Int

Strategic Management Program

Industry Analysis
APALAK KHATUA, apalak@xlri.ac.in

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Can you summarize your company’s strategy in
35 words?

Source: Collis and Rukstad (2008)

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Every bat has a sweet spot!

The shape of the bat that you should go with depends

on your batting style and will be unique to you.

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Strategy: Finding the Sweet Spot

Context – technology, industry,

regulations etc.

Competitors’ Customer’s
offerings needs

Company’s
capabilities
SWEET SPOT

Collis and Rukstad (2008) – Harvard Business Review

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
iPhone @2007: Sweet Spot?

Context – technology, industry,

regulations etc.

Competitors’ Customer’s
offerings needs

Company’s
capabilities

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Tomorrow’s Sweet Spot?

Context – technology, industry,

regulations etc.

Customer’s
needs
Competitors’
offerings

Company’s
capabilities
SWEET SPOT

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Thus, what is Strategy?
(Source: Porter, 1996)

• Strategy is about being different or doing things differently

• Strategy rests on unique activities. So, strategy is the creation of

unique and valuable position, involving a different set of
activities.

• Essence of strategy is making choices:

– Choosing to perform activities differently
– Perform different activities than your competitors

• Sustainable strategic positioning requires a trade-offs

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Strategic Positioning

• Is the Body Shop a cosmetics company?

• Reduced glamour, and packaging costs while creating a new
emphasis on ingredients and healthy living
• Don’t emphasize eternal youth and beauty
• Imitating Body Shop will conflict with L’Oreal’s existing image
S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Why Industry? SCP Paradigm

Industry STRUCTURE
Number of Competing Firms, Homogeneity of Products, Costs of
Entry and Exit

Firm CONDUCT
Price Taking, Volume, Product Differentiation, Tacit Collusion,
Exploiting Market Power

Firm PERFORMANCE
Efficiency, Profit, Growth

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Spectrum of Industry Structures

Perfect
Oligopoly Duopoly Monopoly
Competition

Concentration Many firms A few firms Two firms One firm

Example Vegetable market Airline Industry; Soft Drinks Microsoft

Strategy Limited Option Product differentiation; Collusion; Market Power

Entry Barriers No barriers Significant barriers High barriers

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 What is Industry?
(Source: Porter, 2008)

Lower entry barriers Allow new players to enter

 New capacity  Race to gain market share 
High competition  Low profitability  Lower
Industry Attractiveness
High Bargaining Power of Suppliers 
Allow them to squeeze profitability by
raising the price of intermediate products
 Lower Industry Attractiveness

Higher Level of Rivalry i.e. players would High Bargaining Power of Customers 
compete for higher market share  Low price and Decrease in price or demand of higher
profitability  Lower Industry attractiveness quality  Low Profitability  Lower
Industry Attractiveness

Availability of Suitable Substitutes  Allows customers to

substitute  Low profitability  Lower Industry Attractiveness

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Threat of Entry

Higher Threat of Entry OR Low Entry barriers Allow new players to enter 
They will bring new capacity  Race to gain market share  High competition
 Low profitability  Lower Industry Attractiveness

• Supply side economies of scale: Oil and gas industry -volume/technology

• Demand side benefits of scale: Network effects – Windows v/s iOS
• Customer switching costs: Learning new software, newer version of MS Office
• Capital requirements: Power, Telecom, Oil and gas sectors
• Incumbency advantages: Proprietary technology/patents, media (movie rights)
• Unequal access to distribution channels: Coke & Pepsi distribution network
• Restrictive government policy: License, Import Quota, FDI policy etc.
• Expected retaliation: Price war in aviation industry – Jet Airways v/s Indigo

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Bargaining Power of Suppliers

High Bargaining Power of Suppliers  Allow them to squeeze profitability

by raising the price of intermediate products  Lower Industry
Attractiveness

• Concentration of supplier industries: Microsoft - Intel

• Supplier cater to many/few industries: Aviation/Pharmaceutical v/s Restaurants
• Switching costs for the industry in changing suppliers: Technology intensive
industry – Steel
• Differentiation in products/services offered by suppliers – Intel Motherboards
• Availability of substitute inputs for the industry: Jute and Plastic as packaging
industry
• Suppliers’ threat of forward integration: Oil Exploration  Oil Refinery

