Week 8 External analysis: evaluating the competitive forces in an industry
A fundamental part of external analysis is to identify the competitive forces in an industry and evaluate their strength. These forces influence the competition dynamic in an industry and the performance of competitors. In this week you will be introduced to the six-forces model and you will learn how to conduct a solid and well-structured industry analysis. Particular attention will be dedicated to fundamental topics of strategy. The first topic is the study of economies of scale and their impact on competition. The second topic is the analysis of different types of entry barriers, which leads to the categorisation of industries according to them; study of this will enhance your understanding of the competitive dynamic. Finally, you will develop an understanding of the concept of strategic groups and their importance for knowing the differences in terms of strategy among competitors in an industry.
Activity planner
This week you should use your study time to work through the teaching material and complete the following activities.
| Activity title | Description | Timing | |
| 8.1: The benefits of increasing scale | Consider how an industry incumbent could respond to a new entrant. | 10 minutes | |
| 8.2: Understanding the importance of the scale of production | Analyse the impact of demand and scale of production on competitiveness. | 10 minutes | |
| 8.3: The entry barriers in the banking industry | Evaluate the entry barriers to the UK banking industry, drawing on your learning from three articles. | 1 hour 30 minutes | |
| 8.4: Evaluating the probability of surviving as a new entrant | Compare two potential entrants to the banking industry and evaluate their likelihood of surviving. | 10 minutes | |
| 8.5: Assessing the attractiveness of an industry and evaluating its possible evolution | Answer questions about the automotive industry based on an analysis of the industry presented in a video. | 20 minutes | |
| 8.6: Analysing the UK banking industry | Use your learning from watching a discussion between the CEO and manager of Starling Bank to conduct an industry analysis of the UK banking industry. | 45 minutes | |
| 8.7: Conducting a strategic analysis of the UK banking industry | Use your knowledge of the UK banking sector to conduct a strategic analysis. | 45 minutes |
1 Analysing an industry
Last week you learnt the importance of analysing an industry and how to study market shares, industry types and their lifecycle. This week, you are going to analyse other forces that shape competition in an industry. Your focus remains at the level of the industry as shown in Figure 8.1 below, but you will study what influences the rivalry among players within it.
Figure 8.1 The industry, or meso, level as part of the external environment
Studying the structure of an industry means analysing its underlying characteristics, which Professor Michael Porter defined as ‘forces’ in 1980. Nearly forty years later his seminal contribution still influences how strategic analyses are conducted. Porter’s work has been widely debated, as you will see in Weeks 9 and 10, and it has also been extended thanks to the contribution of other scholars, such as Professor Robert Grant. The chronological development of theoretical frameworks is not presented; rather, you will be shown how to conduct a structured analysis of the industry.
This week presents the five-forces model developed by Michael Porter (1980) along with an additional force suggested by Grant (2010), who devised a six-forces version that includes the bargaining power of the complements as the additional force. You will learn about the six forces and how to apply the model. At the end of the week in Section 9 you will explore critiques of the model.
The elements of the model are represented in Figure 8.2.
Figure 8.2 The six-forces model
The six forces are:
- rivalry among existing firms
- bargaining power of suppliers
- bargaining power of buyers
- threat of new entrants
- threat of substitutes
- bargaining power of complements.
You will analyse these six forces one by one in the following sections.
According to Porter (2008), the purpose of conducting a full industry analysis is to:
- evaluate if the industry is attractive for competitors to stay in – is the industry able to generate profits for competitors? Will it be profitable in the future?
- understand the strength of the competitive forces at the basis of the attractiveness of the industry
- evaluate how the different forces interact with each other.
2 Force 1: Rivalry among existing firms
Last week’s teaching quite extensively covered rivalry among existing firms. This week draws on results from analyses of competitors from Week 7, such as distribution of market shares and concentration indexes. The analysis here, however, will also involve more aspects beyond the analysis of concentration and market shares.
The level of rivalry in an industry depends on a number of factors. The rivalry among competitors is deemed to be high if:
- The industry type is competitive or hypercompetitive. Lowering the number of competitors reduces the rivalry, as you will remember from Week 7. A monopoly does not suffer from rivalry. Oligopolies and duopolies have lower levels of rivalry and players can also come to agreements or build cartels. At the other extreme, competitive industries see high levels of rivalry as much as they resemble a perfect competition extreme. Another case of high levels of rivalry is the hypercompetitive industry.
- There is an equal distribution of market shares. A uniform distribution of market shares makes rivalry stronger, while the presence of competitors with larger market shares makes it difficult to challenge their position (Johnson et al., 2011, p. 59). An increase in the number of firms in an industry reduces the possibilities of collusion and increases the chances that a firm starts selling at lower prices (Grant, 2010, p. 74). Despite the idea that the exit of a competitor reduces price competition and the entrance of a competitor could increase it, only a small effect of concentration on profitability has been proved (Schmalensee, 1989; Salinger, 1990).
- There is a low or negative industry growth rate. In some phases of the lifecycle of an industry, the rivalry is low because the industry is expanding. This happens in the development and growth phases, whereas in the mature phase growth rate decreases, giving rise to stronger rivalry. This continues in the declining phase where the size of the industry reduces.
- High fixed costs are required to operate. If the specific industry requires a high level of fixed costs, then firms will be incentivised to cover those costs by selling at discounted prices. Airlines may decide to sell tickets at lower cost to cover the fixed component of their cost such as the fuel, crew and so on. Moreover, if one airline wants to compete on a new route, it may decide to put one of its 130-seat aircrafts to serve that route, even though the initial demand may be around 50 seats. That airline may decide to sell its tickets at a low price in order to cover as much of its fixed costs as possible. In this sense, high fixed cost and excess of capacity could enhance rivalry. High fixed costs may be connected to the necessity to operate with high economies of scale: this is addressed in Sections 2.1 and 2.2.
- There are high exit barriers. Exit barriers are all the factors that prevent a company from exiting an industry. If they are present, it would be more difficult to leave the industry, so competitors would rather engage in price wars. The types of exit barriers will be listed in Section 2.3.
- The product is a commodity. If it is not possible to differentiate the product, for instance, agricultural products such as corn, cocoa or soy, competition would be much tougher.
- There is a high strategic stake in the industry. If the industry has a particular strategic importance for competitors, not just for performances but because it is central for their reputation, then the rivalry will be higher, because competitors invest in developing new products/services. Competition in the smartphone industry well resembles this situation: Apple, Samsung, Huawei and other players engage in continuous innovations to make their smartphones richer with functionalities. You may also have heard businesspeople interviewed on television saying: ‘we must enter in China: that is where we need to go’, which means that a specific geographical location could be of particular strategic interest for a company.
Figure 8.3 summarises the fundamental points needed to assess the level of rivalry among competitors. This model will be used to track all the steps (Section 8 in particular) for conducting a complete analysis of an industry.
