Analyzing Industry Competition and Strategic Control
Competitive Forces: Entry and Exit Barriers
1. Barriers to Entry: Mechanisms hindering new companies from entering a market.
- Economies of Scale: New entrants need high production volumes to match established companies’ average costs.
- Product Differentiation: Overcoming loyalty to existing products in the market is essential.
- Capital Requirements: Large initial investments create a significant entry barrier.
- Access to Distribution Channels: Favorable conditions are needed for new businesses to sell their products.
- Government Regulations and Policies: These can restrict market entry for some companies.
Barriers to Exit: Preventing or hindering firms from leaving an industry, even with poor results, intensifying competition.
- Specialized Assets: Assets with low utility outside the industry make exiting difficult.
- Fixed Costs: Severance pay and other fixed costs can impede exit.
- Strategic Relationships: Obligations to remain in certain businesses, especially for market leaders.
- Emotional Barriers: Loyalty to employees and identification with the business can hinder exit.
- Social and Governmental Restrictions: Strikes, demonstrations, and boycotts can create exit barriers.
Porter’s Five Forces Model
This model analyzes industry structure to identify opportunities and threats. The five forces are: rivalry among existing competitors, the threat of new entrants, the threat of substitutes, the bargaining power of buyers, and the bargaining power of suppliers. Successful companies leverage favorable external factors and mitigate unfavorable ones. The strategic goal is to find a position within the industry to defend against these forces or even direct them to the company’s advantage.
Strategic Control and Information Systems
Strategic Control: Analyzing and evaluating the strategic management process to ensure proper operation and the realization of planned strategies.
Goal: Assist senior management in achieving objectives through analysis and development of the strategic management process.
I. Building Blocks
Control of Implementation: Reviewing and monitoring the implementation process of business strategy (a posteriori).
Control Strategy: Verifying the validity of the strategy over time, anticipating changes (a priori).
Important Elements for Designing a Strategic Control System
- Measuring company results to observe performance in relation to strategy implementation.
- Defining internal control systems to ensure proper strategy implementation at all levels.
- Designing an information system (crucial) to provide timely and adequate support, including:
- Internal Information: Measuring organizational results.
- External Information: Identifying threats and opportunities.
I. Criteria for Adequacy of Rationality or Consistency:
- Checking the adequacy of organizational objectives and strategies.
- Assessing how the strategy builds on organizational strengths and external opportunities while mitigating weaknesses and environmental threats. In short, adapting strategies to the situation identified in the strategic analysis.
II. Criteria for Feasibility
- Analyzing the strategy’s performance in practice.
- Assessing the chances of successful implementation.
- Evaluating the availability of resources and capacities.
- Determining the adequacy of the time horizon for expected changes (benefits may take time).
These criteria answer the question: Can we implement the strategy with the available physical, human, and financial resources?