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THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY

THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY . MICHAEL E PORTER HARVARD BUSINESS SCHOOL. JOB OF A STRATEGIST . UNDERSTAND AND COPE WITH COMPETITION NOT ONLY DIRECT COMPETITION DRIVERS OF PROFITABILITY SAME ACROSS INDUSTRIES INTENSE FORCES-DRIVE DOWN PROFITABILITY BENIGN FORCES-DRIVE UP

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THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY

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  1. THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY MICHAEL E PORTER HARVARD BUSINESS SCHOOL

  2. JOB OF A STRATEGIST • UNDERSTAND AND COPE WITH COMPETITION • NOT ONLY DIRECT COMPETITION • DRIVERS OF PROFITABILITY SAME ACROSS INDUSTRIES • INTENSE FORCES-DRIVE DOWN PROFITABILITY • BENIGN FORCES-DRIVE UP • INDUSTRY STRUCTURE DECIDES THE FORCES

  3. SHAPING STRATEGY • THE FIVE COMPETITIVE FORCES • POTENTIAL ENTRANTS • SUPPLIERS • CUSTOMERS • SUBSTITUTE PRODUCTS • EXISTING COMPETITION • DEFENDING & SHAPING THE C.F • KEY C.F SHAPES STRATEGY FORMULATION

  4. POTENTIAL ENTRANTS –THREAT OF ENTRY • NEW ENTRANTS • ADD ADDITIONAL CAPACITY • PUT A CAP ON PROFIT BY DRIVING DOWN PRICES

  5. BARRIERS TO ENTRY • SUPPLY SIDE (INTEL) • DEMAND SIDE (IBM, e-BAY) • CUSTOMER SWITHCING COSTS (SAP) • CAPITAL REQUIREMENTS • INCUMBANCY ADVANTAGES INDEPENDENT OF SIZE • UNEQUAL ACCESS TO DISTRBN CHANNELS-Eg: LOW COST AIRLINES • RESTRICTIVE GOVT.POLICY • EXPECTED RETALIATION (Retail Associations in India)

  6. POWER OF SUPPLIERS • MORE POWERFUL CAPTURE MORE VALUE (MICROSOFT) • SUPPLIER DEPENDENCY (BLOOMBERG) • DIFFERENTIATED PRODUCTS • HIGH CUSTOMER SWITCHING COSTS

  7. POWER OF BUYERS • FEW BUYERS HIGH VOLUMES Eg;BSNL • STANDARDISED PRODUCTS • LOW/MINIMUM SWITHCING COSTS • POSSIBILITY OF BACKWARD INTERGARTION BY CUSTOMERS

  8. THREATS OF SUBSTITUTES • ALTERNATE CHEAPER PRODUCTS/ SERVICES • ATTRACTIVE PRICE PERFORMANCE TRADE OFF • SWITHCING COSTS TO NEW SUBSTITUTE LOW

  9. RIVALRY AMONG EXISTING COMPETITORS • NUMEROUS COMPETITORS OF EQUIVALENT SIZE • SLOW GROWTH RATE • HIGH EXIT BARRIERS • HIGHLY COMMITTED RIVALS • HIGH PRICE COMPETITION

  10. VISIBLE INDUSTRY ATTRIBUTES • INDUSTRY GROWTH RATE • TECHNOLOGY AND INNOVATION • GOVERNMENT • COMPLEMENTARY PRODUCTS AND SERVICES (Eg: Microsoft, Antivirus bundled PC)

  11. CHANGES IN INDUSTRY STRUCTURE • INDUSTRY DEVELOPMENTS DICTATE CHANGE • SHIFTING THREAT OF NEW ENTRY (Eg;PATENT EXPIRY FOR DRUGS) • CHANGING SUPPLIER OR BUYER POWER (BIG BAZAR) • SHIFTING THREAT OF SUBSTITUTION (Eg:PENDRIVE) • NEW BASES OF RIVALRY

  12. IMPLICATIONS FOR STRATEGY • FIVE FORCES REVEAL MOST SIGNIFICANT OF THE INDUSTRY ASPECTS • SWOT ANALYSIS • SHAPING THE FORCES • POSITIONING THE COMPANY • EXPLOITING INDUSTRY CHANGE (Apple i-tunes) • SHAPING INDUSTRY STRUCTURE • REDIVIDING PROFITABILITY • EXPNADING PROFIT POOL

  13. DEFINING INDUSTRY • SCOPE OF PRODUCTS/ SERVICES • GEOGRAPHICAL SCOPE

  14. TYPICAL STEPS IN INDUSTRY ANALYSIS • DEFINE THE RELEVANT INDUSTRY • IDENTIFY PARTICIPANTS • ASSESS DRIVERS OF COMPETITIVE FORCES • DETERMINE OVERALL INDUSTRY STRUCTURE • TEST ANALYSIS FOR CONSISTENCY

  15. TYPICAL STEPS IN INDUSTRY ANALYSIS (Contd..) • ANALYSE RECENT AND LIKELY FUTURE CHANGES • POSITIVE / NEGATIVE • INDUSTRY ASPECTS INFLUENCED BY OTHER FORCES • COMMON PITFALLS

  16. COMPETITION AND VALUE • UNCOVERING OPPORTUNITIES • THINKING STRUCTURALLY ABOUT COMPETITION • ATTRACTION TO THE INDUSTRY • CREATE TRUE ECONOMIC VALUE THAN “ PLEASSING THE WALL STREET”

  17. THANK YOU SLIDES BY P. RAJU IYER

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