Figure 8.3 Diagram of the six-forces: focus on rivalry among industry competitors
2.1 Economies of scale
The previous section mentioned that a high level of fixed costs may induce rivals to be more competitive. This week looks more closely at this concept.
The following animation introduces the idea of economies of scale, which are cost advantages obtained by the increase of the scale of production.
An economy of scale arises if fixed costs remain constant as output increases, thus lowering the cost per unit of output. The concept is usually applied to explain the benefits arising from increasing the size of an organisation. For instance, a larger company can spread the fixed costs of its administrative staff or of its plant on more products than a smaller company. This means that the unit cost of the products for the larger company will be lower.
Economies of scale can be developed in relation to all types of costs such as cost of capital, purchasing costs, advertising costs, and so on.
Activity 8.1: The benefits of increasing scale
Spend approximately 10 minutes on this activity.
To explore how economies of scale function, watch the following animation.
Video player: Video 8.1 Economies of scale at work
Video 8.1 Economies of scale at work
The animations you have just watched explained the concept of economies of scale, which is fundamental to understanding how incumbents in an industry may use productive scale to defend themselves against new entrants. You will explore this further in the next activity.
Think about the biscuit production plant you encountered in the economies of scale animation and imagine a large producer with a big plant whose overall capacity is not being used: there is still 20% capacity available. What could that incumbent do if a new biscuit producer decided to enter the industry and open a similar plant?
Select the possible correct alternatives that the incumbent has:
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The incumbent could start producing more biscuits by utilising all the available capacity of its plant and sell them at a lower price.
The incumbent could accuse the new entrant of copying its secret recipe and take legal action against those it suspects of having leaked its recipe.
The incumbent could decide to maintain its current levels of production, invest in a marketing campaign and wait for the new entrant to position itself in the market.
The incumbent could reduce the quantity of biscuits it produces by the same amount as the quantity produced by the new entrant.
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2.2 The importance of economies of scale for strategy
When thinking about economies of scale it is important to consider that different technologies may appear over time. Newer production technologies can impact unit costs.
Activity 8.2: Understanding the importance of the scale of production
Spend approximately 10 minutes on this activity.
Watch the following animation about scale of production and answer the question below.
Video player: Video 8.2 The importance of the scale of production
Video 8.2 The importance of the scale of production
Having watched the animation about three biscuit producers, what can you conclude from the analysis? Analyse the data in Table 8.1 and select the possible correct conclusions from the list below.
Table 8.1 Unit costs of three biscuit producers
| Biscuit producer | Quantity per month (box) | Unit cost (£) | Total variable costs (£) | Fixed costs (£) | Total Costs (£) | Average total cost per unit (£/box) |
| Good Biscuits | 10,000 | 0.50 | 5,000 | 60,000 | 65,000 | 6.50 |
| Biscuits of Champions | 15,000 | 0.50 | 7,500 | 60,000 | 67,500 | 4.50 |
| Just Like Mum’s | 30,000 | 0.50 | 15,000 | 90,000 | 105,000 | 3.50 |
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If demand remains stable, Just Like Mum’s will be able to make a greater profit than the other producers.
If demand collapses, Just Like Mum’s may face a reduction in the quantity it sells and could lose competitiveness.
Larger plants are not competitive because they have higher fixed costs.
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Keeping in mind your study of the biscuit producer, what are the implications of scale from a strategic point of view?
First, it is important to understand the use of capacity by each competitor and the possible strategic moves. Competitors with unsaturated production capacity can decide to use it to lower the price of products or services.
Second, it is important to understand the evolution of process technologies and their impact on average unit costs. In Figure 8.4 you can observe the average costs per unit of two different technologies to produce the same product. It is like the case of the biscuit producers in the video in Activity 8.2. The red curve shows the average costs of a production plant which reaches the minimum efficient scale at point MES1, while the green curve shows the average costs of a production technology which reaches the minimum efficient scale at MES2.
Figure 8.4 Cost per unit and MES
The green curve has better unit costs for higher quantities, but those quantities need to find interested clients on the market. This means that producing with the second technology is a good option only if those quantities are absorbed by the market. If not, there is the risk of having higher unit costs than with the other technology.
Finally, technological developments have been influencing the minimum efficient scale in different ways. Modern process technologies are more flexible and this can lead to the reduction of average costs without the need to increase the scale of plants – in fact, quite the opposite may be true: they may lead to the reduction of the minimum efficient scale.
Economies of scale are a fundamental element to understanding entry barriers and the possible reaction of incumbents.
2.3 Exit barriers
In the previous section you encountered the concept of exit barriers. But what are they?
Exit barriers prevent or limit the ability of a competitor to exit the industry. There are different types (Hitt et al., 2017, pp. 62–3; Hill et al. 2014, pp. 51, 53):
- Investments in assets that are specific to that industry (e.g. airplanes) or are located in specific areas (e.g. a hotel in the French Alps). These assets are difficult to sell except for a significantly lower price by comparison with the initial cost.
- The existence of fixed costs for exiting an industry (e.g. pension funds or labour agreements that require a company to invest in the industry for a certain number of years).
- Legal, social and political limitations that require a company to stay in an industry and/or not to sell any activities. For instance, a government may require a business undergoing bankruptcy proceedings to continue operating for a period of time in order to provide business continuity and avoid the social damages related to the exit.
- Interdependencies with other units of a larger company. For example, a company may remain in an industry because doing so is essential to its activities in other areas. For example, controlling the production of some raw materials or components may not be profitable for a company but it could be important to the businesses which makes use of those materials or components.
- Emotional attachment. For example, an entrepreneur may say, ‘our restaurant in London has been serving clients since 1905!’ Have you ever heard this kind of statement in advertisements or somewhere on a restaurant’s premises? Reputational and emotional commitment may constitute an exit barrier, especially in family firms.
3 Force 2: Bargaining power of suppliers
Greater bargaining power of suppliers means lower profitability for the firms in a particular industry, because they, as the most powerful suppliers, will be able to capture most of the value created in a transaction (Giarratana, 2013, p. 18). According to Johnson et al. (2011, pp.58–59), their power depends on several factors, and will be higher when:
- Suppliers are concentrated. The same impact of concentration of competitors, covered in Week 7, applies to suppliers; however, in this case, competitive markets on the supply side are preferable to oligopolies or, even worse, monopolies. As discussed in Week 7, in non-competitive industries the prices of products or services are higher. An example is the telecommunication industry before the deregulation introduced in several countries to increase competition in the fixed line service. That choice increased the possibilities for client companies to pay lower prices for the fixed line and internet access services.
- The switching costsare high. If it is easy to change a supplier then its bargaining power is limited. Some suppliers are so important that it is very hard to switch. For example, information system providers such as SAP are not easy to replace because IT systems are not fully compatible and switching would be very expensive and time consuming.
