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Babette Bensoussan, The MindShifts Groupand Craig Fleisher, University of Windsor
Since writing our book Strategic and
structure analysis truly tweaked management’s
Competitive Analysis – Methods and Techniques for
attention. Porter’s approach was the first popular
Analyzing Business Competition
, we have often been
foray into using industrial economic theory as an
asked to identify the most useful or insightful
explicit framework for strategic analysis. Strategic
group analysis figured promi-nently in this
theoretical evolution and remains an important
component of modern strategy theory and practice.
technique is always highlydependent on the strategic issue
group or cluster of firms in an industry.
aspects of their competitive strategy.
Strategic group analysis is a subset of industry analysis,
which looks specifically at the different groups of rival firms
clustered around a similar competitive approach or strategic
position. It is used, among other things, to determine the:
• Different competitive positions that rival firms occupy.
• Intensity of competitive rivalry within and between
• Profit potential of the various strategic groups in an
distinguishes differences between groups and identifies
• Implications for the competitive position of the firm
Strategic group analysis plays an important role in
industry analysis as it explicitly addresses a key force in
While the concept of strategic group analysis dates back
Porter’s industry analysis framework – competitive rivalry –
to the early 1970s, it was not until 1980, with the publica-
and how it both impacts and is impacted by the other four
tion of Porter’s seminal work (Competitive Strategy: Techniques
forces. It forms the analytical link between industry
for Analyzing Industries and Competitors)
The five competitive forces often have disproportionate
4. Threat of substitution
impacts on the profitability across strategic groups and, by
The distinct strategies between strategic groups place
association, on firms within each strategic group.
emphasis on different parts of the industry’s value chain. Ifthe links in the value chain that are the source of a strategic
1. Threat of entry
groups’ competitive advantage are threatened by substitutes,
Barriers to entry define both the boundaries and
the group is at risk of lower profitability or worse,
structure of a strategic group within an industry. Common
barriers include superior cost structures, economies of scaleor learning, product/service attribute differentiation,
The five forces jointly determine the profitability of the
switching costs, distribution access, vertical or horizontal
industry, the strategic groups in the industry, and individual
diversification, capital intensity, proprietary technology, and
firms within the strategic groups. Porter (1980) further
suggests four factors that influence the group’s competitive
However these barriers mutate over time. Innovation,
for example, is a key to dislodging established barriersbecause it can radically change industry structure. The
1. Intensity of internal rivalry between firms in the same
optimal strategic focus for a firm attempting to redefine
competition inside of its existing strategic group is to jump
to another strategic group or define a new strategic group.
3. Cost of entry into the strategic group.
4. Organizational capabilities to implement the firm’s
2. Internal rivalry
Three factors determine the intensity of rivalry between
The analyst’s essential task is to best position the firm’s
resources and capabilities to capitalize on opportunities and
• Number of industry groups and their market share
also defend against or move away from threats in the
• Strategic distance between groups — the magnitude of
• Market interdependence of groups — market
Strategic and Competitive Analysis – Methods and
Techniques for Analyzing Business Competition,
Craig S. Fleisher and Babette E. Bensoussan
A directly proportional relationship exists between each
(2003) Prentice Hall, NY.
of these three factors and rivalry. For example, strategic groups
Strategic and Competitive Analysis
(who by definition are pursuing different business strategies)
sively examines 24 of the techniques involved in
may target the same customer segment. The resulting clash
analyzing business and competitive data and information
for customer share increases rivalry between the groups.
including environmental analysis, industry analysis,competitor analysis, and temporal analysis models. It
3. Bargaining power of buyers and suppliers
helps business analysts and decision-makers to draw
Strategic groups can influence suppliers’ and buyers’
effective conclusions from limited data and to put
together information that does not often fit together atfirst glance. The book features conceptual ideas about
• If the strategic groups within an industry source from
business and competitive analysis along with a strong
the same set or type of suppliers and sell to the same
customer segment, the only differentiating feature
The book was written with both the CI specialist
between groups will be their strategies.
and non-specialist in mind. The book encouragesreaders to review, understand and improve the current
• When strategic groups source from different types of
practices of strategic and competitive analysis with
suppliers and sell to different customer segments,
which they are engaged. Especially relevant is the
bargaining strength could be a factor of the strategic
comparative methodology, called the FAROUT
groups’ differing strategies and types of buyers and
method, underlying the description of each technique
suppliers, or a combination of both.
that helps the reader apply the proper technique undertheir particular environmental and organizationalcircumstances.
Volume 6 • Number 1 • January-February 2003
more traditional approaches to product/market segmentation
and stereotypical definitions of strategic business units.
STRATEGIC GROUP ANALYSIS
The identification of strategic opportunities and risks
associated with industry evolution is also very helpful for
dealing with change. This model encourages the analyst to
High. An excellent tool for scenario analysis and
look across the entire spectrum of groups to find innovative
pathways of least resistance or, ideally, to build newpathways through innovation.
