ISSS2007

August 2007

A development of the strategic group theory- A proposal on the three strategic group categories andintroducing the concept of distance into the analysis-

2007/08/07
Waseda University
Manami MIYAMOTO
1

Objective of the paper

A critical development of the strategic group theory
by M.E.Porter(1980) from the practical point of view.

2

Miyamoto

1

ISSS2007

August 2007

Contents

1.

Review of Study

2.

A development of the strategic group theory–3.

From the case of a Japanese Internet Service Provider.

Findings and Future discussion

3

Introduction 1.

1. For firms which face fierce competition within the industry,identifying how to conduct their competitive strategy effectively andhow to reflect their strategies into competitive circumstances
are the most important issues.
2. It is very common that a firm formulates its strategy based on its
own resources.
3. With tightening competition, it is risky to decide the firm’s activities onlyby the current resource base.
4. To formulate effective strategy, a firm should take into account therivals’ strategies which they execute and the customer’s selection
viewpoints as well.

4Miyamoto2ISSS2007

August 2007Introduction 2.
Porter. M. E.
“Competitive Strategy: Techniques for Analyzing Industries”(The Free Press, 1980)[Strategic Group definition]
The group of firms in an industry following the same or a similar strategy
along the strategic dimensions.
[His questions]• Why are some firms are persistently more profitable than others?
•How does this relate to their strategic postures?

He tried to explain them mainly through the concept of mobility
barriers.

5

Introduction 3．

A firm needs a competitive strategy, not only when
determining entry, but also when coping with thecompetitors after the entry.
Aslonglongasasaacompetitioncompetitionexists
existswithin
withinananindustry,industry,As
competitiveanalysis
analysisandandstrategy
strategyformulation
formulationare
arethethecontinuous
continuousissues.
issues.
competitive

6

Miyamoto

3

ISSS2007

August 2007

Review of Study
Strategic Group Mapping and Intergroup RivalryB

lettered symbol : Strategic GroupA

its size proportional to the collective
market share of firms in the group.

Key Strategic
Dimension

FC
The shape of the group is used torepresent their overall strategic
configuration.

Ewith differences in shape
representing strategic distance.

DG

Target Customer Segment
This display shows the Market interdependence or the extent to which their customer targets
overlap; The most important influence on rivalry among strategic groups is their market interdependence.
（“Competitive Strategy: Techniques for Analyzing Industries” ）7

The three categories

When a firm in a competitive circumstance formulates its strategy,
it refers similarities and differences with its competitors.
1. What resources do we have? (resource)
2. What strategy are competitors conducting? (executed strategy)
3. When the customer make a decision, which firm’s product dothey choose? (comparison and choice by the market)

Strategy analysis should be conducted respectivelyby the three categories.

8Miyamoto

4ISSS2007

August 2007

Premises in this paper

Point of view– from the strategy planner in the firm
– “How to create effective strategy for the firm’s own interest.”• The term “strategy” in this presentation refers to a substantial
level of planning by the managers.
• Strategy is going to be executed in the actual competitivemarket.

9Issues of the Porter’s Strategic group theory

10Miyamoto

5ISSS2007

August 2007

Issues of Porter’s Strategic Group Mapping and the Strategic
Dimension 4/4

It is difficult to identify a firm’s shift in the group−The expression of the mobility barrier treats therelationships between the groups as if they arestatic.
−It is unapplicable in an industry where rivalry
relationship changes frequently.
In fact, it is important to know about the shift of the firm and thechanging patterns of the strategic group.

112. A development of the strategic group theory

Proposal 1： Proposal on the analysis by 3 strategicgroup categories
Proposal 2 : Introduce the concept of distance into theanalysis
Finding : The gaps in the distance among the groups
In this presentation, Japan’Japan’s ISP (Internet ServiceProvider) industry during the five year period
19981998-2003 provides the setting for this study.
12Miyamoto

6ISSS2007

August 2007

Proposal 1

Competitive analysis- 3 proposed strategic group categories -1. The group by the mobility barrier. “Resource“Resource Group”
Group”
2. The group by the executed strategy. “Execution“Execution Group”
Group”
3. The market group by customers’ comparison. “Market“Market Group”
Group”

13

The impact on the three groups and the strategy Proposal 1

Execution Group【Customer’s reference point tosee what the firms do.】

The change of the strategy isrestricted by the resource.