- There are information asymmetries. These occur when there is a difference in the amount and quality of information held by the different parties to a transaction. There is a powerful source of advantage when one party, in this case the suppliers, has access to more (and potentially better) information than another, in this case the competitors in the industry. Therefore, the better informed the competitors of the industry are about the products they are buying and the suppliers they are buying from, the better their relative bargaining position (The Open University, 2018a). For many small and medium enterprises it is quite difficult to evaluate Information Technology services provided by large software houses such as SAP. This results in a reduced bargaining power and the difficulty in being able to compare alternative solutions.
- Suppliers pose a competition threat. In some cases a supplier can decide to enter the competition in the industry it is serving (the industry is the one which buys from the supplier). An example of this kind of action is the acquisition of 21st Century Fox by Walt Disney. The Hollywood studios reinforced their control on TV and broadcasting to defend their position against Netflix’s expansion. You can read more on the acquisition on the BBC News
- Suppliers offer a highly differentiatedproduct or service difficult to find on the market. It is the condition of some specialised engineering services or of some legal services focused on specific domains, expertise and countries.
- The cost of the product or service offered by a category of suppliers accounts for a considerable percentage of the cost of the product or service offered by the firm. For example, although car dealers have some autonomy in making discounts, their action is quite limited by the pricing choices of car makers and by their promotional campaigns.
Figure 8.5 summarises the fundamental points to assess the power of suppliers:
Figure 8.5 Suppliers
4 Force 3: Bargaining power of buyers
The bargaining power of buyers mirrors that of suppliers, but from the opposite position, so buyer power increases when:
- Buyers are concentrated. The bargaining power of buyers is reduced when there are many. Remember that here buyers are not necessarily clients of the company under consideration. When buyers in an industry are few, it means they control large parts of the market shares. This means that they can negotiate prices from a strong position, while the presence of a high number of buyers makes them less important in terms of relative market shares. In this case buyers may lose strength in negotiating prices, becoming price-takers.
- Switching costs of buyers are low. Buyers can easily change from one competitor to another. This becomes especially true as a dominant design diffuses in an industry: as shown in Section 6 of Week 7, this causes the diffusion of products or services that are quite similar to each other and results that are interchangeable to buyers. An example is the diffusion of MP3 players resembling the Apple iPod: competitors copied the design of the iPod and offered similar products, as recounted in the New York Times.
- There are information asymmetries. Buyers have difficulties in evaluating and comparing the products and services offered by the competitors in the industry. This could be due to the complexity of the product or its specialistic nature (e.g. an advanced medical treatment or a specific legal consult). One effect of the internet has been to improve buyers’ access to information on product and service features and prices. Through the internet consumers have access to numerous sources of data, which permits them to conduct price comparisons and hence increases their price sensitivity as buyers. The internet has therefore provided a large number of opportunities for disintermediation, which has increased the power of buyers. For example, the emergence of travel firms and online consolidators such as Expedia and Orbitz has had serious consequences for more traditional travel agencies, while price comparison websites such as MoneySuperMarket in the UK have been created to support and enhance information transparency and enable disintermediation.
- Buyers pose a competition threat. They can decide to enter the industry, for example, when American supermarket chains (e.g. Kroger, Walmart) expanded into the dairy farms industry, building their own plants. You can find more on this in the video below.
Video player: Got milk? Dairy farmers getting squeezed out of changing market
Got milk? Dairy farmers getting squeezed out of changing market
- Buyers consider the product a commodity and are more price-sensitive. If the product or service offered by competitors is less differentiated and similar to a commodity such as plain white T-shirts, buyers are more likely to be price-sensitive.
- Buyers are price-sensitive because the product or service represents a large proportion of their costs. For example, airlines consider the cost of aviation fuel a critical component of their costs.
Figure 8.6 summarises the fundamental points needed to assess the power of buyers.
Figure 8.6 Buyers
5 Force 4: Threat of new entrants
When is an industry attractive for new entrants? When entrants can observe that the return on the capital employed (ROCE) is higher than the cost of the capital needed to enter. In other words, when the pay offs would be higher than the interest they would accrue on the debt they would have from entering in to the industry.
When is an industry affected by the threat of new entrants? It depends on the entry barriers. If they are high, it is not attractive to enter that industry.
Giarratana (2013, p. 16) divides entry barriers into the groups shown in Figure 8.7.
Figure 8.7 Types of entry barriers
Ex-ante barriers are fixed costs that a new entrant needs to sustain to enter into the industry. They are divided into exogenous and endogenous forms.
Exogenous barriers are related to the features of an industry. The exogenous barriers are:
- Investments in fixed assets (e.g. plants). Entering the oil extraction industry requires a much higher investment than opening a bar in Rome. In the former case, the equipment needed to drill the soil costs several million pounds, while with an investment of a few hundred thousand euros it is possible to buy a nice venue in Rome.
This barrier is not strong if competitors in the industry have not reached large scale production. In this case a new entrant would not need a big investment and the industry would probably be in the development or growth stage. You have already explored the concept of economies of scale in Sections 2.1 and 2.2, but it is important to note that to enter into an industry which has already reached a large scale, a new entrant would have two choices: a) make a large investment with the risk of not using all the capacity (e.g. not selling all the flight tickets on its new large aircraft); (b) enter with a smaller investment, resulting in higher unit costs.
- Barriers posed by governments such as licences, taxes or authorisations. This is particularly true in some regulated industries, such as banking and telecommunications. In the mobile telecommunication industry, licences to use frequencies for transmitting data are required to operate in each country. In this way governments regulate access to the bandwidth and also make money in competitive auctions. In the UK the race for 5G bandwidth produced £1.4bn of income for the state.
- Legal barriers. Copyrights and patents may constitute a barrier to enter an industry. For instance, pharmaceutical companies protect their innovations through patents which grant them a temporary monopoly on the innovation.
Endogenous barriers are the barriers that exist because incumbents are trying to protect themselves from new entrants. They include:
- Investments in research and development to improve the product/service, so as to reinforce loyalty of buyers. Adding new features will accustom buyers to expect them and raise the barriers for a new entrant because customers will already have sophisticated demands. An example is the level of complexity reached in the smartphone industry. Devices are not just phones; they integrate advanced cameras and complex software, including email management and navigation services, and smartphone producers are constantly developing new and more sophisticated devices.
- Investments in marketing to create a large base of loyal customers. This barrier is very important when buyers have low switching costs. It is also important when there are considerablenetwork effects, which are the positive effects on the value of goods or services given by the increased numbers of people or participants using them: a large base of customers will not be likely to move to the new entrant because they benefit from the network effect. This is the case of software packages such as Microsoft Office: although alternatives exist, even open source solutions, customers stick to Microsoft’s suite because of the network effect.