Low to medium. Highly qualitative inputs,
statistically non-verifiable, accuracy will decline if theanalysis isn’t part of a broader industry analysis.
Strategic group analysis provides little guidance on
implementation and gives short shrift to the internal organi-
zational capabilities needed for successful implementation of
Medium. Input from various data sources both
the chosen strategies. Supplementing the technique with
primary and secondary may be necessary to achieve
value chain analysis compensates for this weakness, and was
correct identification of multiple variables.
one of the reasons Porter subsequently developed valuechain analysis.
Strategic group analysis does not explicitly incorporate
Medium. Significant inputs are subjective and rely
the importance of government and social issues as a separate
on the analyst’s judgment, objectivity can be reduced by
variable on the competitive dimension. It also assumes that
iteration, group identity effects can drastically reduce
firms have cognitive and learning abilities, which some firms
display more competence in than others.
The application of strategic group analysis depends on
identifying the strategically important dimensions of compe-
High. Can be used for both current and dynamic
tition. Inaccurate identification and inappropriate weighting
of these variables skews the correct identification of strategicgroups, leading to ineffective strategic recommendations.
One problem is accessing profitability data for the
Medium. Strategic group analysis can be conducted
companies in the strategic groups, whether they are
in a relatively short period of time.
nonpublic firms or aggregated financial results for diversifiedfirms. The best solution for this challenge is to use public
From Bensoussan, Babette and Fleisher, Craig. ‘A
profitability data sources and supplement them with
FAROUT way to manage CI analysis.’ Competitive
comparative cost analysis and disaggregated financial ratio
, April/June 2000, 3(2), 37-40.
analysis. Then map the different groups on a graph thatincorporates the two strongest strategic variables thatdifferentiate them.
competitive environment. Selecting the most attractive
In-depth industry knowledge and iterative learning are
industry group in which to compete is an essential
the two most important ingredients to effectively choose the
best two dimensions for each map axis. Often, more thanone map is constructed if more than two competitivevariables are deemed significant. Additionally, the analyst
may discover that some groups overlap while other groups
Strategic group analysis’ primary strength is its compre-
cannot be defined by the model because they do not exhibit
hensiveness: it encompasses a wide array of conceivable
any type of coherent strategy or they radically oscillate
variables when conducting an environmental analysis.
Strategic group analysis offers several layers of increasinglyfiner analytical procedures for making the link from broad
APPLYING STRATEGIC GROUP ANALYSIS
industry structure to firm-specific strategic implications.
Without first distinguishing the differences between
The process for applying strategic group analysis has
industry structure as evidenced by strategic groups, average
comparisons across an industry can be meaningless at bestand misleading at worst. Strategic group analysis often
results in more accurate strategic analysis as opposed to the
TABLE 1: KEY VARIABLES FOR DEFINING
alternative strategies, key success factors, assets and skills, and
barriers to entry. In this area you may want to look at–
3. Gauge the strength of barriers between groups.
First, identify the factors that prevent firms in one
strategic group from competing with firms in another group.
McGee and Howard (1986) suggest the following three
classifications of barriers (this list is by no means all
• Relationship to home and host• Vertical integration government
• market-related strategies – product line, market
segmentation, distribution channels.
3. Identify relative competitiveness of each strategic group.
• industry supply characteristics – economies of scale,
4. Understand firms’ strategy vis a vis strategic group
• firm characteristics – management skills, diversification,
5. Identify appropriate strategic responses.
Second, assess the strength of bargaining power between
1. Analyze industry structure
groups and industry buyers/suppliers. Identify the relative
First, complete a five forces industry analysis. (See
importance of the two sources of bargaining power between
Fleisher/Bensoussan 2003, Chapter 6 for an explanation of
strategic groups: common suppliers and buyers, and
how to undertake an industry analysis.) This analysis will
Third, determine the threat of substitutes between
groups. Analyze the different value chain links that the
different strategic groups compete around to determine each
group’s vulnerability to the threat of substitutes.
Fourth, evaluate the intensity of internal rivalry between
groups. Determine the relative impact of the four factors
Once this is completed, the analyst can now refine the
• intensity of internal rivalry between firms in the same
identification of the unique factors of membership in a
certain strategic group relative to the competitive position of
• costs of entry into the strategic group, including both
Second, identify all of the major competitors in the
industry based on competitive variables. All of the signifi-cant
• organizational capabilities to implement the firm’s
participants within an industry must be identified based on
the various strategic variables in the industry. (See Table 1:Porter’s Key Variables.) Porter’s list is not all inclusive, as work
Fifth, undertake a Five Forces analysis of the strategic
by Rumelt (1981), Gailbraith and Schendel (1983), Ackoff
groups. Integrate the analysis of steps 1 through 3 to
(1970), Dill (1958), and Aldrich (1979) suggest additional
determine each strategic group’s relative competitive
elements of the competitive dimension. However, this serves
positions, the intensity of their mutual dependence, and the
as a useful launch pad for brainstorming.
potential for industry volatility based on:
2. Map the strategic groups
Separate the list of significant competitors into strategic
• Strength of bargaining power between groups and
groups, those firms with similar strategies and competitive
positions. Interviews with top managers and functional
experts provide the best sources of information regarding
• Intensity of internal rivalry between groups.
