Strategy Survival Guide

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Strategy Survival Guide Version 2.1 Prime Minister’s Strategy Unit home | strategy development | strategy skills | site index Strategy Skills > Building an Evidence Base Analysing data - Market analysis > in practice Market analysis aims to provide: • Insights into and understanding of industry and departmental positions • Knowledge of the likely impact of various policy actions on departments and industry structure • Understanding of likely international reactions and reactions of private and voluntary sector to changes. There are a number of different frameworks that can be used for market or industry analysis: • Structure, Conduct, Performance • Forces at Work • Cost Structure Analysis Structure, Conduct, Performance This can be used to analyse different components (e.g. demand or supply chain economics) of industry structure and their impact on the conduct of private and public sector players in the sector. It is mainly used for strategy studies where it is important to understand the industry dynamics and how government and the private sector interact. The analysis needs to consider a number of different elements when analysing structure, conduct and performance. Shock Structure Conduct Performance Technology breakthroughs Changes in government policy or regulation Changes in tastes/lifestyle Economics of demand • Market failures • Availability of substitutes • Differentiation of services • Rate of growth Economics of supply • Private v public supply • Market failures • Diversity of producers • Fixed/variable cost structure • Technological opportunities Chain economics • Bargaining power of input suppliers • Bargaining power of customers • Information market failure • Vertical market failure Marketing • Pricing • Promotion • Distribution Capacity change • Expansion/contraction Vertical integration • Contract out • Joint ventures • PPP Internal efficiency • Cost control • Logistics • Organisation effectiveness PSA attainment Social welfare Technological progress The key steps to conducting an industry analysis set out below: Strategy Survival Guide – Strategy Skills Page 136
Steps Determine what to look for Desk and field data collection Interpret data in industry analysis Key Features • Focus on major issues • Avoid looking for ‘anything about the industry’ • Start with overview information • Only get raw data once issues identified • Most use if done early in study Gather overview data first: • Identify key industry players • Look for industry studies • Consult private sector company reports • Consult public sector reports • Consult with department and external experts • Examine which of the elements are unusual or particularly influential Other published information: • Smart use of search engines • Trade associations • Trade magazines • Business press • International government sources Forces at Work This model presents an alternative for structuring industry assessments based on the suppliers, new entrants, buyers, substitutes and industry competitors: Rivalry determinants • Mutual dependence • Concentration of competitors • Number of competitors • Industry growth rate • Cost structure • Diversification of competitors • Differentiation and switching costs • Capacity utilisation and expansion pattern • Strategic stakes • Exit barriers Forces at Work Entry Entry barriers • Economics of scale • Product differentiation • Capital requirements • Switching costs • Access to distribution channels • Government policies • Expected Retaliation Suppliers Rivalry Customers Supplier power determinants • Concentration • Relative importance of sale to supplier and buyer • Supplier’s knowledge of product’s value to buyer • Standardisation and differentiation • Customisation • Switching costs • Suppliers have low margins • Threat of forward integration • Importance of quality to buyer Substitutes Substitution determinants • Relative price performance of substitutes • Switching costs • Buyer propensity to substitute Customer determinants • Intrinsic Strength • Price Sensitivity • Concentration • Price total • Buyer Volume purchasing • Switching costs • Product differences • Buyer information • Brand Identity • Ability to backward integrate • Impact of quality / performance • Substitute products • Buyer’s • Pull through profitability • Relative importance of • Decision maker sale to buyer and incentives supplier The forces at work model provides a comprehensive checklist for analysing the structure of industries and sectors. The framework should not be used just to give a snapshot in time. It is important not just to describe the forces, but also to understand their future impact. The five forces are not independent of each other. Pressures from one direction can trigger changes in another. For example, potential new entrants finding themselves blocked may find new routes to market by bypassing traditional distribution channels and selling directly to consumers. Strategy Survival Guide – Strategy Skills Page 137
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Strategy Strategy Survival Survival
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Building an Evidence Base 113 Data
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A Framework for Strategic Direction
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Designing an implementation plan In
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Creating Public Value http://www.nu
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Strategy Survival Guide

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