- Experience developed by incumbents. If competitors have produced many units of a product or delivered the same service many times, they would have learned how to optimise the process of production or the routines needed to produce the product or deliver the service (you will return to the concept of learning curves in Week 10). This would mean that their unit costs would be lower. For example, a road maintenance company with years of experience in the same area would have developed expertise in the interventions needed for different roads and will be able to deliver them in less time than a newcomer.
- Control of supply and/or distribution channels. Incumbents can reduce the threat of new entrants acquiring the control of suppliers of the industry or of some distribution channels to prohibit the new entrant to have access to buyers. Entering into the production of movies and TV series has enabled Sky, Netflix and Amazon to offer content on their digital platforms and reduce the dominance of Hollywood studios in the distribution of contents.
- Further investments to reach a larger scale. Incumbents could have invested in enlarging the scale of their operations (e.g. plant) in order to make the industry less attractive, as discussed in Sections 2.1 and 2.2.
- Further investments in developing experience. Incumbents could have increased their experience by producing more products to benefit from the knowledge developed and to streamline their production processes.
Ex-post barriers are related to competitors’ reputation for behaving aggressively with new entrants. Ex-post barriers are threats and not actual barriers. Incumbents can look accommodating, because the industry is growing and they are not interested in the new player. Nevertheless, if the industry is mature or in decline, the incumbent could behave more aggressively to defend their market shares and initiate retaliation practices. These actions could include:
- Introducingpredatory pricing: initiating a price-war, incumbents would lower their prices to a level below the costs sustained by new entrants. This can be done by further investments in expanding the scale.
- Tightening control on supply or distribution channels.
- Initiating litigation: incumbents could react aggressively to new entrants by initiating a legal dispute on patent or copyright infringement. This behaviour forces the new entrant to invest energies in defending from allegations and freeze financial resources in case of loss.
The threat of new entrants is summarised in Figure 8.8.
Figure 8.8 Potential entrants
5.1 Type of industry according to the entry barriers
It is possible to classify industries according to their level by considering ex-ante and ex-post barriers (Giarratana, 2013, p. 17). The following matrix in Figure 8.9 reports the classification developed by Fudenberg and Tirole (1984).
Figure 8.9 Type of industry according to entry barriers
The different type of industry can be classified as follows:
Top dog industry: it is a challenging industry for new entrants because it is hard to get in, and incumbents tend to retaliate against attempts to enter the industry. This is the case with the pharmaceutical industry which requires high investments to enter, and incumbents are aggressive. The typical new entrant is a large firm.
Fat cat industry: entering in this industry is difficult because of the high barriers, but once inside, the competitive pressure is reduced. It is the case with big infrastructures such as the construction industry.
Lean and hungry industry: although it is not difficult to enter, the incumbents are aggressive, trying to push new entrants outside the industry. Newspapers and magazines are typical examples.
Puppy dog industry: entry to the industry is easy and there is no retaliation from competitors because these are typically growing industries such as software development or advanced technologies.
This matrix can also be used to trace the evolution of an industry over time, studying the number of competitors. Puppy dog and fat cat configurations are more likely in the development and growth stages of industries. Top dog and lean and hungry industries are more characteristic of the mature and decline stages of an industry.
5.2 Analysing the entry barriers of an industry
In the activity below you will learn how to analyse the entry barriers of an industry. You will apply this analysis to the UK banking industry. Note that the same analytical process is applicable to other industries.
Activity 8.3: The entry barriers in the banking industry
Spend approximately 1 hour 30 minutes on this activity.
Read the three short articles below on the banking industry in the UK.
Pinar Ozcan and colleagues (2018) discuss the topic of trust in new banks:
In the following article Jonas Huckestein, one of the co-founders of the London-based fintech Monzo, discusses the entry barriers to the UK banking system:
Megaw, N. (2019) ‘Challenger banks complain about barriers to growth’.
Finally, the following article looks at the complex process required to acquire a banking licence in the UK:
Osborn, T. (2018) ‘What does it take to secure a banking licence?’
Now evaluate the entry barriers to the UK banking industry by answering the following questions.
- Think about all the possible ex-ante (exogenous and endogenous) and ex-post barriers that a new bank may face in entering the banking industry in the UK. List the barriers in the PowerPoint templateavailable on the module website.
- Evaluate the type of industry (as specified in Figure 8.9) according to the entry barriers and note the type on your copy of the PowerPoint file.
- Using Fudenberg and Tirole’s (1984) framework and your answers to Questions 1 and 2, how would you classify the banking industry in the UK?
Try to write 250 words for your response.
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Activity 8.3: The entry barriers in the banking industry
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To complete the analysis of the entry barriers to an industry you can consider them from the point of view of a new entrant. Giarratana (2013, p. 15) suggests studying entry barriers according to four categories: innovativeness; capital and other resources; experience; and the probability of the new entrant surviving. Let’s start with an example.
Activity 8.4: Evaluating the probability of surviving as a new entrant
Spend approximately 10 minutes on this activity.
The following table, based on Giarratana (2013, p. 15), compares the characteristics of two companies considering entering the banking industry.
If a large European bank decides to enter the UK banking industry, what kind of new entrant would it be? And what if an entrepreneur decides to found a new small bank and enter the competition? The following table, based on Giarratana (2013, p. 15), compares the characteristics of two banks considering entering the UK banking industry.
Use the table to define whether each characteristic is ‘high’ or ‘low’ for the two banks.
Interactive 8.1 Comparison of the entry of two banks into the UK banking industry
The table shows that, typically, larger firms have a higher probability of surviving, but they tend to be less innovative. Of course, that is not always the case. Giarratana (2013, p. 15) points out that although smaller companies tend to disappear easily, among them could be the one that changes the rules of the competition. Also, large companies such as Apple can develop very innovative products.
You can use Giarratana’s table in Activity 8.4 to evaluate the probability of a new entrant successfully surviving the competition in an industry by comparing the new entrant’s characteristics with entry barriers to the industry.
6 Force 5: Threat of substitutes
Substitutes limit the potential of an industry by placing a ceiling on the prices that can be charged. To define substitutes, it is important to be clear about the difference between ‘industries’ and ‘markets’. A market groups together firms whose products are close substitutes from the buyer’s perspective: the consumer feels that they can switch from one to the other easily. In contrast, an industry refers to product groups that are close substitutes from the producer’s viewpoint. Cars and trucks may all be part of the same auto industry with most firms in the industry making both types of vehicles. However, the customers for cars and trucks are different and would not see one as a substitute for the other (The Open University, 2018b).
So, for close substitute products, if the price of product A increases then it is reasonable to expect that customers will turn to the product they consider a substitute (product B), increasing its demand.
However, for some products, such as cigarettes, there are few close substitutes. A large part of determining what is or is not a substitute depends on customers’ judgement. For instance, different types of cars may belong to the same market but they are not necessarily substitutes for each other (The Open University, 2018b). The propensity of customers to substitute a product/service with another determines the threat of substitutes: for instance, taxi services or even underground transport can suffer the competition of bike sharing in big cities, but this depends on the propensity of customers to ride a bike, which may also depend on several factors, including the weather conditions.
