Strategy Analysis: A Comparison Between the Personal Computer Industry and the Defense Industry.

Strategy analysis: A comparison between the personal computer industry and the Defense industry.

Introduction:

The first step in analyzing industries and applying strategy analysis is to identify the competition in that market. Competition in most markets is intense and the threat of substitution products/services is a key threat to any firm in any industry.

When using strategic analysis in analyzing a firm in a certain industry, three major analyses must be apprehended. First, Industry analysis must be conducted. Industry analysis is assessing the profit potential of each of the industries that one firm is competing since the profitability of different industries differ systematically and predictably over time, and is affected by many external factors.

The “Five forces model” put forth by Michael porter is widely regarded as the backbone in strategy literature when assessing the profitability of an industry. The five forces are; Rivalry among existing firms, threat of new entrants, threat of substitute products, bargaining power of buyers and bargaining power of suppliers. Detailed aspects about and regarding these factors are assumed to be known and will not be discussed any further.

Second, competitive strategy analysis is conducted. Such an analysis is useful since a firm’s profitability is not only determined by its industry structure but also by the strategic choices it makes in positioning itself in an industry. The two most generic strategies are cost leadership and differentiation.

Third, is corporate strategy analysis, which focuses beyond the individual business level and tries to evaluate the business and strategies as well as the economic consequences of managing all different businesses under a single corporate umbrella.

Industry analysis in the personal computer sector

Competition in the personal computer industry is very intense. This is caused by several factors.

Products produced by firms competing in the personal computer market are virtually identical and there are a few opportunities to actually differentiate the products. Although brand name was of importance in the peak of the industry in the early 1990’s, it became an insignificant factor when buyers gained more knowledge about the technology. Switching costs are relatively low in this market because a vast majority of computers have intel microprocessors and Microsoft operating systems or are products of Apple.inc which dominate a big share of the market and has its share of loyal customers.

Another cause of the high competition is the fact that all components that go in the manufacturing process of personal computers are available and there are a few barriers for entering the market.

Buyers and suppliers have significant power over firms in the personal computer industry. Corporate buyers (corporations, agencies, universities.) who represent a large portion of the customer base are highly price-sensitive and they are less influenced by brand name but by prices when deciding on a purchase order. From a seller’s point of view, there are only 1 or 2 companies that act as oligopolies (monopolies in some cases) in the market for microprocessors and operating systems.