Strategy shows up in the Market.

Resource Group

Market affects the resource
accumulation （initiates a decision)
Market GroupIndirect restriction
Customers are difficult to see.

【Resources that the firms possess..】【How the customer recognizes
and compares the firms.】

14Miyamoto

7

ISSS2007

August 2007

Proposal 2

Introduce
Introduce thethe concept
concept ofof distancedistance into
into thethe analysis
analysis

Distance = The extent of difference between the firms

15

Review of Study
Strategic Group Mapping and Intergroup RivalryB

lettered symbol : Strategic GroupA

its size proportional to the collective
market share of firms in the group.

Key Strategic
Dimension

FC
The shape of the group is used torepresent their overall strategic
configuration.
with differences in shape
representing strategic distance.

GE
D

Target Customer Segment
This display shows the Market interdependence or the extent to which theircustomer targets overlap. The most important influence on rivalry among strategic groups istheir market interdependence.
（“Competitive Strategy: Techniques for Analyzing Industries” ）Miyamoto

168ISSS2007

August 2007

Proposal 2

Needs for the Concept of the Distance
The more customer targets overlap in the market, the more difficult to draw
group boundaries as Porter does.
– A firm which takes a different strategic activity on a certain occasion might take thesame Strategic activity on other occasion.
– A firm might take and execute plural strategies at the same time.

Firm A

Firm AFirm A

Firm D
Firm BFirm
B Firm C

Firm C
Firm D

Difference at Time n

Firm B

Firm CDistance is the amount ofspace between two points.
It can be measured from thestarting point.
When a firm formulates its
strategy, the point ofreference is always itself.

FirmD

Difference at Time n+1

Difference at Time n+2

17

Proposal 2

Distance measurement

As a case of study, it conducts actual distance measurement inJapanese ISP.

18

Miyamoto

9ISSS2007

August 2007

From the case study :Japanese Internet Service Provider

Proposal 2

An industry which can apply the Concept of Distance effectively is

1. Firms compete fiercely through the reference of the rival’s strategicactivity.
2. As a result,••Precedence and following imitation occurs so often.
relative relationships among the firms changes frequently.

3. They can buy resources (industrial modules) which they don’t possessfrom outside.
••

Low mobility barrier,Difficult to differentiate from others.

4. The data that makes it possible to observe facts are available.
–It looks at seven major Japanese ISPs.
OCN, DION, ODN, @Nifty, BIGLOBE, Yahoo!BB,Yahoo!BB, Plala.
Plala.
–In the course of examination, OCN, the largest ISP in Japan provided
providedby NTT Communications Corporation, is the starting point of thedistance measurement.
19

Measurement and Analysis of the StrategicDistance

Proposal 2【Analysis Objective】–Identifying patterns of the strategic actions with rival
precedence and following.

【Items for quantification 】
1. The differences between the firms within eachgroup.
•The distance from OCN.

2. The state of change in relation to the distanceover time.

20

Miyamoto

10

ISSS2007

August 2007Proposal 2

Constructing Resource Group (an attempt to numerical conversion)

The resources which are necessary for the strategy execution tolead the competitive advantage in the Japanese ISP industry.
•Resource for the telephone service.
•IP facilities to provide its own original service,•Skills and work force for the on-sight work,etc..
If you look at plural resources, you can measure it in detail.
1998

1999

2000

2001

2002

2003

Nearest Rank 1

DION

DION

DION

DION

DION

DION

Nearest Rank 1

ODN

ODN

ODN

ODN

ODN

ODN

Nearest Rank 4

Plala

Plala

Plala

Plala

Plala

PlalaNearest Rank 5

BIGLOBEBIGLOBEBIGLOBEBIGLOBEBIGLOBEBIGLOBE

Nearest Rank 5

Nifty

Nifty

Nifty

Nearest Rank 5

Nifty

Nifty

Nifty

Yahoo!BBYahoo!BBYahoo!BB21

Proposal 2

Distance of the Executed strategy from OCN
Result of the measurement
Dial up
ADSL
Dup
電話代込み 定額制Dup 電話
ADSL
光Optical fiber
21.0
67.0
1.0
34.3
38.6
50.7
41.6
67.0
2.0
51.0
44.7
67.2
60.8
67.3
3.0
67.0
45.1
67.5
61.2
67.7
4.0
67.5
57.1
83.7
100.0
68.0
5.0
100.0
63.2
100.0∞∞∞
100.0
100.0 ∞
Phone chargeinclusive

DION
ODN
BIGLOBE
NiftyPlala
Yahoo!BBFixed pricedial up

Package withphone

22Miyamoto

11

ISSS2007

August 2007

Proposal 2

Result of the measurement of the Market Distance from OCN

The comparison ratio of the ISP with OCN at the time of customer’s
decision can be considered as the Market Distance from OCN.

