Competitor groupings (strategic groups) - Strategic Management

During fierce competition or in an industry where there is fierce competition, some difficulties arise when Porter’s theory is applied. First, there are too many factors within the axis of the strategic dimension. In fact, when strategists in the firm try to draw the strategic group map, this situation is nearly equal to be given no road map at all. In relation to this, Porter suggests that“Strategic variables used as axes must be selected (totally) by the analyst”,“An industry can be mapped several times”, and “There is no necessarily right approach”.

Secondly, the strategic dimensions which he takes as examples are not always the unique mobility barriers of the strategic groups. This means that his argument: “different strategic groups carry with them different levels of mobility barriers, which provide some firms with persistent advantages over others” still leaves some ambiguity Thirdly, in spite of the fact that the final decision on the result of the competition is left to the customers’ choice of the products, Porter’s theory does not include how the customers acknowledge firms and the executed strategies by the firms. The strategic group theory has a premise that there are some sorts of firewalls between firms. The discussion regarding whether these firewalls get higher or lower or become obscure would require another discussion with a viewpoint of unstable situation between neighboring industries.

A development of the strategic group theory implicit premise that the strategy formulation is always conducted only by the supplier’s perspective and his logic. Finally, the biggest issue regarding Porter’s strategic group theory is the difficulty in discussing a firm’s shift amongst the groups over time. This luck of consideration is fatal in an industry where rivalry relations change frequently. The reason for this is that the mobility barrier in his argument treats the relationships between the groups as if they are almost static.

Therefore, his strategic group map is like a snapshot of the industry at a specific point in time, which cannot illustrate the changing state of affairs. In fact, firms shift amongst the groups consistently, and, therefore, it is important to realize these changing patterns of the strategic group.

Special competitor studies
The profiling approach will cover most competitor analysis needs most of the time. However, sometimes there may be a requirement to undertake a special study of one competitor or of several competitors in a comparative study. There is little difference in concept between undertaking a special study of a competitor to build competitive advantage or of a competitor or other organisation as an acquisition candidate.

The sources of information are the same, although the purposes may be different. A special study of a competitor may be more focused. It may be restricted to a functional area, such as their use of information systems, or a country (are they doing anything in Poland?), or to an attempt to predict the direction of their Research and Development. Such reports have to be designed to fit the purpose, so very little guidance can be given on their shape. Perhaps more interesting is an idea of some of the legitimate sources of information that can be tapped. This will be left until the end of the chapter, as it applies to every aspect of competitor analysis.

Value chain analysis
The value chain is a concept from business management that was first described and popularized by Michael porter. Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organization, and have the potential of a sustainable competitive advantage for a company. Therein, competitive advantage of an organisation lies in its ability to perform crucial activities along the value chain better than its competitors. The value chain framework of Porter (1990) is “an interdependent system or network of activities, connected by linkages”. When the system is managed carefully, the linkages can be a vital source of competitive advantage (Pathania-Jain, 2001).

The value chain analysis essentially entails the linkage of two areas. Firstly, the value chain links the value of the organisations’ activities with its main functional parts. Then the assessment of the contribution of each part in the overall added value of the business is made (Lynch, 2003). In order to conduct the value chain analysis, the company is split into primary and support activities. Primary activities are those that are related with production, while support activities are those that provide the background necessary for the effectiveness and efficiency of the firm, such as human resource management. The primary and secondary activities of the firm are discussed in detail below. Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings:

  1. Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and
  2. Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.

Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced").

Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps:

  1. Break down a market/organisation into its key activities under each of the major headings in the model;
  2. Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;
  3. Determine strategies built around focusing on activities where competitive advantage can be sustained

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Strategic Management Topics