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Strategic Group Analysis | Meaning, Definition, Types & Characteristics

Strategic Group Analysis

What is Strategic Group Analysis ?

A strategic group consists of firms that follow similar strategies and similar business models. There may be several strategic groups in an industry. The firms residing in the strategic group face more intense competition than the firms residing outside the group. Hence, it can be said that intra-group competition is more intense than inter-group competition. It is evident from the pattern that the firms within the strategic group have shown heterogeneity in their performances, which is less apparent in the firms outside the strategic group. Along with following the similar strategies, the firms can add factors of uniqueness by differentiating the group from outside the strategic group in order to succeed in the competition.

Some of the factors that define the characteristics of firms within a strategic group analysis are the similarities in any or all of the dimensions such as pricing policies, distribution strategies, distribution channels, product quality, customer service, etc. Analysis of strategic groups is an important concept for understanding the position and competitiveness of a firm. It allows the strategists to study the competitive structure of the industry. The factors that limit the formation of strategic groups include high level of rivalry, limited resources, barriers in mobility, etc. By studying the strategic groups, the strategists can predict the trends in competition. This analysis also helps in comparing the performances of different firms along the same dimensions. Over the years of research, it has been discovered that the firms operating within a strategic group enjoy stability in their business activities and profits.

Analyzing the firms that are a part of a strategic group helps in determining the strategic decisions taken by the firms that have led them in implementing similar strategies and yet maintaining their individual market shares.

According to Michael Porter, "A strategic group is the group of firms in an industry following the same or a similar strategy along the strategic dimensions".

According to Cool and Schendel, "Strategic group is a set of firms competing within an industry on the basis of similar combinations of scope and resource

According to Hunt, "Strategic groups is a group of firms within the industry that are highly symmetric with respect to cost structure, the degree of vertical integration, and the degree of product differentiation, formal organisation, control systems, management rewards/punishments, and the personal views and preferences for various possible outcomes".

Characteristics of Strategic Group

The notion of strategic group provides a distinct approach to analyse the competitive structure of an industry. Some of the characteristics of a strategic group are as follows :

  1. The member firms of a strategic groups own similar type of competencies and assets such as brand image, distribution capacity, global market share, research and development, etc.
  2. Various factors create mobility barriers for the strategic groups such as geographical, financial, operational, organisational, etc. The outcome of this mobility barrier is the evolution of intra industry competition.
  3. The differences among strategic groups result in a greater ability to sustain competition compared to firms outside the group.
  4. All the competitive forces existing in the industry impact all the firms of a strategic group in a similar way.
  5. Strategic group emphasizes on the level of competition, within that particular group, instead of competition outside the group. Hence, it does not focus on the inter-group competition.
  6. The firms of a strategic group follow a similar strategy under similar business model.
  7. The firms within a strategic group possess similar characteristic features such as size, type of products and services, etc.

Types of Strategic Groups

Strategic groups can be classified on the basis of strategic orientation, which are as follows:

1) Defenders : 
Defenders are those firms that have limited resources and few product lines. These firms try to expand their business and operations. Due to limited availability of resources, they are less. capable of innovating new products. They spend most of their time in defending their businesses against the competitors, society, and government, instead of developing a competitive edge.

2) Prospectors : 
Prospectors are those firms that try to identify the weakness in the competitors business strategy and attack aggressively by adopting an offensive business strategy. Such types of organisations generally devote most of their resources in innovating new products and capturing potential market opportunities.

3) Analysers : 
Such types of organisations generally have operations in two different areas out of which, one is stable and the other is dynamic, Hence, they focus more on efficiency in the stable market to derive maximum profitability, They further focus on innovation in dynamic market in order to attain or maintain top market position by way of introducing latest products/ services. 
Strategic group analysis example : Wipro in stable software market and dynamic CFL lighting industry.

4) Reactors : 
Such types of organisations don't have a uniform and stable strategy; instead, they follow a strategy of guerrilla warfare as because of having limited resources they are not capable of matching or outdoing the giant competitors. This can be useful for small companies with limited resources and those that are not capable of emulating the giants in the field.

Strategic Groups as an Analytical Tool

Strategic group serves the following purposes as an analytical tool:

1) Points-out Mobility Barriers : 
Forming a group allows the strategists to outline those barriers that protect the strategic groups from the aggressive moves taken by the competitive firms outside the group. These hurdles are called as "mobility barriers". These barriers prohibit the movement of firms from one strategic group to another.

2) Identifying Groups with Low Competitive Advantage : 
Analysing strategic groups helps the market researchers to identify the groups whose competitive positioning is average to below average. Strategic group analysis helps in identifying the firms in the group that are likely to exit from the industry or move to some other strategic group.

3) Represents Future Direction : 
The strategic grouping of firms allows the organisations to decide their future directions. The actions and strategies followed in the strategic groups show the direction in which they wish to move in the future. By analyzing the strategic direction of the groups, possible future competition levels can also be anticipated as moving in the similar direction represents that there is intense competition between the firms.

4) Analysing Industry Trends : 
Analysis of a strategic group helps in studying the past trends of an industry for a particular group. Many questions can be answered regarding a strategic group, such as :
  • What is the trend direction- upward or downward?
  • If the strategic group has downward trend, then what are the reasons behind this downfall?
  • Are the entry barriers to the strategic group strong or weak?
  • Is the trend decreasing the probability of group's sustainability?
  • Is the trend blocking the firms' mobility?
Analyzing these details would provide the strategist with an in-depth understanding about the industry and the way it works.

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