MarketGroup

1998

1999

2000

2001

2002

2003

Nearest Rank 1

no comparisonno comparisonno comparisonno comparisonno comparisonno comparison

Nearest Rank 2

nifty

nifty

ODN

ODN

other

DION

Nearest Rank 3otherODN

DION

other

YahooBB

YahooBB

Nearest Rank 4

BIGLOBE

DION

other

DIONODN

ODN

Nearest Rank 5

ODN

BIGLOBE

niftynifty

DIONnifty

Nearest Rank 6

DION

other

BIGLOBEBIGLOBE

nifty

other

Nearest Rank 7

PlalaYahooBB

Plala

YahooBBBIGLOBEBIGLOBE

Nearest Rank 8

YahooBB

Plala

YahooBB

Plala

Plala

Plala

23

Summary and Findings

24

Miyamoto

12

ISSS2007

August 2007

Summary

1. A rival analysis about the competitive industry with theprecedence and the following–should be measured by the distances from the starting
point in accordance with the competitive dimensions, whichshow the extent of difference between itself and its rivasl.

2. An industry that this paper considers applicable is–

An industry which has a low mobility barrier or a low
imitation barrier.

–the one whose technology improvement is quite dynamic.
e.g. Japan’s ISP industry

25

Summary
3. Through this measurement, it is possible to analyze the changed
relationship between the firms over time. (Fig)
4. If a competitive dimension changes, each distance between thefirms and the effective resources for the competition also changes.
Distance from OCN by Competitive Dimension
120.0

competing in service but
little ｒｅｌａｔｉｏｎ

far100.0

Execution Group
ODN

ODN

BIGLOBEBIGLOBE

Yahoo!BBBIGLOBE

DION

Relative Distance(%)

80.0

60.0

40.0

Nifty
BIGLOBE

Plala
ODN

Plala
Nifty

Nifty

ODN

Plala
Nifty
Yahoo!BB
ODN

Plala

DION

DION
ODN
BIGLOBE
Nifty
Plala
Yahoo!BB

DION

20.0

DION
Plala
Nifty
DION
BIGLOBE

near
0.0
Dup

Dial Up-20.0

no entry

Miyamoto

Nifty
BIGLOBE
ODN
DION
Plala

電話代込み
定額制DupPhone
chargeFixed
price
inclusive
Dial up

ADSL
ADSL

光電話
with
Opticalfiber Package
Phone

The competitive dimension

2613ISSS2007

August 2007

Summary

5. A firm will be able to formulate strategy not only by theresource barrier (the “Resource Group”) but–

by the “Execution Group”, which shows differences of theexecuted strategy.

–by the “Market Group”, which shows customer’s
comparison at the time of the decision.

6. Through these three categories of analysis and cross-reference,a firm can exploit the Strategic Group concept in a practical way.

27

Proposal 3

Summary

7. Each distance between firms in Resource, Executed strategy andmarket are not always consistent.
8. Recognizing the existence of the distance gap among the group,
it is important to enhance the strength, decide investment andinitiative which lead to most effective results.
Pattern diagram of the distance gap among the group
Firm B
Resource Group

Firm A（OCN）

ba

Firm C
Firm D

Execution group
Firm A（OCN）

cFirm Bd
Firm C
Firm D

Market Groupe

Firm A（OCN）

Firm Bg

Firm C
Firm D

Miyamoto

f28

14

ISSS2007

August 2007

Further Studies

1. Examination about the effectiveness of this proposal in
the industry which rivalry relation is not always
change.
2. Refinement of the metric variable quantification.
3. Clarification regarding the distances, the distance gaps
and the performance.
4. Examination about where these discussion points andconclusions fit amongst other competitive strategy
studies.
29

Thank you for your kind attention.

30

Miyamoto

15