A typical example is the substitution effect of the smartphone on cameras: although producers such as Leica and Canon belonged to different industries from smartphone producers, customers perceived that most of the functionalities of a camera could be fully incorporated into a smartphone. This led camera producers to lose revenues and, to try to survive, some of them developed partnerships with smartphone producers such as Leica with Huawei and Zeiss with Sony, while Kodak entered a long crisis culminating in its bankruptcy in 2012 and a subsequent restructuring.
The degree of substitutes’ threat is high when the ratio price/performance in the view of the customer is perceived as better for the substitute product. The ratio is mainly a perception of the customer: it is possible to go from France to the UK by train or airplane, and even by car, but it is the customer’s opinion as to which is the best mode of transport and which is a suitable substitute from one to the other. For instance, a car may not be considered as a good option for international travel by some customers, but if you are planning to travel to Scotland from England, you may consider a car as a substitute for a train.
The threat of substitutes can be analysed following the points in Figure 8.10.
Figure 8.10 Substitutes
7 Force 6: Bargaining power of complements
Complements are the sixth force not present in the five-forces model proposed by Porter (1980).
Product A can be considered the complement of a product B if an increase in sales in product A generates an increase of sales in product B (Giarratana, 2013, p. 19) – they help each other’s sales. In other words, customers consider that the value of product B is higher when offered with product A (Brandenburger and Nalebuff, 1995).
A classic example is given by the combination of PCs and installed software such as the Microsoft Office suite or antivirus programs. Other examples of complementarity are the bundling of TV and/or telephone services with broadband access and apps that are created for smartphones.
The organisation that sells a complement is called the complementor.
The complementors acquire bargaining power when:
- They create a monopoly by making their complement the only product required, with a control on its supply.
For instance some video games, such as the Mario Bros games, require a specific console – in this case a Nintendo games console.
- They make the product a commodity, easily substitutable among competitors.
This is the case for many low cost producers of Android smartphones, offering accessible mobile devices that can run apps such as WhatsApp. In this case the user is more interested in the app than in the devices which can be easily substituted.
The bargaining power of complements can be analysed according to the points in Figure 8.11.
Figure 8.11 Complements
8 Industry analyses
Conducting an industry analysis is not an easy task. The outcomes of an industry analysis are numerous and include gaining awareness of the:
- structure of the industry
- level of strength of each of the six forces
- interdependencies between the forces
- general attractiveness for an incumbent to compete in the industry
- general attractiveness for a new entrant to try to enter into the industry.
A possible way of conducting a complete industry analysis is to follow the steps listed below (as inspired by Porter, 2008, p. 92).
- Define the industry (following the method suggested in Week 7 Section 7.3).
- Identify the forces operating in the industry (determine who the buyers and the suppliers are, etc.), and determine if they are strong or weak and the underlying reasons for that (i.e. explain why the force is strong or weak). To do so you can refer to Figure 8.12 below.
- Evaluate how the six forces influence the level of profitability of the industry (using data on profitability from Week 7 Section 2).
- Assess the general attractiveness of the industry to incumbents for remaining within it and to potential entrants for entering it.
- Evaluate possible changes in the six forces and how they might be influenced by competitors, by new entrants or by the analysed company.
Figure 8.12 A summary table for analysing the forces operating within an industry
In the next activity you be shown how to conduct an industry analysis and will use the results of that analysis to evaluate the automobile industry.
Activity 8.5: Assessing the attractiveness of an industry and evaluating its possible evolution
Spend approximately 20 minutes on this activity.
The following video shows how to perform the first three steps of an industry analysis, using the automobile industry as an example. The analysis focuses on the automobile industry in Europe.
Video player: Video 8.3 Six forces analysis
Video 8.3 Six forces analysis
If you wish you can download the PowerPoint template used in the analysis from the module website.
Now answer the following questions.
- Is the car industry attractive for incumbents to remain within?
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Activity 8.5: Assessing the attractiveness of an industry and evaluating its possible evolution
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- Is the car industry attractive to potential entrants?
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Activity 8.5: Assessing the attractiveness of an industry and evaluating its possible evolution
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- How could the six forces influencing the car industry evolve in the future?
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Activity 8.5: Assessing the attractiveness of an industry and evaluating its possible evolution
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8.1 Conducting an industry analysis
Doing industry analysis is a fundamental part of the external analysis. In this section you have the opportunity to perform an analysis on the UK banking industry.
Activity 8.6: Analysing the UK banking industry
Spend approximately 45 minutes on this activity.
In the following video, the CEO and managers of Starling Bank discuss the banking industry in the UK.
Video player: Video 8.4 The banking industry in the UK
Video 8.4 The banking industry in the UK
- Watch the video and take notes on key elements in the UK banking industry highlighted by Alexandra Frean, Anne Boden, Julian Sawyer and Martin Dow that are related to the six forces you have studied this week.
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Activity 8.6: Analysing the UK banking industry
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- Download the PowerPoint template for conducting an industry analysis. Use your notes for Question 1 to complete the template for the UK banking industry. Identify the drivers of each of the six forces within the UK banking industry and evaluate their strength, reflecting on the reasons underlying your choices.
- Finally, note down in the text box below your thoughts related to steps 3, 4 and 5 of the industry analysis (see Section 8).
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Activity 8.6: Analysing the UK banking industry
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During Tutorial 1 you will have the opportunity to discuss the results of your industry analysis with your tutor. You may find that other students have noted aspects that you considered less important. Discussing the results of your analyses and those of your fellow students is very important to your learning because it will help you gain different perspectives and deepen your understanding.
9 Critics of Porter’s model
Porter’s work has been evaluated and critiqued by a variety of authors, who have different opinions on how important it is for strategic choice to understand the implications of industry structure. It is important that you understand the nature of these critiques and come to your own opinion on whether they are compelling or not. There are four main critiques of Porter’s work:
- resource-based critiques
- dynamic critiques
- practice-based critiques
- sector-based critiques.
9.1 Resource-based critiques
The resource-based view (RBV) is the central theoretical contribution emphasising the importance of internal analysis in the strategy process. Barney (1991), in a seminal paper developing the RBV concept, outlines two major assumptions underlying Porter’s work. RBV theorists believe that these assumptions are explicit evidence of the weakness of Porter’s model, if the five-forces analysis is not undertaken alongside an internal analysis of capabilities and competencies. These assumptions are that:
- Organisations in an industry are identical in terms of their resources and the strategies they pursue, while according to Barney and other RBV theorists, organisations have different bundles of resources and competences, as you will see in Week 9.
