How to conduct an industry analysis

How should one go about analyzing an industry and competi–tors? What types of data does one look for and how can they be or-ganized? Where does one look for these data? This appendix deals with these questions and some of the other practical problems in-volved in conducting an industry analysis. There are basically two

The Value Chain and Competitive Advantage of the firm

Every firm is a collection of activities that are performed to design, produce, market,  deliver, and support its product.  All these activities can be represented using a value chain, shown in Figure 2-2. A firm’s value chain and the way it performs individual activities are a reflection of its history, its strategy, its approach 

Linkages within The Value Chain of the firm

1. Linkages within the Value Chain Although value activities are the building blocks of competitive advantage, the value chain is not  a collection of independent  activities but  a system   of interdependent  activities.   Value activities are related by linkages within the value chain. Linkages are relationships between the way one value activity   is performed  and  

Competitive scope and the value chain of the firm

Competitive scope can have a powerful effect on competitive ad­ vantage, because it shapes the   configuration  and   economics   of the value chain. There are four dimensions of scope that affect the value chain:8 Segment Scope. The product varieties produced and buyers served. Vertical Scope. The extent to which activities are performed in-house instead of by

The value chain and organizational structure

The value chain is a basic tool for diagnosing competitive advan­ tage and finding ways to create and sustain  it, the subject that will dominate the chapters that follow. However,  the value chain  can also play a valuable role in designing organizational  structure.  Organiza­ tional structure groups certain activities together under organizational units such

The value chain and cost analysis

The behavior of a firm’s costs and  its relative cost position stem from the value activities the firm performs in competing in an industry. A meaningful cost analysis, therefore,  examines costs within these activities and not the costs of the firm as a whole. Each  value activity has its own cost structure and the

Cost Drivers of the firm

Ten m ajor cost drivers determine the cost behavior of value activi­ ties: economies of scale, learning, the pattern  of capacity utilization, linkages, interrelationships, integration, timing, discretionary policies, location, and institutional factors. Cost drivers are the structural causes of the cost of an activity and  can be more  or less under  a firm’s control.

The Cost of Purchased Inputs in firm

Procurement  has strategic significance in almost  every industry, but rarely has sufficient stature in firms. Every value activity employs purchased inputs of some kind, ranging from raw materials used in component fabrication to professional services, office space, and capital goods. Purchased inputs divide into purchased operating inputs and purchased  assets. The  total cost of

Segment Cost Behavior of the firm

Thus  far I   have described   how   to   analyze  the cost behavior  of a business unit as a whole. In practice, however, a business unit usually produces a number of different product varieties and sells them to a number of different buyers. It may also employ a number of different distribution channels. For example, a

Cost Dynamics in firm

In addition to analyzing cost behavior at a point in time, a firm must consider how   the   absolute   and   relative cost of value   activities will change over time independent of its strategy. I term this cost dynamics.   An   analysis of cost dynamics  enables a firm   to   forecast how the cost drivers of value activities

Determining the Relative Cost of Competitors

The value chain is the basic tool for determining competitor costs. The first step in determining competitor costs is to identify competitor value chains and  how activities are   performed  by   them.   The   process is the same as that employed by a firm to analyze its own value chain. In practice it is often extremely

Gaining Cost Advantage

There are two m ajor ways that a firm can gain a cost advantage: Control cost drivers. A firm can gain an advantage with respect to the cost drivers of value activities representing a significant proportion of total costs. Reconfigure the value A firm can adopt a different and more efficient way to design,  

Sustainability of Cost Advantage

Cost advantage  will result in above-average performance only if the firm can sustain it. Improving relative cost position in unsustainable ways may allow a firm to   maintain  cost parity   or   proximity, but a firm attempting to achieve cost leadership strategy must also develop sustainable sources of cost advantage. Cost advantage is sustainable if there

Implementation and Cost Advantage

This chapter has focused on how to achieve a cost advantage through changes in strategy and the way activities are performed. However, the success of cost leadership hinges on a firm’s skills in actually implementing it on a day to day basis. Costs do not go down automatically or by accident but rather as

Pitfalls in Cost Leadership Strategies

Many firms do not  fully understand  the behavior of their costs from a strategic perspective and fail to exploit opportunities to improve their relative cost position.   Some of  the   most  common  errors  made by firms in assessing and acting upon cost position include: Exclusive Focus on the Cost o f Manufacturing Activities.    When one

Steps in strategic cost analysis in firm

The techniques described in this chapter can be summarized by outlining the steps required in strategic cost analysis: Identify the appropriate value chain and assign costs and assets to it. Diagnose the cost drivers of each value activity and   how they interact. Identify competitor value chains, and determine the relative cost of competitors and

Sources of differentiation Advantage of the firm

A firm differentiates itself from its competitors when it provides something   unique  that  is valuable   to   buyers  beyond  simply   offering a low price. Differentiation allows the firm to command  a premium price, to sell more of its product at a given price, or to gain equivalent benefits such as greater buyer loyalty during cyclical

The cost of differentiation infirm

Differentiation   is usually   costly.   A   firm   must  often   incur  costs to be unique because uniqueness requires that it perform value activities better than competitors. Providing superior applications engineering support usually requires additional  engineers, for example, while   a highly skilled sales force typically costs more than a less skilled one. Achieving greater product durability than

Buyer value and differentiation of the firm

Uniqueness does   not  lead   to   differentiation   unless   it   is valuable to the buyer.   A successful differentiator  finds ways of creating value for buyers that  yield a price   premium  in   excess of the extra  cost. The  starting point  for   understanding  what  is valuable   to   the   buyer is the   buyer’s   value   chain.   Buyers   have   value   chains  

Buyer Purchase Criteria for the firm

Applying these fundamentals of buyer value to a particular indus­ try results in the identification of buyer purchase criteria— specific attributes of a firm that create actual or perceived value for the buyer. Buyer purchase criteria can be divided into two types: Use criteria. Purchase criteria that stem from the way in which a