Unit 2: Industry and internal analysis
Corporate Strategy notes · PTU syllabus (MBA 401-18)
On this page
Unit summary
Firms must understand both the attractiveness of their industry and the strength of their own resources. This unit covers Porter's Five Forces, strategic group mapping, key success factors, the VRIO framework, value chain analysis, competitive advantage and core competency, and Porter's competitive strategies — cost leadership, differentiation and focus.
After this unit you can
- Analyse industries with Porter's Five Forces and strategic group maps
- Identify key success factors
- Analyse internal resources with VRIO and the value chain
- Explain competitive advantage, core competency and Porter's generic strategies
PTU syllabus topics
- Porter's Five Forces
- strategic group mapping
- key success factors
- VRIO framework
- value chain analysis
- competitive advantage and core competency
- Porter's competitive strategies (cost leadership, differentiation, focus)
Value
Does it exploit an opportunity or neutralise a threat?
Competitive disadvantage
Rarity
Do few competitors have it?
Competitive parity
Imitability
Is it costly to imitate?
Temporary advantage
Organisation
Is the firm organised to use it?
Unused advantage; if yes, sustained advantage
Topic 1
Porter's Five Forces model
Threat of new entrants
Barriers: economies of scale, capital, brand, regulation
Bargaining power of suppliers
High when few suppliers, unique inputs, switching costs
Bargaining power of buyers
High when buyers are concentrated, products standardised
Threat of substitutes
Alternatives from other industries
Rivalry among existing competitors
Many rivals, slow growth, high fixed costs, low differentiation
- The stronger the forces, the lower the industry's profit potential.
- Complementors are sometimes added as a sixth force.
Example
Indian airline industry: low barriers to start (aircraft leasing), powerful suppliers (Boeing, Airbus, fuel), price-sensitive buyers, substitutes (Vande Bharat trains), intense rivalry — so profits are thin.
Exam tip
Draw the five-forces diagram with rivalry in the centre — the diagram alone earns marks.
Topic 2
Strategic group mapping
- Strategic group: firms in an industry that follow similar strategies on key dimensions (price, quality, range, channels, geography).
- 1Identify competitive characteristics
Price and quality, product range, distribution
- 2Plot firms on two key variables
- 3Group firms in similar positions
- 4Draw circles proportional to group sales
- 5Interpret
Who are the closest rivals? Where are empty spaces?
Example
In Indian cars, mass-market makers (Maruti, Hyundai, Tata) form one group on price and range, while luxury makers (Mercedes, BMW, Audi) form another — firms compete most intensely within their own group.
Topic 3
Key success factors
- Key success factors (KSFs): the few things a firm in an industry must do well to compete successfully — product attributes, competencies, capabilities and market achievements.
- Examples: FMCG — distribution reach and brand building; airlines — load factor, on-time performance and cost per seat-km; IT services — talent and client relationships; cement — logistics cost and plant location.
- Questions to identify KSFs: on what basis do buyers choose? What resources and capabilities does a seller need? What does it take to achieve sustainable advantage?
Topic 4
The VRIO framework
- 1Valuable?
Lets the firm exploit opportunities or neutralise threats
- 2Rare?
Few competitors possess it
- 3Costly to imitate?
History, causal ambiguity, social complexity, patents
- 4Organised to capture value?
Systems, structure and culture to exploit it
| Valuable | Rare | Costly to imitate | Organised | Competitive implication |
|---|---|---|---|---|
| No | – | – | – | Competitive disadvantage |
| Yes | No | – | – | Competitive parity |
| Yes | Yes | No | – | Temporary advantage |
| Yes | Yes | Yes | Yes | Sustained competitive advantage |
Topic 5
Value chain analysis
Primary activities
Inbound logistics, operations, outbound logistics, marketing and sales, service
Support activities
Firm infrastructure, human resource management, technology development, procurement
Margin
Value created minus cost of activities
- Uses: identify sources of cost advantage and differentiation, find linkages between activities, decide what to outsource, benchmark against rivals.
Topic 6
Competitive advantage and core competency
- Competitive advantage: an edge that lets a firm earn above-average returns — by creating more value for customers or delivering it at lower cost.
- Sustainable advantage resists imitation over time.
- Core competency (Prahalad and Hamel, 1990): a collective learning that provides access to a wide variety of markets, contributes significantly to customer benefits and is difficult to imitate.
Example
Honda's competence in engines underpins its cars, motorcycles, generators and lawnmowers; Titan's design and precision-manufacturing competence extended from watches to jewellery and eyewear.
Topic 7
Porter's competitive strategies
Cost leadership
Lowest cost in a broad market (DMart, Maruti Suzuki)
Differentiation
Unique product valued by a broad market (Apple, Titan)
Cost focus
Lowest cost in a narrow segment (Ginger Hotels)
Differentiation focus
Unique offering for a niche (Rolex, Taj luxury hotels)
- Cost leadership through economies of scale, efficient processes, low overheads; risk — technology change, price wars.
- Differentiation through quality, design, brand, service, innovation; allows a premium price; risk — imitation, customers unwilling to pay.
- Focus serves a specific segment better than broad competitors; risk — segment shrinks, broad rivals enter.
- Stuck in the middle: a firm without a clear generic strategy earns below-average returns (Porter). Critics point to hybrid / best-cost strategies (Toyota, IKEA) that combine low cost and differentiation.
Exam tip
Draw the 2 × 2 grid — competitive advantage (low cost vs uniqueness) on one axis, competitive scope (broad vs narrow) on the other.
Key terms
- Five Forces
- Rivalry, new entrants, substitutes, buyer power, supplier power
- Strategic group
- Firms following similar strategies within an industry
- Key success factor
- What a firm must do well to succeed in an industry
- VRIO
- Valuable, rare, inimitable, organised
- Core competency
- Collective learning giving access to many markets
Quick revision
- Five Forces and industry attractiveness.
- Strategic group maps; KSFs.
- VRIO and its implications; value chain primary and support activities.
- Competitive advantage; core competencies (Prahalad and Hamel).
- Cost leadership, differentiation, focus; stuck in the middle.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Name Porter's five forces.
- Q2.What is a strategic group?
- Q3.What are key success factors?
- Q4.Explain the VRIO framework.
- Q5.Name the primary activities of the value chain.
- Q6.What is a core competency?
Long-answer questions
- Q1.Explain Porter's Five Forces model with an Indian industry example.
- Q2.Explain strategic group mapping and key success factors.
- Q3.Explain the VRIO framework and value chain analysis.
- Q4.Discuss Porter's generic competitive strategies.
Stuck on this unit?
Message SBS on WhatsApp for help with Corporate Strategy, or to ask about studying MBA at Synetic.