Volume 6 • Number 1 • January-February 2003
4. Understand firm’s strategy vis a vis strategic
Fleisher, C. and Bensoussan B.(2003) Strategic and
competitive analysis: methods and techniques for analyzing
Select the firm’s membership in the optimal strategic
. Prentice Hall.
group. Mentally overlay the Five Forces model of the strategic
Galbraith, C., & Schendel, D. E. (1983). ‘An empirical
groups on top of the firm’s strengths and weaknesses. Identify
analysis of strategy types.’ Strategic Management Journal,
the strategic group that presents the greatest opportunity to
exploit the firm’s strengths and minimize the firm’s
McGee, J., & Thomas, H. (1986). ‘Strategic groups:
weaknesses, given the firm’s existing strategy.
theory, research and taxonomy.’ Strategic ManagementJournal, 7
5. Identify appropriate strategic responses.
Porter, M. E. (1973). Consumer behavior, retailer power,
Consider the industry’s evolution and analyze the
and manufacturer strategy in consumer goods industries
strategic opportunities and threats that accompany radical
Unpublished doctoral dissertation, Harvard University.
industry change. Depending on the firm’s available
———. (1979). ‘The Structure of industries and
resources, organizational capabilities, and risk preferences,
companies performance.’ The Review of Economics and
two different types of strategic intent can be pursued to
meet the challenge of industry evolution:
———. (1980). Competitive strategy: techniques for
analyzing industries and competitors
. Collier Macmillan
• Mildly proactive — coping strategy.
• Intensely proactive — shape-shifter strategy.
Rumelt, R. P. (1984). ‘Towards a strategic theory of the
firm.’ In R. B. Lamb (ed.). Competitive strategic management
• Create a new strategic group• Move to a better strategic group• Strengthen the existing group or the firm’s position
Babette Bensoussan is a director of The MindShifts Group, an
Australian globally networked organization specializing in
• Move to a new group and strengthen that group.
strategic planning, marketing, and competitive intelligence, inthe Australasian region. She has carried out numerous CI
Keep a cautious eye on group identity dysfunction. The
projects, studies, workshops and seminars in a wide range of
analyst should watch for any signs of common dangers
industries and markets including microelectronics, real estate,
resulting from strong identity with a strategic group, such as
pharmaceuticals, tourism, water and waste-water management
reduced flexibility, strategic myopia, and sub-optimizing
and manufacturing operations to name a few. Babette was the
first international recipient of the SCIP Fellows Award and has
In conclusion, Strategic Group analysis is quite valuable
published numerous articles on strategic planning, competitive
as a descriptive tool and contributes to an understanding of
intelligence, and strategic marketing. She is an invited speaker
competitive dynamics, industry evolution and structure.
and guest lecturer both domestically and internationally.
Due to the highly qualitative inputs and reliance on the
Babette can be reached at
analyst’s judgments, accuracy and objectivity will decline.
As with most good analytical tools there are no short cutsand this does take some effort to deliver.
In order to understand this technique’s relative efficacy,
Dr. Craig S. Fleisher is the Odette Chair in research, and
we would encourage the reader to review our FAROUT
professor of business strategy and entrepreneurship, University of
Summary, which assesses the technique against other
Windsor, Ontario, Canada. Canada’s only SCIP Fellow, he is
strategic methods of analysis across the six FAROUT
co-editor of the new academic
Journal of Competitive
dimensions. (Fleisher/Bensoussan 2003, chapter 3.)
Intelligence and Management. The author of numerous CIarticles and books, his
Controversies in CompetitiveIntelligence (w/ D. Blenkhorn, Quorum Books) is due for
release December 2002 and
Frontiers in Managing
Ackoff, R. L. (1970). A concept of corporate planning
Competitive Intelligence (w/ D. Blenkhorn, Quorum Books)
was published in 2001. He has held academic positions at the
Aldrich, H. (1979). Organizations and environments
Universities of Calgary, New Brunswick, Wilfrid Laurier
(Canada), Pittsburgh (USA), Sydney (Australia) and Waikato
Dill, W. R. (1958). ‘Environment as influence on
(NZ) while his industry experiences include positions in strategy
managerial autonomy.’ Administrative Science Quarterly, 2
consulting and mortgage banking management. Craig can be
reached via e-mail at
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