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 INDUSTRY STRUCTURE DECIDES THE FORCES
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
POTENTIAL ENTRANTS –THREAT OF ENTRY NEW ENTRANTS ADD ADDITIONAL CAPACITY PUT A CAP ON PROFIT BY DRIVING DOWN PRICES
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)
POWER OF SUPPLIERS MORE POWERFUL CAPTURE MORE VALUE (MICROSOFT) SUPPLIER DEPENDENCY (BLOOMBERG) DIFFERENTIATED PRODUCTS HIGH CUSTOMER SWITCHING COSTS
POWER OF BUYERS FEW BUYERS HIGH VOLUMES Eg;BSNL STANDARDISED PRODUCTS LOW/MINIMUM SWITHCING COSTS POSSIBILITY OF BACKWARD INTERGARTION BY CUSTOMERS
THREATS OF SUBSTITUTES ALTERNATE CHEAPER PRODUCTS/ SERVICES ATTRACTIVE PRICE PERFORMANCE TRADE OFF SWITHCING COSTS TO NEW SUBSTITUTE LOW
RIVALRY AMONG EXISTING COMPETITORS NUMEROUS COMPETITORS OF EQUIVALENT SIZE SLOW GROWTH RATE HIGH EXIT BARRIERS HIGHLY COMMITTED RIVALS HIGH PRICE COMPETITION
VISIBLE INDUSTRY ATTRIBUTES INDUSTRY GROWTH RATE TECHNOLOGY AND INNOVATION GOVERNMENT COMPLEMENTARY PRODUCTS AND SERVICES (Eg: Microsoft, Antivirus bundled PC)
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
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
DEFINING INDUSTRY SCOPE OF PRODUCTS/ SERVICES GEOGRAPHICAL SCOPE
TYPICAL STEPS IN INDUSTRY ANALYSIS DEFINE THE RELEVANT INDUSTRY IDENTIFY PARTICIPANTS ASSESS DRIVERS OF COMPETITIVE FORCES DETERMINE OVERALL INDUSTRY STRUCTURE TEST ANALYSIS FOR CONSISTENCY
TYPICAL STEPS IN INDUSTRY ANALYSIS (Contd..) ANALYSE RECENT AND LIKELY FUTURE CHANGES POSITIVE / NEGATIVE INDUSTRY ASPECTS INFLUENCED BY OTHER FORCES COMMON PITFALLS
COMPETITION AND VALUE UNCOVERING OPPORTUNITIES THINKING STRUCTURALLY ABOUT COMPETITION ATTRACTION TO THE INDUSTRY CREATE TRUE ECONOMIC VALUE THAN “ PLEASSING THE WALL STREET”
THANK YOU SLIDES BY P. RAJU IYER