Editor's Note: Take a look at our featured best practice, Digital Transformation Strategy (145-slide PowerPoint presentation). Digital Transformation is being embraced by organizations across most industries, as the role of technology shifts from being a business enabler to a business driver. This has only been accelerated by the COVID-19 global pandemic. Thus, to remain competitive and outcompete in today's fast paced, [read more]
Strategic Group Analysis (SGA)
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Competitive analysis is the backbone of strategic decision-making. By identifying an organization’s competitive landscape, leaders can get the lay of the land and see how to position their resources, enhance market presence, and minimize threats.
However, a deeper look is sometimes required to understand clusters of competitors within this landscape, and that’s where the concept of Strategic Groups comes into play.
A Strategic Group is a concept in competitive analysis used to identify clusters of organizations within an industry sharing similar business models or strategies. It simplifies industry analysis, grouping firms by strategic dimensions such as pricing, quality, customer service, or geographic focus.
By examining these groups, organizations can better understand which rivals they are most directly competing with and which industry forces are most relevant to their success. In doing so, they uncover the distinct clusters of firms that act in similar ways to serve comparable market segments.
Strategic Group Analysis (SGA) Demystified
Strategic Group Analysis (SGA) is a framework designed to help organizations identify and assess clusters of similar competitors. SGA illuminates the structure of an industry by mapping groups of organizations that pursue comparable strategies.
The origins of SGA trace back to Michael Porter, who emphasized that competition varies significantly within industries and often aligns more closely among groups sharing the same strategic characteristics than across the industry as a whole. SGA is a guide for tactical moves in an ever-evolving marketplace.
By providing clarity on competitive dynamics, SGA empowers organizations to prioritize where they deploy resources, which competitors to watch, and how to anticipate market changes. While SGA won’t single-handedly predict the future, it offers a valuable glimpse into where the industry is heading and how to stay ahead of the curve.
Why Does SGA Matter?
SGA offers critical advantages for strategic planning. By classifying competitors, organizations can gain a clearer view of industry dynamics, assess which groups represent direct threats, and pinpoint opportunities for differentiation. Understanding barriers and profitability of different strategic groups allows organizations to explore market segments that are less saturated or highly profitable.
For organizations focused on long-term strategy, SGA provides a foundation for forecasting market shifts and developing tailored competitive strategies.
SGA Implementation
Implementing SGA requires a systematic approach to map out industry players. The process involves 5 key steps:
- Identify Key Industry Characteristics
- Categorize Rivals Based on Key Characteristics
- Develop a Strategic Group Map
- Evaluate Competitive Dynamics
- Ascertain Opportunities and Threats
Let’s dive deeper into the first two steps of the process, for now.
Step 1: Identify Key Industry Characteristics
In the first step, the focus is on identifying dimensions by which firms differentiate themselves within the industry. Critical characteristics include the nature of offerings, pricing strategies, and target segments. These dimensions form the foundation of the strategic group map and define the criteria for categorizing rivals.
For example, luxury and premium offerings define a separate group from mass-market or budget brands, while technological innovation may delineate groups with high R&D investments from those with more traditional operations.
Step 2: Categorize Rivals Based on Key Characteristics
The next step involves grouping rivals by the characteristics identified. This classification allows organizations to highlight competitive similarities and differences. Categories are developed based on each dimension, such as “budget,” “mid-range,” and “premium” for pricing, or “domestic” and “international” for geographic focus.
By assigning competitors to relevant categories, an organization can begin to see clusters that reflect distinct strategic groups, helping them understand where direct competition lies and where mobility barriers might restrict market entry.
SGA Implementation: A Case From the Automotive Industry
The automotive industry is a prime example of how SGA can be leveraged for competitive insight. Take electric vehicle manufacturers—Tesla and BMW are often grouped into a high-tech premium category, focusing on cutting-edge technology and luxury. In contrast, traditional auto manufacturers like Toyota and Hyundai sit in a mid-tier category with broader product ranges.
By mapping out these groups, car manufacturers can identify the strengths and weaknesses of each segment, making more informed choices about where to position their future investments.
FAQs
How does SGA help an organization identify direct competitors?
SGA groups rivals by strategic similarities, revealing which competitors are most likely to pose direct threats. This enables an organization to focus on the most relevant competitors rather than analyzing every industry player.
What are some common dimensions used in SGA?
Typical dimensions include pricing, product quality, geographic focus, customer service level, and technological innovation. These reflect the primary factors that differentiate competitors within an industry.
How does SGA inform long-term strategic planning?
By assessing industry clusters and competitive dynamics, SGA helps predict how market shifts may impact strategic groups, providing a roadmap for organizations to align their strategies with anticipated changes.
What is a strategic group map?
A strategic group map visually represents competitors based on key characteristics, highlighting clusters of firms with similar strategic focuses. It offers insights into competition intensity, market gaps, and growth opportunities.
Are mobility barriers significant in SGA?
Yes, mobility barriers determine the ease with which firms can shift between strategic groups. Recognizing these barriers can help an organization understand the feasibility of strategic pivots and potential threats from new entrants.
Interested in learning more about the other steps of SGA implementation? You can download an editable PowerPoint presentation on Strategic Group Analysis here on the Flevy documents marketplace.
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About Mark Bridges
Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.
