Strategic Groups Framework
Grouping firms by strategy
The Strategic Groups Framework is a tool used to group firms within an industry based on their strategies. This framework helps to identify the different strategic positions of firms within an industry and understand how they compete with each other. By analyzing the strategic groups within an industry, businesses can better understand their competitive landscape and make informed decisions about their own strategy.
- Firms within an industry can be grouped into strategic groups based on their strategies
- Strategic groups are protected by mobility barriers, which make it difficult for firms to change their strategic position
- The height and composition of mobility barriers vary across strategic groups, affecting the profitability of firms within each group
- Identify Strategic GroupsIdentify the different strategic groups within an industry based on the strategies of firms. This involves analyzing the strategies of firms and grouping them into categories based on their similarities and differences.Pro tipUse a combination of qualitative and quantitative data to identify strategic groupsWarningBe careful not to oversimplify the complexity of firms' strategies
- Assess Mobility BarriersAssess the height and composition of mobility barriers protecting each strategic group. This involves analyzing the factors that make it difficult for firms to change their strategic position, such as economies of scale, product differentiation, and capital requirements.Pro tipConsider the role of firm-specific assets and capabilities in creating mobility barriersWarningBe aware that mobility barriers can change over time due to changes in the industry or firm-specific factors
- Analyze Bargaining PowerAnalyze the relative bargaining power of each strategic group with its suppliers and buyers. This involves assessing the factors that affect the bargaining power of firms, such as their size, differentiation, and switching costs.Pro tipConsider the role of industry structure and market conditions in affecting bargaining powerWarningBe aware that bargaining power can vary across different strategic groups
- Assess Threat of SubstitutesAssess the relative position of each strategic group vis-à-vis substitute products. This involves analyzing the factors that affect the threat of substitutes, such as the availability of substitute products, their price and performance, and the switching costs of buyers.Pro tipConsider the role of industry trends and technological changes in affecting the threat of substitutesWarningBe aware that the threat of substitutes can vary across different strategic groups
HP is in a strategic group in electronic calculators emphasizing high quality and technological leadership and focusing on the sophisticated user. This strategy limits HP's potential market share but exposes it to less price-sensitive and less powerful buyers than the firms competing with essentially standardized products in the mass market.
Sears is a large, broad-line, national department store chain that has a much greater volume of purchases and threat of backward integration as bargaining levers with suppliers relative to local, single-unit department stores.
The Strategic Groups Framework was developed by Michael E. Porter as a way to analyze the competitive landscape of an industry. Porter recognized that firms within an industry often have different strategies, and that these differences can affect their competitive position. By grouping firms into strategic groups, businesses can better understand the competitive dynamics of an industry and make informed decisions about their own strategy.