Strategic group mapping is a technique used in strategic management to analyze the competitive positions of various firms within an industry. This method helps to understand the industry’s competition dynamics and identify opportunities and threats. Here’s how it typically works:
- Identifying Competitive Variables: The first step is identifying the key dimensions differentiating firms in the industry. These dimensions include price points, geographical coverage, product quality, distribution channels, and customer service levels.
- Plotting Firms on a Map: Once the key dimensions are identified, firms are plotted on a two-dimensional map, with each axis representing one of these dimensions. For instance, one axis might represent price (low to high), and another might represent quality (low to high).
- Forming Strategic Groups: Firms close to each other on the map are said to be in the same strategic group. A strategic group comprises companies in an industry that follow a similar strategy or business model.
- Analyzing Strategic Groups: The map allows analysts to see how many groups exist, how large each group is, and how distant the groups are from one another. It also helps understand the mobility barriers – factors that prevent firms from moving quickly between groups.
- Strategic Implications: By analyzing the strategic group map, companies can identify gaps in the market, areas of intense competition, and less contested market spaces. It also aids in understanding the risk profiles of different groups and predicting how different competitive pressures will affect each group.
Strategic group mapping is beneficial for:
- Identifying direct competitors and understanding their strategies.
- Understanding the underlying structure of the industry.
- Identifying opportunities for differentiation or for entering less competitive market spaces.
- Assessing the risk of competitive moves.
Overall, strategic group mapping is a tool that helps firms understand their competitive landscape more clearly and make informed strategic decisions.
Steps to make strategic group mapping
Creating a strategic group map involves several key steps. Here’s a detailed guide on how to create one:
- Identify Industry Characteristics and Companies: Begin by understanding the industry in which you are operating. List down the industry’s key companies (direct and indirect competitors).
- Select Strategic Variables: Choose the most relevant dimensions for differentiating companies in your industry. Commonly used variables include price levels, quality, market segments, geographic coverage, product diversity, technology, distribution channels, and customer service. The choice of variables is crucial as it will determine the meaningfulness of the strategic group map.
- Collect Data: Gather data on each company concerning the chosen strategic variables. This may involve market research, industry reports, company filings, customer surveys, etc.
- Choose Axes for the Map: Select two of the most critical strategic variables as the axes for your map. These variables should be independent and should effectively separate companies into distinct groups. Common pairs might include price vs. quality, geographic reach vs. product range, or market segment vs. distribution channel.
- Plot the Companies on the Map: Based on the data collected, plot each company on the two-dimensional map according to where they fall on the chosen variables. Each company’s position on the map reflects its strategic profile relative to the selected dimensions.
- Identify Strategic Groups: Observe clusters of companies positioned close to each other on the map. These clusters represent strategic groups – companies that pursue similar strategies or business models. There might be several distinct strategic groups within the same industry.
- Analyze the Groups and Dynamics: Analyze the strategic groups to understand the dynamics of competition within each group and between groups. Look at the size of each group, the distance between groups, and the characteristics that define each group. This analysis can reveal the intensity of rivalry, the likelihood of companies moving between groups (mobility barriers), and potential gaps in the market.
- Draw Strategic Insights: Use the insights from the strategic group map to inform your company’s strategy. This might include identifying opportunities for differentiation, areas for potential growth, threats from other groups, or barriers to entry and movement within the industry.
- Update Regularly: Industries evolve, and so do the strategies of companies. It’s important to regularly update the strategic group map to reflect changes in the industry dynamics.
Strategic group mapping is not just an academic exercise but a practical tool for strategic planning. It provides a visual representation of the competitive landscape, helping businesses to understand their position relative to competitors and to make more informed strategic decisions.
Examples of strategic group mapping
Certainly! Let’s consider some hypothetical examples of strategic group mapping in different industries. These examples will illustrate how companies can be grouped based on certain strategic dimensions:
- Automobile Industry:
- Strategic Variables: Price and Vehicle Type (e.g., economy, luxury, SUV, electric).
- Groups: One group might consist of companies focusing on luxury vehicles (like hypothetical brands LuxoMotors and EliteCars), another group could be manufacturers of economy cars (BudgetWheels and EconoDrive), and a third group could be companies specializing in electric vehicles (EcoMovers and VoltRiders).
- Smartphone Industry:
- Strategic Variables: Price and Technological Innovation (e.g., camera quality, processor speed, battery life).
- Groups: One group may include high-end, technologically advanced smartphones (like InnovateX and TechFrontier), while another could be budget-friendly smartphones with basic features (ValuePhone and BudgetComm).
- Retail Industry:
- Strategic Variables: Price and Product Range (e.g., general merchandise, specialty products).
- Groups: One group could be high-end retailers with a comprehensive product range (AllNeeds Luxury and EliteChoice), another might be discount retailers with a limited range (BudgetBuy and EconoShop), and a third could be specialized retailers focusing on a niche market (TechHub for electronics, StyleAvenue for fashion).
- Airline Industry:
- Strategic Variables: Price and Route Coverage (e.g., domestic, international, long-haul, short-haul).
- Groups: One group could be premium airlines offering international long-haul flights (GlobalWings and SkyLux), and another group might be budget airlines focusing on domestic or short-haul routes (EconoFly and BudgetAir).
- Restaurant Industry:
- Strategic Variables: Price and Dining Experience (e.g., fast food, casual dining, fine dining).
- Groups: One group might include fast-food chains (QuickBite and SpeedyEat), another could be fine-dining restaurants (GourmetFeast and EliteDine), and a third group might be casual dining places (FamilyHub and RelaxedEatery).
The strategic group map would visually display these groups based on the selected variables in each of these examples. The positioning of companies on the map helps understand their competitive strategies, the nature of competition within each group, and the barriers to moving between groups. It’s important to note that these examples are simplified and hypothetical; real-world industries often have more complex dynamics and a greater variety of strategic variables.
What is a strategic group map creator?
A strategic group map creator is a tool or software designed to help create strategic group maps. These maps are a key component in strategic management and business analysis, used to visualize the competitive positions of different firms within an industry based on selected strategic dimensions. The Creator simplifies the process of constructing these maps by providing functionalities such as:
- Data Input and Management: Allows users to input and organize data related to various companies, including strategic variables like price levels, quality, market segments, product diversity, technology, distribution channels, etc.
- Variable Selection and Customization: Users can choose and customize the strategic variables most relevant to their industry and the specific analysis they intend to conduct.
- Graphical Mapping: The tool generates a two-dimensional map based on the selected variables, plotting each company on this map according to their strategic profiles.
- Group Identification: It helps identify clusters of companies (strategic groups) on the map based on their proximity to the chosen strategic dimensions.
- Analysis Features: Some advanced tools may offer additional analytical features, such as the ability to assess the size and competitive dynamics of each strategic group, potential barriers to mobility between groups, or gaps in the market.
- Reporting and Presentation: The ability to create visually appealing reports and presentations based on the strategic group map, facilitating communication and decision-making within the organization.
- Dynamic Updating: More sophisticated creators might offer dynamic updating features, allowing the map to be adjusted as companies change their strategies or as industry dynamics evolve.
These tools can range from simple chart-making software (like Microsoft Excel with its graphing capabilities) to more advanced business intelligence and data visualization platforms (like Tableau, Power BI, or specialized strategic management software). The choice of a strategic group map creator often depends on the analysis’s complexity, the industry’s size, and the user’s or organization’s specific needs.
