Porters classic: How competitive forces shape strategy

1
Porters classicHow competitive forces
shape strategy

• The essence of strategy
• Positioning in industry
• Positioning among industries
• Changing the forces

2
One side of the duo
What co. has to work with
Whats out there
STRATEGY

• External forecasting (O, T)
• (Implications for internal strengths weaknesses)

3
Industry structure gt forces of competition

• Structure
• Economic technical characteristics
• Nature of products processes

• The 5 forces
• Entry threat
• Customer power
• Supplier power
• Product substitutes
• Competitors actions

4
The industrySimilar enough products compete
for buyers

• Product life cycle
• Growth rate of sales
• Capacity surplus/shortage
• Technology
• Fixed? Knowledge-based?
• Pace of change
• Pace of product innovation

5
Vulnerable to entry? I Barriers

• Scale economies
• Product differentiation
• Capital requirements
• Non-size cost advantages
• Distribution channels
• Government policy

6
Vulnerable to entry? II Dynamics

• Incumbents act upon barriers?
• Incumbents react to (threat of) entry?
• Product process technologies change

7
Buyer, supplier (price) power

• Suppliers
• Few firms, concentrated
• Differentiated product
• Forward integration threat

• Buyers
• Large-volume
• Undifferen-tiated prod.
• Backward integration threat

8
Substitute (vs. differentiated?) products

• Price-performance tradeoff key
• Technological change
• Product life cycle stage
• New-industry profitability

9
Existing competitors (inter-)actions

• Price, product, advertising competition?
• Industry growth context
• Cost structure
• Exit barriers

10
5 forces strategy-- 1

• Common decision low-cost vs. differentiation?
• Changes in demand, technologies react, shape
• Respond to product life cycle phase change
• Influence the forces

11
5 forces strategy-- 2

• Seller rivalry gt Best strategy is Nash
  equilibrium
• Barriers issue Changing trade, investment
  policies
• Substitutes issue Buyer switching costs
• Network externalities
• Buyer seller power dependence vs.
  collaboration

12
The payoffs

• Industry analysis sense of capabilities gt
• Positioning within industry (business level)
• Choice of industries (corporate level)