KEY FACTORS FOR SUCCESS IN AN INDUSTRY
In a strategic analysis of the environment, there is an immense range of issues that can potentially be explored, creating a problem for most organisations, which have neither the time nor the resources to cope with such an open-ended task. The Japanese strategist Kenichi Ohmae, 17 the former head of the management consultants McKinsey, in Japan, has suggested a way of tackling this matter by identifying the key factors for success (KFS) that are likely to deliver the company’s objectives. These can then be used to focus the analysis on particularly important industry matters.
Key factors for success in an industry are those resources, skills and attributes of the organisations
in an industry that are essential to deliver success in the market place. Ohmae argued that, when resources of capital, labour and time are scarce, it is important that they should be concentrated on the key activities of the business – that is, those most important to the delivery of whatever the organisation regards as success.
This concept of key factors for success is also consistent with Porter’s view 18 that there are factors that determine the relative competitive positions of companies within an industry. Moreover, the foundation of Kay’s approach 19 is that it is important to concentrate resources on the specifi c areas of the business that are most likely to prove successful. Amit and Schoemaker 20 provide a more extended theoretical framework for the same topic, but call their treatment ‘Strategic Industry Factors’. All the above have said that identifying the key factors is not an easy task.
KFS are common to all the major organisations in the industry and do not diff erentiate one company
from another. For example, in Case 3.3 , the factors mentioned – low labour costs, servicing
centres, parts suppliers of motorbikes, etc. – are common to other similar companies to Bajaj. Such
factors will vary from one industry to another. For example, by contrast, in the perfume and cosmetics
industry the factors will include branding, product distribution and product performance, but they
are unlikely to include labour costs.
When undertaking a strategic analysis of the environment, the identifi cation of the KFS for an
industry may provide a useful starting point. For example, the motorbike KFS item of ‘low labour
costs’ would suggest an environmental analysis of the following areas: general wage levels in the country
In a strategic analysis of the environment, there is an immense range of issues that can potentially be explored, creating a problem for most organisations, which have neither the time nor the resources to cope with such an open-ended task. The Japanese strategist Kenichi Ohmae, 17 the former head of the management consultants McKinsey, in Japan, has suggested a way of tackling this matter by identifying the key factors for success (KFS) that are likely to deliver the company’s objectives. These can then be used to focus the analysis on particularly important industry matters.
Key factors for success in an industry are those resources, skills and attributes of the organisations
in an industry that are essential to deliver success in the market place. Ohmae argued that, when resources of capital, labour and time are scarce, it is important that they should be concentrated on the key activities of the business – that is, those most important to the delivery of whatever the organisation regards as success.
This concept of key factors for success is also consistent with Porter’s view 18 that there are factors that determine the relative competitive positions of companies within an industry. Moreover, the foundation of Kay’s approach 19 is that it is important to concentrate resources on the specifi c areas of the business that are most likely to prove successful. Amit and Schoemaker 20 provide a more extended theoretical framework for the same topic, but call their treatment ‘Strategic Industry Factors’. All the above have said that identifying the key factors is not an easy task.
KFS are common to all the major organisations in the industry and do not diff erentiate one company
from another. For example, in Case 3.3 , the factors mentioned – low labour costs, servicing
centres, parts suppliers of motorbikes, etc. – are common to other similar companies to Bajaj. Such
factors will vary from one industry to another. For example, by contrast, in the perfume and cosmetics
industry the factors will include branding, product distribution and product performance, but they
are unlikely to include labour costs.
When undertaking a strategic analysis of the environment, the identifi cation of the KFS for an
industry may provide a useful starting point. For example, the motorbike KFS item of ‘low labour
costs’ would suggest an environmental analysis of the following areas: general wage levels in the country
- government regulations and attitudes to worker redundancy, because high wage costs could be reduced by sacking employees
- trade union strength to fi ght labour force redundancies.
In the Indian motorbike industry, these elements of the environment would benefi t from careful
study, whereas, in the cosmetics and perfume industry, they might have some relevance but would
be far less important than other areas.
Identifying the key factors for success in the industry
Key factors concern not only the resources of organisations in the industry but also the competitive
environment in which organisations operate. There are three principal areas that need to be analysed
– Ohmae’s three C
study, whereas, in the cosmetics and perfume industry, they might have some relevance but would
be far less important than other areas.
Identifying the key factors for success in the industry
Key factors concern not only the resources of organisations in the industry but also the competitive
environment in which organisations operate. There are three principal areas that need to be analysed
– Ohmae’s three C
- Customers . What do customers really want? What are the segments in the market place? Can we direct our strategy towards a group?
- Competition . How can the organisation beat or at least survive against competition? What resources and customers does it have that make it particularly successful? How does the organisation compare on price, quality, etc.? Does the organisation have a stronger distributive network than its competitors?
- Corporation . What special resources does the company itself possess and how do they compare with those of competitors? How does the company compare on costs with its rivals? And on technologies? Skills? Organisational ability? Marketing?
Critical comment on the concept
Criticism of the key factors for success has concentrated on four issues
Criticism of the key factors for success has concentrated on four issues
- Identifi cation . It is diffi cult to pick out the important factors.
- Causality of relationships . Even though they have been identifi ed, it may not be clear how they operate or interact.
- Dangers of generalising . The competitive advantage of a single organisation, by defi nition, cannot be obtained by seeking what is commonly accepted as bringing success to all organisations in an industry.
- Disregard of emergent perspectives . Success may come from change in an industry, rather than the identifi cation of the current key factors for success.
Beyond these specifi c criticisms, some strategists have a more general concern about industry
analysis (this is explored in the next section). Some of the criticisms can be countered if key factors
for success are regarded as guidelines for directing strategy development, rather than rigid rules. But
the criticisms suggest that key factors for success should be explored with caution. They are only a
starting point in strategy analysis – the ‘best’ strategy may be to reject the key factors and do something
completely diff erent
analysis (this is explored in the next section). Some of the criticisms can be countered if key factors
for success are regarded as guidelines for directing strategy development, rather than rigid rules. But
the criticisms suggest that key factors for success should be explored with caution. They are only a
starting point in strategy analysis – the ‘best’ strategy may be to reject the key factors and do something
completely diff erent
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