- If resource heterogeneityis present in an industry then that heterogeneity will be short-lived – resources tend to be imitable or mobile, and hence the advantages they bring will inevitably be only temporary. Conversely, RBV theorists believe that heterogeneity can be preserved in the long term and can also provide competitive advantage.
9.2 Dynamic critiques
Another critique of Porter’s work suggests that it lacks dynamism – that it is a static model. The increased dynamism of the environment and the speed with which industry boundaries are seen to shift support this critique. It may be that industry boundaries are fluid at the best of times. You may have found it challenging when conducting your own analysis – for example, to precisely identify the difference between one industry’s product or service and its substitutes. This reflects a difficulty with much of the analysis you will undertake in B302 – it is a matter of judgement on the part of the analyst, and the true nature of relationships may be uncertain.
This difficulty is magnified if industry boundaries are blurred, which many authors suggest is a direct and growing consequence of the unprecedented impact of technology on product and process innovation, and the growing importance of knowledge to an organisation. Information and communication technologies (ICT) and knowledge both have the ability to transform industry boundaries (The Open University, 2018c).
Porter’s answer
According to Porter, the framework is to be used for identifying the most important industry developments and for anticipating their impact on industry attractiveness. Porter suggests that any failure of the approach to anticipate future trends is a failure of the analyst rather than a failure of the framework. He robustly argues that, if used effectively to understand the current structure of competition and to establish a baseline from which you can forecast the potential for change, the five forces can be a dynamic predictive framework grounded in the structure of competition in any industry.
Porter argues that changes to industry structure are a fact of life and a failure to draw (or amend) an industry structure accordingly is a further failure of the analyst rather than a failure of the framework. He reiterates his argument that industries are distinguished by two primary dimensions: the scope of products and services, and the geographic scope. If boundaries are shifting or blurring rapidly, it is implied, then this needs to be recognised by redefining industry boundaries – the principle of the structure of competition and the five forces remains unchanged.
9.3 The number of forces
As you have seen, the concept of complementors was introduced by Robert Grant to better represent the complexity of industry relationships. A complementor is much more than a simple supplier, but is rather the co-creator of an organisation’s product or service offering and needs to be acknowledged as such. While acknowledging the continuing importance of Porter’s original five forces, some authors identified additional forces. An example of a new force is digitisation proposed by Downes and Mui (2000): it represents the continued pace of technological change, and the application of information technology to encourage ever widening e-commerce. Digitisation contributes to considerably reduced costs and helps eliminate a position of competitive advantage as new ways of doing things are created.
Porter’s answer
According to Porter, complementary products or services should be understood in terms of their effects on the five forces rather than as a separate force in their own right, because they do not in and of their own right influence the availability of profitability in an industry, but rather can change the evaluation of each force in an industry.
Adding other forces is not considered a way to improve the model. The five forces, according to Porter (1980, p. 86), explain how value created in an industry is retained by competitors or limited by the other forces. This must not be confused with attributes of an industry which are, for instance, at the level of innovation, which does not make an industry attractive per se. Often technologically advanced industries are unattractive because the underlying structure of the competitive forces makes them highly competitive.
9.4 Practice-based critiques
Among the practice-based critiques is a suggestion that a focus on the forces identified by Porter cannot help an organisation to judge an industry’s attractiveness, because to do so requires an impossible level of abstraction in deciding on the relative power of each force and its implications. Porter’s conclusion – that understanding these forces enables an organisation to make effective strategic choices – is often watered down to simply suggest that undertaking such analysis may help managers to make better decisions.
Another critique concerns the tendency of Porter’s framework (and similar frameworks) to encourage analysts to group various suppliers, buyers, and so on together, when not all suppliers or buyers are alike. An individual and a petroleum refinery may both be customers of an electric utility, but they cannot be said to share many characteristics, so encouraging them to be considered alike is seen as a serious failing.
Porter’s framework is also critiqued for being potentially indiscriminate about what data is used to undertake the analysis, and how that data is interpreted, especially as it is impossible to separate a manager’s experience and their company’s history and perspective from interpretations of how these relationships actually function (The Open University, 2018c).
9.5 Sector-based critiques
Porter and his team based the framework on observations of ‘hundreds of industries’ and ‘dozens of industry studies by MBA teams’ at Harvard Business School (Porter, 1980, pp. xvii–xviii). However, the observations were mainly of US organisations and also from manufacturing sectors, such as automobiles, or the then emerging high-technology industries, such as computing in those years.
The framework was also developed at the end of the 1970s, an era when the certainty of industry boundaries was much greater than the increasingly connected global economy in which we live today. While it did acknowledge the convergence of industries such as telecommunications and computing, the framework did not anticipate the extent of such convergence and the increasing and rapid blurring of industry boundaries.
This raises a valid general question: to what extent is a framework developed at a particular time and based on observations of a particular industry likely to work in a different context? This is not simply a criticism of Porter’s work, but could equally be applied to all the tools introduced in B302.
This type of critique has frequently been voiced by observers of the public sector or from voluntary organisations. Managers in these sectors may have similar concerns to their counterparts in for-profit sectors – for instance, understanding the dynamics of their operating environment and how they understand and build strategies to benefit from opportunities, or to nullify threats – but making the five forces model fit has been difficult. These types of organisations are often monopoly providers, so there is no industry rivalry and no potential for new entrants. Very often there is no substitute for the services they provide, given the nature of the relationship with their customers, who are often ‘beneficiaries’; that is, recipients of some kind of service rather than paying customers.
Public sector critiques, therefore, often suggest the need for a sixth force – government – in any application of the five forces model to a public sector body, in order to make sense of the context in which it operates.
Similarly, industries which are largely competitive but heavily regulated, such as utility providers, pharmaceuticals and (increasingly) finance, may also need a more explicit recognition of the role of government if any five-forces analysis is to meaningfully reflect the structural arrangement of their industry – a function that a macro economic analysis would not necessarily perform (The Open University, 2018c).
Porter’s answer
Porter suggests that analysts, while not ignoring government, should refine their understanding of any or all the five forces that government affects – heavy regulation is a barrier to entry and acts to dampen industry rivalry, for example. In the further readings you can find an example of application of the five-forces model to the public sector.
Applying Porter’s model or the six-forces model requires you to critically evaluate the data you generate and use a variety of different ideas to build up an accurate picture of the situation facing an organisation and the options available. In a complex situation, the answer to a problem is seldom likely to be obvious or straightforward. Why should we assume that one model will provide all the answers to the question ‘What should my strategy be?’ An intelligent consideration of each model, however, might help you begin to answer that question.
10 Strategic groups
The analysis of the industry often does not provide enough detail on the different competitors that are present in the same industry: for instance, can Lamborghini and Renault be considered actual competitors?