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Power of Customers/Buyers
High Bargaining Power of Customers  Can lead to decrease in price or
demand of higher quality  Low Profit  Lower Industry Attractiveness
• Concentration of buyer: wholesalers v/s individual customers
• Differentiation in products/services offered by industry to its customers:
vegetables v/s pharmaceutical products
• Switching costs for customers to move to another firm in the industry: Telecom
sector with and without mobile number portability
• Proportion of customers’ purchase from the industry out of their total costs:
Motherboard v/s backpack for Dell Laptops
• Pressure on customers to cut costs: Buyer of intermediate products will transfer it
back
• Contribution of industry’s supplies to the quality of customers’
output/consumption: Intel Motherboards, Samsung semiconductors
• Impact/criticality of industry’s supplies to the overall performance of customers’
business: Intel Motherboards, Samsung semiconductors
• Customers’ threat of backward integration: Oil refinery v/s tourism industry
S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Threat of Substitutes

• Availability of Suitable Substitutes  Reduces the profitability

of the industry  Lower Industry Attractiveness

• Availability of close substitutes of the industry’s product/service to its

customers: Smart watch v/s Mobile Phone v/s Landline Phone
• Switching cost for the customer in using one of the substitutes: ISD Call v/s
WhatsApp call

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Rivalry among Competitors

Higher Level of Rivalry i.e. players would compete for higher market share 
Lower price and profitability  Lower Industry attractiveness

• Concentration of players in the industry: Vegetables v/s Microsoft OS

• Industry growth rate: Low growth  Cut throat competition for grabbing
existing markets
• Exit barrier: proportion of assets used by players in the industry that cannot be
deployed elsewhere: Steel plant v/s Barren Land
• Commitment level of rival: extent of resource commitment
• Differentiation in products/services offered by the industry to its customers:
Vegetable v/s pharmaceutical products
• Fixed costs (as proportion of total cost) for the players in the industry: Airlines,
Hotel industry
• Capacity addition can be done by players in the industry in large scale/small
scale: Petrochemical/Steel industry v/s roadside tailor
• Shelf-life of products offered by the industry: Steel v/s fruits/fish/flower

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Defining Industries: Are you myopic?

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Think, what industry you are in?

1996

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Think, what can be your industry?

1999

2007

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 Nokia and its Glorious Past!

• In 1987, Nokia introduces the first handheld

mobile phone. Weighing in at 800 grams and a
price tag of around EUR 4,560
• In 1992, Nokia launches its first digital
handheld GSM phone, the Nokia 1011
• In 1994, Nokia launches the 2100 series, the
first phones to feature the Nokia Tune ringtone
– sold 20 million phones worldwide
• In 1997, everybody knows their Snake high
score.
• By 1998, Nokia is the world leader in mobile
phones.

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Nokia and its Glorious Past!
• 1999: Nokia launches the Nokia 7110, a phone capable
of rudimentary web-based functions

• 2001: Nokia launches its first phone with a built-in

camera, the Nokia 7650.
– But a profits warning, blamed on a slowdown in
the mobile market, stuns investors
– It announces plans to cut 1,000 jobs!

• 2002: Nokia launches its first video capture phone, the

Nokia 3650, first 3G phone, the Nokia 6650.
– To browse the web, download music, watch TV on
the move, and more.

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 But, where Nokia went wrong?
• 2004: Nokia reveals that although it is still the market
leader it is losing share to its rivals, with its 35%
share comparing with a target of 40% as it falls
behind with its new product range.
• 2005: Nokia sells its billionth phone – a Nokia 1100 –
in Nigeria, and global mobile phone subscriptions
pass 2 billion.
• 2007: One of the world's largest product recalls after
it admits the batteries in 46m phones could be faulty.
Meanwhile, Apple launches the iPhone!
• 2008: Nokia reports a 30% fall in third-quarter
profits. Nokia smartphone sales fall by 3.1% during
the quarter, while sales of Apple iPhones grow by
327.5%.

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Think, what has changed?

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Factor, Not Forces!

COMPLEMENTS ?

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Kodak and its Glorious Past!

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
 The (Tragic) Saga of Kodak!

• A 132-year-old firm, Kodak was once viewed as the Apple of its

day.
• In 1976, Kodak had an 85%share of all cameras and a 90% share
of all film sold in the United States. Built the first digital camera.
• However, it was reticent to shift resources away from print
photography (where the margins were estimated to be as high as
70%) and towards digital photography (where the margins were
expected to equal at most 5%).
• The advent of smart phones fitted with digital cameras
accelerated Kodak’s decline
• Nine quarters of losses between 2009 and 2011 and sought
bankruptcy protection in January 2012
Source: Shivakumar, 2014
S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Think, where Kodak went wrong?

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Industry can evolve!

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A
Thank You!

Email: apalak@xlri.ac.in | Phone: +91-8809006824

S T R AT E G I C M A N A G E M E N T . A PA L A K K H AT U A