Today, we're focused on how we can better understand how firms compete in the marketplace. And how they position themselves with respect to the other firms that are competing directly with in a particular industry or market segment. So there's a tool here that can be very helpful, it's a framework known as the strategy map. Strategy maps are sort of a generic tool are very commonly used in consulting and it's basically a way to take two or three criteria or factors or ways of understanding affirms position in an industry. And mapping all of the different competitors using those two or three factors. So for example, here is a case where we're able to map three factors so that the horizontal axis might be the first factor. The vertical axis can be a second factor and then in this example the size of the circle can graphically or visually represent the third factor, right? So let's take a particular example, let's focus on a particular industry, say automobiles in the early 2000s. If we look at the automobile industry in the early two thousands, what we want to do here is understand how the different firms position themselves with respect to each other within that industry. So this is just one example of how to do it, on the horizontal axis we've got essentially the average vehicle cost. So this captures a bit of what the cost structure is for the particular firms and that will correspond to the price to the consumer of the vehicles, right? That's on the x axis. On the vertical axis, we've got something I'm describing as sportiness. So that's a little bit subjective but we're just trying to get a feel for these cars more or less sporty, are they more or less distinctive, right? And then the size of the circles in this case, is represented by the number of models that particular firm offers, right? So again, firms can differ on that dimension as well. So let's go through these firms one at a time just to illustrate here, if we start in the upper corner with Porsche, German auto manufacturer, we can see that the level of sportiness is quite high. The average vehicle cost is also quite high but the size of the circle is quite small. In other words, Porsche doesn't offer an endless array of models but they offer just a fewer number of models, especially as compared with some of the other auto manufacturers. So this might be an example of what we would describe as a niche position. And remember, a niche generic competitive position is when the competitive scope of the firm within the industry is quite small. So here, that would be about the size of the circle, right? But again, Porsche offers cars that are highly differentiated, brand recognition is strong, they're quite expensive, they're very sporty, so we might describe that as a niche position. At the other end of the spectrum, we might think of an auto manufacturers like Kia, so Kia is down in the lower corner and here we have automobiles that are certainly less sporty and they are certainly less expensive. Also not a large number of models. So the size of the circle is relatively small. So we might think of this as a correspondent with the the generic competitive position of focused cost leadership, right? And the focus part arises from that size of that circle being quite small, the competitive scope. So let's think in contrast about an auto manufacturers like Mercedes Benz. So Mercedes we see here, they offer many more models, so the size of the circle is bigger and their sport here and they're more expensive is a little more distinctive. There's more cachet associated with the brand, and so here we might think of it as a classic differentiation strategy. Again, it's not so narrowly focused scope wise, model wise as Porsche, but we see the same kind of approach towards product distinctiveness, right? Another manufacturer here might be Ford. So Ford might be an example where the level of sportiness is lower, the average vehicle cost is certainly much lower than Mercedes. And so we might see that as sort of a typical position of cost leadership, right? So again, evoking these generic competitive positions and demonstrating how a strategy map can help us identify and put firms in different areas on the map. We might think of Toyota, there's a fifth firm we've got up here is being a firm that's really trying to occupy an integrated position. So they're trying to capture the benefits of both cost leadership as well as some differentiation, perhaps quality in this case, right? But large number of models, Toyota is trying to do several things here. So that's just an example of how a strategy map might work. Now, what I want to point out is that these aren't necessarily the three most important dimensions to analyze if one was trying to understand the auto industry, I think they tell us something. But we could pick a range of different factors and use them instead. Maybe we want to look at sort of market share. Maybe we want to look at R and D spending or quality. There's a number of things we could measure here. And the thing to remember here is a tip, as you put a strategy map together, there's no top three criteria for example you should always use in a strategy map like this. But instead, you might try a handful of different criteria and sort of do a quick kind of back of the envelope sort of calculation and kind of decide what a strategy map might look like if you use these three criteria. And maybe use a different three criteria and see what those might tell you. And the point here is that it's often not evident at the outset what the most important or revealing or useful criteria for a strategy map might be. And therefore, it's oftentimes just a case of trial and error, try some ideas, think of some things and it's a matter of sort of trying stuff. And then, oftentimes what will emerge is a particular insight that arises from configuring a strategy map a certain way, and it can tell you something really important about a firm strategic position within its industry or market segment.