A different way of analysing competition in an industry and classifying competitors is to evaluate their strategies. This type of analysis, known as strategic group analysis (McGee and Thomas, 1986), occurs at a level somewhere between that of the industry and that of an organisation. It can be used to explain the current behaviour of organisations as well as to inform predictions regarding the possible future behaviour of groups of organisations (The Open University, 2018d). The assumption of strategic group analysis is that within some large industries there is likely to be a high degree of similarity between the strategies pursued by groups of organisations, but not among all the competitors.
Organisations within the same strategic group will be more similar to each other than they are to other organisations within the industry. For example McLaren, Lamborghini, Ferrari, Ford and Fiat-Chrysler are all car manufactures but they belong to different strategic groups. McLaren, Lamborghini and Ferrari are members of a strategic group that produces expensive cars and competes on the basis of high-quality precision engineering and innovative design; while Ford and Fiat-Chrysler offer a wider range of products, from small city cars to large SUVs, and compete on high volumes of sales and good value for money.
Figure 8.13 provides an example of a strategic group map of the world automobile industry, developed from Grant (2010). The two axes in the map are (a) product range and (b) geographical scope.
Figure 8.13 Strategic group map of the world automobile industry
In the map you might notice that similar car producers are grouped together. What is the meaning of this analysis? Strategic groups are groups of organisations which follow similar strategies. For instance, the performance car producers, where Lamborghini sits, create innovative, fast and expensive cars rather different from those created by Renault-Nissan. This type of analysis complements the six-forces analysis, offering a deeper understanding of the differences between competitors.
A strategic group analysis follows these steps:
- Identify (at least) two dimensions (axes) related to competitors in an industry. The competitors should show differences based on those dimensions, but the two dimensions should not influence each other.
The dimensions often considered in a strategic group analysis can be divided into two categories:
- Scope of activity: product/service markets served, geographical scope, choice of distribution channels, level of product quality control of suppliers or buyers.
- Resources committed: quality of the product, investments in research and development, investments in marketing.
- Plot the dimensions in a graph based on a coordinate system (as in Figure 8.13). One dimension should form the x-axis and the other dimension should form the y-axis.
- Identify the competitors and plot them on the graph. Companies that cluster together are likely to follow broadly similar strategies.
- Interpret the results by exploring the differences between groups.
It is noticeable from the strategic group map in Figure 8.13 that there are some areas where organisations choose not to compete, possibly for very good reasons (i.e. automobile companies may believe it is not possible to achieve profits by offering a very wide range of products within a purely national market, or by offering high-performance cars in all the emerging countries). But this does identify the extent of strategic space – areas where no competitors are operating, or areas that are not yet open and which may become attractive or available as the boundaries of the industry shift. Alternatively, this map may simply point out viable opportunities that up to now have been ignored by existing strategic groups. For example, as the wealthy classes develop in emerging markets, opportunities to offer to those customers high performance cars may emerge. Similarly, if China continues to grow, its market may become large enough to justify producers offering a full range of car models within its boundaries alone.
Activity 8.7: Conducting a strategic analysis of the UK banking industry
Spend approximately 45 minutes on this activity.
In this activity you are going to conduct a strategic group analysis of the UK banking industry. Doing so will help you understand the strategies pursued by each group.
To begin your analysis complete the following steps:
- Identify two dimensions that you will use to trace strategic groups. For example, some banks offer a wide range of services, others just current accounts – some banks have many branches, others just an online presence.
- Download here the strategic group analysis PowerPoint template.
- Note the two dimensions you have selected on the x- and y-axis of the template.
- Identify banks operating in the UK and plot them on the template.
Now, analyse your results to identify strategic groups within the UK banking industry. You should aim to identify some groups. Give each group a name and make sure you are clear about which banks fall into which group. Make a note of how the strategies used by the groups differ from each other.
In Tutorial 1 you will have the opportunity to discuss the strategic groups and their different strategies with your fellow students.
Summary
Week 8: Check your learning
Spend approximately 20 minutes on this activity.
Now finish your studies this week by spending a few minutes thinking about what you have learnt. Note down your thoughts in the text box provided below.
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Week 8: Check your learning
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Additional resources
If you are interested in knowing more about some of the concepts presented during this week, here are some further readings and additional resources. However, bear in mind that suggested further readings are optional, not part of your calculated weekly workload and will not be part of the assessment of the module.
In the following interview, produced by Harvard Business Publishing, Michael Porter publicises a new version of his seminal paper.
- Porter, M. E. (2008) ‘The Five Competitive Forces That Shape Strategy’, YouTube video [Online]. (Accessed 17 May 2019).
Although the application of Porter’s model to the public sector is not straightforward, some examples have been developed, such as this one related to national mapping organisations:
- Denne, M. and Oosthuizen, H. (2008) ‘The strategic positioning and configuration of national mapping organisations as enablers of economic and social growth in South Africa’, South African Journal of Business Management, vol. 39, no. 3, pp. 41–55 [Online]. Available at https://pmt-eu.hosted.exlibrisgroup.com/primo-explore/fulldisplay?docid=TN_scopus2-s2.0-68149083015&context=PC&vid=44OPN_VU1&search_scope=EVERYTHING&tab=default_tab&lang=en_US (Accessed 17 May 2019).
You can also read Porter’s article in the Harvard Business Review about the five forces.
- Porter, M. E. (2008) ‘The five competitive forces that shape strategy’, Harvard Business Review, vol. 86, no. 1, pp. 78–93.
References
Barney, J. B. (1991) ‘Firm resources and sustained competitive advantage’, Journal of Management, vol. 17, no. 1, pp. 99–120.
BBC News (2018) ‘Shareholders approve Fox Disney deal,’ BBC News, 27 July [Online]. Available at https://www.bbc.co.uk/news/business-44987650 (Accessed 17 June 2019).
Brandenburger, A. and Nalebuff, B. (1995) ‘The right game: use game theory to shape strategy’, Harvard business review, vol. 73, no. 4, pp. 57–71.
Downes, L. and Mui, C. (2000) Unleashing the Killer App: Digital Strategies for Market Dominance, Boston, Mass, Harvard Business School Press.
Ferris, R. and Kopecki, D. (2019) ‘Tesla shares tumble as much as 10% as company misses Wall Street vehicle delivery estimates, cuts prices’ [Online]. Available at https://www.cnbc.com/2018/12/31/tesla-4q-2018-production-and-delivery-numbers.html (Accessed 17 May 2019).
Ferris, R. (2019) ‘Tesla shares fall by as much as 10.7% after deliveries miss by a wide margin’ [Online]. Available at https://www.cnbc.com/2019/04/04/tesla-q1-2019-production-and-delivery-numbers.html (Accessed 17 May 2019).
Fudenberg, D. and Tirole, J. (1984) ‘The fat-cat effect, the puppy-dog ploy, and the lean and hungry look’, American Economic Review, vol. 74, no. 2, pp. 361–6.
Giarratana, M. (2013) Strategy Notes, Milano, EGEA Tools.
