How Competitive Forces Shape Strategy
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Transcript of How Competitive Forces Shape Strategy
How Competitive Forces Shape Strategy
Michael E. Porter
A Harvard Business ReviewMarch 1, 1979
Competition Beyond Other Players
• Competition is not limited to the other players in the market.
• Michael E. Porter has identified 5 competitive forces:–Threat of Entry–Bargaining power of suppliers–Bargaining power of consumers–Threat of Substitute–The industry (competitors)
Threat of Entry
• The six barriers to entry are:–Economies of Scale–Product Differentiation–Capital Requirements–Cost disadvantages independent of
size–Access to distribution channels–Government Policy
Bargaining Power of Suppliers
• Strength of suppliers depends on:–Concentration of Supplier group–Product differentiation and
switching cost–Competition from other suppliers–Forward Integration of suppliers–Relative importance of the
consumer to the supplier
Bargaining Power of Buyers
• Strength of buyers depends on:–Concentration and Volume of
Purchases–Availability of Alternative Suppliers–Relative Importance of the product
purchased–Cost related to the risk of error–Backward integration of buyers to
make industry’s product
Threat of Substitutes
• The threat of substitutes depends upon:–Price performance tradeoff with the
industry's product – Increase in competition and
performance improvement.
Jockeying for Position
• Various factors affect the existing rivalry in the industry:–Number of Competitors – Industry Growth–Product differentiation–Exit Barriers–Switching Cost
How to formulate Strategy?
• Positioning of Company• Influencing the balance• Exploiting industry change
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