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Foundations of Business Strategy

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University of Virginia

Foundations of Business Strategy

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Cours 1 sur 5 dans Specialization Business Strategy

Develop your ability to think strategically, analyze the competitive environment, and recommend firm positioning and value creation. In this course, we will explore the underlying theory and frameworks that provide the foundations of a successful business strategy and provide the tools you need to understand that strategy: SWOT, Competitor, Environmental, Five Forces, and Capabilities Analyses, as well as Strategy Maps. We'll apply these tools in case studies of industry leaders Google, Redhook, Piaggio and Apple.

À partir de la leçon

Analyzing Industry Structure

Hello and welcome back. In this module, we'll explore how to assess an industry's structure and how the competitive dynamics in an industry affect profitability. We'll go into depth with the five forces tool, a common and highly influential analytical framework. You'll get a chance to apply this tool in the Redhook case study. Enjoy analyzing!

Analyzing Industry Structure5:26

Threat of Entry, Part 19:14

Threat of Entry, Part 24:44

Threat of Substitutes10:05

Bargaining Power of Buyers, Part 17:14

Bargaining Power of Buyers, Part 26:28

Bargaining Power of Suppliers5:56

Intensity of Rivalry9:04

Module Lessons3:19

Rencontrer les enseignants

Michael Lenox
Senior Associate Dean and Chief Strategy Officer
Darden School of Business
Jared Harris
Samuel L. Slover Research Chair in Business Administration
Darden School of Business

We've been talking about the Five Forces Analysis.

Remember, this is a tool that helps us think carefully about these five different

competitive forces that can have a big negative impact on

the likelihood of profits and margins in a particular industry or market segment.

So the point of this analysis is to tell us something about how the industry is

structured and what the competitive dynamics are within that industry.

There's lots of things the five forces analysis doesn't tell us.

It doesn't tell us much about the differences between individual firms and

things of that nature, but it tells us something really important and

therefore it's a really important part of any more full strategic analysis.

We need to really understand how is an industry structured.

What's its makeup?

What are the competitive dynamics of the industry, so we can have a sense of

what the likelihood is of good profits and good margins in that industry.

As we know, industries differ in how profitable they are on average.

And this five forces tool helps us understand the dynamics of that.

So we've talked about the thread of new entrance into an industry.

Now, what's the threat of new firms entering the industry to compete with us?

We've talked about the threat of substitutes, the threat that our customers

or buyers will leave us to go to some sort of substitute product or service.

We've talked about the bargaining power in our value chain,

with both suppliers and buyers.

And we've talked finally about the intensity of rivalry

with our direct competitors.

And this is what people think of most readily when they

think about competitive strategy and competition.

There are certain things that are probably part of the structure of an industry,

the dynamics of an industry that we haven't explicitly talked about.

We might think about the role of complements.

Complementary products or services and how that might come into play.

We might think about the role of the institution that we're operating within,

the institutional environment.

That will certainly have an impact on the dynamics of an industry.

So there's certain things that we haven't talked about, but

the point of all of this is that we're trying to understand the dynamics and

structure of an industry or market segment.

So what are a few takeaways as we've gone through and

talked about each of these five forces?

First of all, we've determined that the threat of new entrants into a new industry

is less likely when incumbent firms have a strong competitive advantage and

when they can credibly retaliate against those potential new entrants.

We've learned that the threat of substitutes is also lower

when switching costs are high, and when cross price elasticity is low.

We've got to think about buyer and supplier power.

We've learned that those depend on things like the relative concentration.

Are there a lot of buyers and suppliers, or just a few?

It's determined by the viability of alternatives and

is information free flowing?

Are we able to see pricing information for example and is it transparent?

We've also learned that rivalry is more intense when there are more competitors

in an industry or a market segment.

Rivalry is more intense when the incentives to fight are larger, and

rivalry is more intense when the possibility for

sort of tacit coordination and playing nice with one another is more difficult.

All of these are insights from the Five Forces analysis.

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