Change Implementation Techniques for Creating a Sense of Urgency

Technique 2.3 Simplified Competitive Analysis

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(Using the determinants of the 5 forces of Porter's Competitive Analysis)

organisational development change management

. An industry is very profitable if

- entry into an industry is difficult

- there are many suppliers of small size whose contribution to the final product is not important

- there are many small buyers

- there are few substitutes

- there are few competitors, each of whom is satisfied with its position in theindustry

. Profitability is low in an industry if

- entry is easy

- suppliers are few, large and important

- buyers are few, large and important

- product has several readily-obtained substitutes

- there are many existing competitors

. In order to increase profitability, organisations need to

... - reduce the bargaining power of your suppliers (for example, by encouraging more suppliers to start up in the industry)

- reduce the bargaining power of your customers (for example, by locking in long-term contracts)

- prevent new entrants by increasing the cost of entry (for example, by making customers dependent on your proprietary technology)

- prevent customers switching to substitutes (for example, by increasing the cost of switching)

- reduce the level of rivalry (for example, only chasing a particular market segment or through gaining geographic advantage)

Many organisations have been spectacularly successful at protecting their profitability by manipulating one or more of the five forces. Southwest Airlines reduced operating costs (driven by suppliers) by staying away from expensive airports and using cheaper regional hubs. Wal-Mart is geographically located in areas that could sustain only one operator to prevent other operators from competing with them. Microsoft has the world dependent on its proprietary software and switching to another PC operating system is not an option for most. Intel and AMD own the world of computer chips because it is effectively too expensive for anyone else to set up a competing corporation...

Harry Osman, 2004d

In order to utilise this type of analysis, identify 2 or 3 players/competitors in your industry in each category if possible. Then, for each category, address the following questions:

Potential substitutes

i) What are they?

ii) How big an impact would they have?

iii) Under what circumstances will they be effective substitutes?

iv) Can we reduce the threat of substitutes or can switching costs be built in, eg technology products?

v) Do they continually communicate with customers about their preferences and remind them of their special advantages?

vi) Are they prepared to take the subversive route, ie infiltrate the substitute market and influence it from within?

Buyers (Customers)

i) How concentrated are they?

ii) What is the potential for finding new markets or niches?

iii) What is their relative bargaining power over us?

iv) How large is the threat of backward integration?

v) To what extent are our customers influenced by them?

vi) Can they move the purchase decision away from price alone?

vii) Can they increase incentives and value-added services?

Suppliers (including labour and capital)

i) How large and/or concentrated are they?

ii) Can they switch suppliers easily?

iii) What is their relative bargaining power over us?

iv) What is the threat of forward integration?

v) Can the bargaining power of suppliers be minimised by partnering/merging, etc with them, or encouraging other organisations to become suppliers?

Industry rivalry between competitors

i) Who are the major competitors?

ii) What is their relative position in the industry?

iii) Are you able to reduce rivalry by communicating with your competitors on issues, such as limiting over-capacity?

iv) How do they compete?

v) How is product differentiation achieved?

vi) Are they able to focus on different segments of the markets and give them a competitive advantage?

vii) How competitive is the industry, ie what is the intensity of internal competition within an industry as this will often dictate profitability among individual organisations?

viii) Who are the key stakeholders among the competitors?

ix) Are there strategic groups of competitors (who competes with whom)?

New Entrant

i) Can we create, or have natural barriers, to discourage new entrants, such as economies of scale, patents, brand image, switching costs, access to distribution, capital requirements, absolute cost advantages and government policy?

ii) Can they boost customer loyalty to help themselves as new entrants?

iii) What is the expected retaliation, and by whom, against the new entrant?

Extra Question

i) Do assumptions about the environment, mission and core competencies fit reality?

(sources: Monash Mt Eliza Business School, 1995; Harry Osman, 2004d)


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