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