategic Group Analysis

Strategic

groups is a cluster of companies in an industry Groups of companies clustered around a similar competitive approach or strategic position Companies in a group are similar to each other but different from companies in other groups

Analysis is used to determine:

Different

competitive positions of companies in the industry Intensity of rivalry within and between groups Profit potential of various groups Implications of competitive position

Porters Five Force Model:

Threats

of entry Internal rivalry Bargaining power of buyers and suppliers Threat of substitution The Five Forces jointly determine the profitability of the industry, the groups in the industry and individual companies within the groups

Strengths
Comprehensiveness Helpful

in dealing with fast-changing environment Encourages finding new ideas and strategies More accurate strategic analysis

Weaknesses
Provides

little guidance on implementation Depends on identifying the strategically important dimensions Requires in-depth industry knowledge and experience Does not incorporate importance of government and social issues

Step 1: Analyze industry structure

Complete
Threat

a Five Force Industry Analysis:

of new entrants Bargaining power of suppliers Bargaining power of buyers Threat of substitution Degree of internal rivalry
Identify

all major competitors in the industry based on competitive variables

Step 2: Map the strategic groups

Key

variable for defining strategic groups:

Specialization Cost position Brand identification Service Push vs. Pull Price policy Channel Selection Leverage Product quality Technological leadership

Strategic Maps of the United States Airline Industry

The Late 1970s
International
Laker World Braniff North west TWA Pan Am

The Early 1990s

International United American

Geographic Scope

Eastern United Delta American National

Conti- Northwest nental TWA USAir

Delta

National

Continental Western RepublicOzark Piedmont AirCal PSA Southwest

USAir Southwest

Frontier

Kiwi Regional Full Service

Reno Air

America West

Regional

Texas Intl

Others

No Frills

No Frills

Quality of Service

Quality of Service

Full Service

Step 3:Measure the strength of barriers between groups

Identify

factors that prevent firms in one groups from competing with companies in other groups Assess the strength of bargaining power between groups and industry buyers/suppliers Determine the treat of substitutes between groups Evaluate the degree of rivalry between groups Undertake Five Force analysis of groups to determine relative competitive position

Step 4: Understand companies strategy with reference to groups interaction

Recognize

groups strengths and weaknesses Identify the strategic group that represents the greatest opportunity

Step 5:Identify next step

Create

a new group Move to a better group Strengthen the existing group Strengthen companys position within existing group Move to a new group and make it better

Strategic Group Analysis Summary

Depends

on highly qualitative inputs and analysts judgment Does not require a lot of resources Can be used for current and dynamic strategy planning Can be performed in short period of time