The Strategic Group Map as an Analytical Tool

We are now in a position to return to a discussion of the strate-gic group map as an analytical tool. The map is a very useful way to graphically display competition in an industry and to see how indus-try changes or how trends might affect it. It is a map of “strategy space,” instead of price and volume.

In mapping strategic groups, the few strategic variables used as axes of the map must be selected by the analyst. In doing so, a num-ber of principles will prove useful. First, the best strategic variables to use as axes are those that determine the key mobility barriers in the industry. For example, in soft drinks the key barriers are brand identification and distribution channels, which thus serve as useful axes in a strategic group map. Second, in mapping groups it is im-portant to select as axes variables that do not move together. For ex-ample, if all the firms with high product differentiation also have broad product lines, then both these variables should not serve as axes on the map. Rather, variables that reflect the diversity of strate-gic combinations in the industry should be selected. Third, the axes for a map need not be continuous or monotonie variables. For exam-ple, the target channels in the chain saw industry are servicing deal-ers, mass merchandisers, and sellers of private labels. Some firms focus on one of these, whereas some attempt to span the range. Ser-vicing dealers are most distinct from private label in terms of re-quired strategy, and mass merchandisers are somewhere in between. In mapping the industry, it is perhaps most illuminating to array firms as shown in Figure 7-3. Firms are located to reflect their mix of channels. A final principle is that an industry can be mapped several times, using various combinations of strategic dimensions, to help the analyst see the key competitive issues. Mapping is a tool to help diagnose competitive relationships, and there is no necessarily right approach.

FIGURE 7-3.    Illustrative Map of the U.S. Chain Saw Industry

Having constructed a strategic group map of an industry, a number of analytical steps can be illuminating:

Identifying Mobility Barriers. The mobility barriers that protect each group from attacks from other groups can be identified. For example, the key barriers protecting the high quality/dealer-ori-ented group in Figure 7-3 are technology, brand image, and an estab-lished network of servicing dealers. The key barriers protecting the private label group, on the other hand, are economies of scale, expe-rience, and to some extent relationships with private label custom-ers. Such an exercise can be very illuminating in predicting threats to the various groups and probable shifts in position among firms.

Identifying Marginal Groups. A structural analysis like that described earlier in this chapter can identify groups whose position is tenuous or marginal. These are candidates for exit or for attempts at moving into another group.

Charting Directions of Strategic Movement. A very important use of the strategic group map is to chart the directions in which firms’ strategies are moving and might shift from an industry-wide point of view. This task is most easily done by drawing arrows ema-nating from each strategic group that represent the direction in which the group (or a firm in the group) seems to be moving in stra-tegic space, if any. Doing this for all groups might show that firms are moving apart strategically, which can be stabilizing to industry competition, particularly if it involves increasing separation of the target market segments served. Or such an exercise might show that strategic positions are converging, which can be very volatile.

 Analyzing Trends. It can be illuminating to think through the implications of each industry trend for the strategic group map. Is the trend closing off the viability of some groups? Where will firms in that group shift? Is the trend elevating the barriers held by some groups? Will the trend reduce the ability of groups to separate them-selves along some dimension? All these factors can lead to predic-tions about industry evolution.

Predicting Reactions. The map can be used to predict reac-tions of the industry to an event. Firms in a group tend to react symmetrically to disturbances or trends given the similarity of their strat-egies.

Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.

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