What are some characteristics of Strategic Groups and what are some ways to map Strategic Groups.
Carpenter and Sanders (2008) define strategic groups as a group of firms competing in the same industry. These firms are rivals against one another, and often reflect similar strategies, resources, capabilities, and face similar threats as well as opportunities (Carpenter & Sanders, 2008). Conversely, firms that compete in the same industry but have different strategies, resources, and capabilities face different threats. Using Porter’s five-factor model is where a firm can differentiate which threats and opportunities set their firm apart from the rivals. “One way to recognize differences in opportunities and threats is to examine the different effects of the five forces on different strategic groups.” (Carpenter & Sanders, 2008, p. 112).
Strategic mapping allows a firm to assess the different strategic groups in the industry, and reevaluate the firm’s strategy and internal resources and capabilities compared to rivals in the industry. Strategic mapping is therefore assessing the activities and strengths of competitors using the five-factor model, identifying differences, and using those differences to distinguish one strategic group from another. This type of mapping should be conducted only against direct competitors (Carpenter & Sanders, 2008). The exercise acts as a way to segment competition in a particular industry, shedding insight on internal competition, direct competition, and future competition. This mapping allows a firm to better understand who the competitors are, and create a strategy that better positions the firm to compete and be successful.
How can one use Porter’s four-step approach to make predictions about competitors?
Porter suggests a four-step approach when it comes to predicting competitors’ behaviors. The first step is to understand competitor objectives, which Carpenter and Sanders (2008) state can be easy when a firm is publically held and information is available to the public. “The second step is to determine the competitors’’ current strategies.” (Carpenter & Sanders, 2008, p. 116). This is where the strategic group map can assist a firm in assessing competitor activities. Current strategies would be covered in the mapping by assessing the various strategies and resources the competitor is using to try and compete in the market. Public documents should also expose the arenas, vehicles, differentiators and economic logic of competitors’, if the competing firm is publicly held. The third approach is assessing competitors’ assumptions of how they compete and how they see themselves competing in the market. “People’s behaviors are strongly influenced by the assumptions they make about themselves and the world.” (Carpenter & Sanders, 2008, p. 116). Top-level executives and stakeholders are usually the individuals that hold the insights into a firm’s future behavior. The fourth step is identifying what the competitors’ key strengths and weaknesses are. By identifying these two characteristics a firm can better define where competitors’ will allocate resources and capabilities to try and accentuate strengths, and improve weaknesses.
When combining these four steps, a firm can better assess in detail current competitor behaviors as well as future behaviors. This analysis can better prepare a firm to not only redefine how to compete in the industry, but also block or protect the business from competing rivals.
How can one use scenario planning to predict the future structure of the external context.
Scenario planning helps to eliminate any questions a firm may come across when assessing industry challenges, competitor activities, competitors’ strengths, weaknesses, resources and capabilities. “The process of developing scenarios and then conducting business according to the information that they reveal makes it easier to identify and challenge questionable assumptions.” (Carpenter & Sanders, 2008, p.125). Firms try to rule out doubts and any variables that may be blurred in strategic planning. Using the strategy diamond, Porter’s five-factor model, Murray’s (n.d.) 53 model, as well as strategy mapping offer all slightly different benefits to fully assessing a market, the competitors in the market, how a firm can better position themselves in the market, and assess rival resources and capabilities that could hinder the company’s success. It’s the idea of ruling out any potential threats that may be predicable and avoidable while achieving the highest profitability.
The need to understand the dynamic characteristics of the external context.
A firm must be able to assess the external context for which it will or is competing in. According to Porter (2008) states, “Competition is often looked at too narrowly by managers.” Without proper analysis, and thorough assessments periodically of the environment, competitors, strategic groups, and trends and uncertainties, a firm will find itself struggling to compete.
There are a number of factors that impact the success of a business. Every industry has different economic drivers (Porter, 2008). The five-factor model offers an opportunity to identify trends and windows of profitability by examining buyers, suppliers, competitors, entry and exit barriers, as well as internal strengths and weaknesses. Using various tools can add to a firm’s competitive advantage. According to Murray (n.d.), “The model attempts to reinforce the view that the successful business should be in a continual state of flux, integrating new products or services, activities, or geographic regions and abandoning those which no longer fit with the evolving portfolio of capabilities.” (p. 87). By using Murray’s (n.d.) 53 model, Porter’s five-factor model, SWOT analysis, and a PESTLE analysis, and strategic grouping, a firm can accurately assess the industry being pursued and competitor characteristics.
“Ultimately, the goal is to define strategy opportunities that get all employees and resources aligned and working towards a common purpose for the business and gaining a competitive advantage.” (Porter, 2008). Industries fluctuate and in order for a firm to actively compete and maintain market share, external assessments must be carried out often. The biggest take away from Porter’s (2008) interview is that by identifying the external context of an industry, a firm can develop differentiation from competitors, which allows multiple firms to be successful in an industry.
Carpenter, M. A. & Sanders, Wm., G. (2008). Strategic management: A dynamic perspective. Upper Saddle River, NJ: Pearson Prentice Hall.
Murray, A. I. (n.d.). Strategic choice under knowledge competition. Retrieved from file:///C:/Users/allison.clark/Downloads/Murray_on_competitive_advantage_5_cubed_model(2)%20(4).pdf
Porter, M. (2008, June 30). The five competitive forces that shape strategy. [Web blog]. Retrieved from
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