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Workshop - Understanding Industry Dynamics

Asking questions of our partner organisation

You are not to contact our partner organisation directly.

In this course we use an online forum to communicate with our partner organisation. You can post questions there which the representative from our partner organisation will address when they visit in weeks 3 and 9.

Upload questions in the SLI.DO forum. The link for the sli.do forum and the special code you will need is in the MyRMITBlackBoard site. This is the only opportunity to directly ask questions of representatives from our partner organisation. They will come to the lecture in week four (next week!) to give an insider's perspective of the competitive pressures that are faced by the organisation. Remember, your understanding of the context of our partner organisation will be greatly enhanced if you ask questions of them. Posting questions to the SLI.DO forum is critical to your success in this course. As a minimum we expect four questions per group to be posted in the forum.

Introduction

The purpose of this workshop is to:

1. Build on what we have explored in the first workshops and lectures. Explore the differences between industry, sector and market.

2. Introduce tools that are helpful in understanding an organisation's industrial environment.

3. Help you to understand the nature of industry level forces and how they can help us to understand why organisations within industries compete in the manner that they choose.

4. Help you to understand the relationship between macro-level forces, sector level forces and industry level forces.

This workshop is designed to hold your attention at the industry level: we seek to identify forces are occurring in the external environment of the organisation that may be influencing the manner in which it chooses to compete within its industry. These industry forces have impact on all organisations working within the industry that Orygen competes in. Understanding how to identify these forces, undertake appropriate research to quantify these forces and predict the implications for the industry participants becomes a critical skill for anyone wishing to create an effective strategy. You will be asked to try and identify the stage of the industry lifecycle and draw some conclusions about how Orygen should act. You will also be asked to identify industry level forces using the Porter's Five Forces Model and you'll be asked to draw conclusions about how these industry level forces might influence how Orygen chooses to compete.

How this week connects to your assessment:

• Your group needs to understand how to assess the lifecycle stage of the industry that Orygen are in a this will have an impact on the way in which they may choose to compete in the future. Organisations that are at he beginning of an industry lifecycle have different kinds of opportunities and threats to contend with than organisations that have survived through to the maturity stage of an industry lifecycle. Any recommendations that you make need to take into consideration the dynamics of the industry.

• Michael Porter's work is central to understanding why industries develop the way that they do and therefore can help managers to understand some of the opportunities and constraints that are present within that industry which may help (or hinder) the firm's competitive stance. In your assignments you need to understand industry level forces as these will shape your strategic solutions to some degree. There are other models out there that build upon Porter's work, or that tackle the same issue from a different perspective. No matter which model or theory you choose to rely upon, you need to be able to justify how your firm's strategy accounts for these industry level forces.

Michael Porter contends that the main determinant of how organisations gain competitive advantage is through managers understanding the five competitive forces that exist in industries. Managers should then position the firm to take advantage of those forces or to act in such a manner that they reduce the negative impact of those forces. The key here is to realise that these forces operate at the industry level ad that they impact all firms that operate within that industry. Firms can choose how to interpret to these industry level forces and then form competitive strategies based on that understanding. Firm that understand these forces well and create appropriate strategies will, Porter reckons, outperform those that don't.

It becomes obvious that even when firms in the same industry understand competitive forces equally well, that they may still choose to compete in different ways. Some firms might choose to target only customers that value high quality (and therefore often high priced!) goods. Other firms might choose to focus on the segment on the market that prefers reasonable quality at a cheap price. If we think about the automobile manufacturing industry as an example, some firms choose to create high quality, high priced vehicles (think: Ferrari) while others choose to focus on the other end of the market (think: Kia). This is how strategic groups form.

Strategic groups are clusters of firms that choose to compete for a very similar segment of the marketplace within industries. Theses segments of the market, assuming that they are sufficiently differentiated from each other so that they can be distinguished apart, are often locations of fierce rivalry within the strategic group, but not necessarily between strategic groups. To continue with the example of the car manufacturing example above, it can be seen that makers of high performance, luxury sports cars (think: Ferrari, Porsche and Lamborghini) will compete with each other in their strategic group, but they will not compete with the makers of Kia, Mazda and Toyota who are trying to serve a completely different set of customers. Both strategic groups are within the car manufacturing industry, but each strategic group is differentiated sufficiently by the different requirements of their customers that it is possible to think of them as distinct areas of competition within the same industry.

The most important thing that strategists and managers need to recognise is that industry boundaries are artificially defined and that the basis of the definition of an industry is on how well it serves the specific needs of the customer. If managers define their industry boundaries too narrowly then they may not notice other firms that might satisfy the same needs of their customers in other ways. This might contribute to managers forming strategic blind spots and being caught off-guard when their customers begin to move away from the ‘traditional' offerings of the industry.

Understanding the industry in which Orygen works is important. What do you think the definition is of the industry? How is it defined? Visit the RMIT Library Management Subject Guide and explore the resources there. Pay particular attention to the IBISWorld database and the MarketLine??? Database. How have the creators of these databases grouped organisations into industries? What are they using as defining characteristics to include organisations in particular industries, but to exclude them from others?

• Make a list of the characteristics that you think define the industry that Orygen works within.

You have to be able to correctly identify the industry so that you can understand the forces that operate within that industry.