Grant, R. M. (2010) Contemporary Strategy Analysis: Text Only, 7th edn, Hoboken, NJ, Wiley.
Hill, C. W. L., Jones, G. R. and Schilling, M. A. (2014) Strategic Management: Theory, 11th edn, student edn, Stamford, CT, Cengage Learning.
Hitt, M. A., Ireland, R. D. and Hoskisson, R. E. (2017) Strategic Management: Competitiveness & Globalization – Concepts and Cases, 12th edn, Australia, Boston, MA, Cengage Learning.
Johnson, G., Whittington, R., Scholes, K. and Pyle, S. (2011) Exploring Strategy: Text & Cases, 9th edn, Harlow, Financial Times Prentice Hall.
McGee, J. and Thomas, H. (1986) ‘Strategic groups: Theory, research and taxonomy’, Strategic Management Journal, vol. 7, no. 2, pp. 141–60 [Online]. DOI: 10.1002/smj.4250070204.
Megaw, N. (2019) ‘Challenger banks complain about barriers to growth’, Financial Times, 11 January [Online]. Available at https://www-ft-com.libezproxy.open.ac.uk/content/a54940b2-f1a1-11e8-ae55-df4bf40f9d0d (Accessed 17 May 2019).
The Open University (2018a) ‘Buyer power’, BB835 Week 3 The Dynamics of strategy [Online]. Available at https://learn2.open.ac.uk/mod/oucontent/view.php?id=1156781§ion=3.3 (Accessed 2 May 2019).
The Open University (2018b) ‘Substitutes’, BB835 Week 3 The Dynamics of strategy [Online]. Available at https://learn2.open.ac.uk/mod/oucontent/view.php?id=1337278§ion=3.4 (Accessed 2 May 2019).
The Open University (2018c) ‘External analysis’, B301 Week 6 Strategic analysis [Online]. Available at https://learn2.open.ac.uk/course/format/oustudyplan/resource.php?id=1283305&repeat=1 (Accessed 17 May 2019).
The Open University (2018d) ‘Strategic groups and strategic space’, BB835 Week 4 The Dynamics of strategy [Online]. Available at https://learn2.open.ac.uk/mod/oucontent/view.php?id=1337285§ion=3.6 (Accessed 2 May 2019).
Osborn, T. (2018) ‘What does it take to secure a banking licence?’, Specialist Banking, 3 October [Online]. Available at https://specialistbanking.co.uk/article-desc-6527_What%20does%20it%20take%20to%20secure%20a%20banking%20licence (Accessed 17 May 2019).
Ozcan, P., Dinçkol, D. and Zachariadis, M. (2018) ‘Monzo, Revolut and other challenger banks are shaking up the industry’, The Conversation, 23 July [Online]. Available at https://theconversation.com/monzo-revolut-and-other-challenger-banks-are-shaking-up-the-industry-99564 (Accessed 17 May 2019).
Porter, M. E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, Free Press.
Porter, M. E. (2008) ‘The five competitive forces that shape strategy’, Harvard Business Review, vol. 86, no. 1, pp. 78–93.
Salinger, M. A. (1990) ‘The concentration-margins relationship reconsidered’, Brookings Papers on Economic Activity, vol. 21, pp. 287–335.
Schmalensee, R. (1989) ‘Inter-industry studies of structure and performance’, in Schmalensee. R. and Willig R. D. (eds) Handbook of Industrial Organization Volume 2, Amsterdam, Elsevier, pp. 951–1009.
Acknowledgements
Acknowledgement Report B302 Block 2 Week 8 Grateful acknowledgement is made to the following sources: Every effort has been made to contact copyright holders. If any have been inadvertently overlooked the publishers will be pleased to make the necessary arrangements at the first opportunity.
Images
Introduction: © davemhuntphotography / www.shutterstock.com
Figure 8.1: Adapted from: Mellahi K., & Frynas J. G. (2015), ‘Global Strategic Management’, 3rd edition, Oxford University Press
Figure 8.2: Adapted from: Grant R. M. (2010), ‘Contemporary Strategy Analysis’, 7th edition, Wiley
2 © lightwise / www.123rf.com
Figure 8.3: Adapted from: Grant R. M., (2010), ‘Contemporary Strategy Analysis’, 7th edition, Wiley
Activity 8.1 © Peter Devlin / Alamy Stock Photo
Section 2.3 © SA Mathieson / http://www.geograph.org.uk/photo/259701 This file is licensed under Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0) https://creativecommons.org/licenses/by-sa/2.0/ ***
Section 3 © Brendan Riley / https://www.flickr.com/photos/digitalsextant/1061729364/in/photostream/ This file is licensed by Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0) https://creativecommons.org/licenses/by-sa/2.0/ ***
Taken from: https://www.bbc.co.uk/news/business-44987650
Section 4 Figure 8.5: Adapted from: Grant R. M. (2010), ‘Contemporary Strategy Analysis’, 7th edition, Wiley
Section 4 © Zack Sheppard / https://commons.wikimedia.org/wiki/File:Potter_queue.jpg This file is licensed under Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0) https://creativecommons.org/licenses/by-sa/2.0/ ***
Figure 8.6: Adapted from: Grant R.M., (2010), ‘Contemporary Strategy Analysis’, 7th edition, Wiley
Section 5 © attapoljochosobig / www.shutterstock.com
Figure 8.7: Adapted from: Giarratana, M. (2013), ‘Strategy Notes’, Milano, EGEA Tools
Figure 8.8: Adapted from: Grant R.M., (2010), ‘Contemporary Strategy Analysis’, 7th edition, Wiley
Section 6: Figure 8.10: Adapted from: Grant R.M., (2010), ‘Contemporary Strategy Analysis’, 7th edition, Wiley
Section 7 © Jair Fonseca / Dreamstime.com
Figure 8.11 Page 22 Figure: Grant’s six forces model 6: Block 2, Week 8: Adapted from: Grant R. M. (2010), ‘Contemporary Strategy Analysis’, 7th edition, Wiley
Section 8 Figure 8.12: Adapted from: Grant R. M. (2010) ‘Contemporary Strategy Analysis’, 7th edition, Wiley
Activity 8.3: © Ozcan, P. Dinçkol, D. Zachariadis, M. (2018), ‘Monzo, Revolut and other Challenger Banks are Shaking up the Industry’, The Conversation, University of Warwick
© Theo Osborn ***
Activity 8.6: © Whitwell J. (2018), ‘Would you trust your Salary to a start-up? We take a closer look at how safe new banks and so-called fintchs Monzo, Revolut, Starling really are’, This is MONEY, www.thisismoney.co.uk
Activity 9: © Michael Simons / www.123rf.com
10 Figure 8.13 Adapted from: Grant R.M., (2010) ‘Contemporary Strategy Analysis’, 7th edition, Wiley
Video and audio
‘Got milk? Dairy farmers getting squeezed out of changing market’, CNBC
