This document discusses Porter's five forces model of competition and various concepts related to analyzing industry structure and formulating competitive strategy. It covers the five competitive forces that shape industry competition - threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing competitors. It also discusses barriers to entry, factors influencing rivalry, and the bargaining power of suppliers and buyers. Finally, it touches on relating a company's strategy to its external environment and positioning the firm to effectively compete within its industry.

1. Business Strategy
GROWTH OF BUSINESS UNIT -II

2. BuyersSuppliers
Substitute
products
Potential
entrants
Industry competitors
Rivalry among
existing firms
Threat of
new entrants
Bargaining power
of suppliers
Bargaining power
of buyers
Threat of
substitutes
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
2

3. STRUCTURAL ANALYSIS AND
COMPETITIVE STRATEGY
 ESSENCE OF COMPETITIVE STRATEGY IS RELATING A
COMPANY TO ITS ENVIRONMENT
 INDUSTRY STRUCTURE DETERMINES LEVEL OF COMPETITION
AND HENCE INDUSTRY PROFITABILITY
 UNDERSTANDING THE STRUCTURE IS CRITICAL IN
FORMULATING STRATEGY
 POSITIONING THE FIRM TO COMPETE
 INFLUENCING THE BALANCE OF FORCES THROUGH
STRATEGIC MOVES
 EXPLOITING CHANGE
3

4. THREAT TO ENTRY
BARRIERS TO ENTRY
THERE ARE SEVEN MAJOR SOURCES OF BARRIERS OF ENTRY
 ECONOMIES OF SCALE
 PRODUCT DIFFERENTIATION
 CAPITAL REQUIREMENTS
 SWITCHING COSTS
 ACCESS TO DISTRIBUTION CHANNELS
 COST DISADVANTAGE INDEPENDENT OF SCALE
 GOVERNMENT POLICY
4

5. INTENSITY OF RIVALRY AMONG EXISTING
COMPETITORS
 NUMEROUS OR EQUALLY BALANCED COMPETITORS
 SLOW INDUSTRY GROWTH
 HIGH FIXED OR STORAGE COSTS
 LACK OF DIFFERENTIATION OR SWITCHING COSTS
 CAPACITY AUGMENTED IN LARGE INCREMENTS
 DIVERSE COMPETITORS
 HIGH STRATEGIC STAKES
 HIGH EXIT BARRIERS
5

6. BARGAINING POWER OF SUPPLIERS
 IT IS DOMINATED BY A FEW COMPANIES AND IS MORE CONCENTRATED
THAN THE INDUSTRY IT SELLS TO.
 IT IS NOT OBLIGED TO CONTEND WITH OTHER SUBSTITUTE PRODUCTS
FOR SALE TO THE INDUSTRY.
 THE INDUSTRY IS NOT AN IMPORTANT CUSTOMER OF THE SUPPLIER
GROUP.
 THE SUPPLIERS’ PRODUCT IS AN IMPORTANT INPUT TO THE BUYER’S
BUSINESS.
 THE SUPPLIER GROUP’S PRODUCTS ARE DIFFERENTIATED OR IT HAS BUILT
UP SWITHING COSTS.
 THE SUPPLIER GROUP POSES A CREDIBLE THREAT OF FORWARD
INTEGRATION.
6

7. BARGAINING POWER OF BUYERS
 IT IS CONCENTRATED OR PURCHASES LARGE VOLUMES RELATIVE TO SELLER
SALES
 THE PRODUCTS IT PURCHASES FROM THE INDUSTRY REPRESENT A SIGNIFICANT
FRACTION OF THE BUYER’S COSTS OR PURCHASES.
 THE PRODUCTS IT PURCHASES FROM THE INDUSTRY ARE STANDARD OR
UNDIFFERENTIATED.
 IT FACES FEW SWITCHING COSTS.
 IT EARNS LOW PROFITS.
 BUYERS POSE A CREDIBLE THREAT OF BACKWARD INTEGRATION
 THE INDUSTRY’S PRODUCT IS UNIMPORTANT TO THE QUALITY OF THE BUYERS’
PRODUCTS OR SERVICES.
 THE BUYER HAS FULL INFORMATION.
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8. BARRIERS AND PROFITABILITY
ENTRY BARRIERS // EXIT BARRIERS
8
L O W H IG H
L O W L O W S T A B L E L O W ,R IS K Y
R E T U R N R E T U R N
H IG H H IG H , S T A B L E H IG H ,R IS K Y
R E T U R N S R E T U R N

9. PRESSURE FROM SUBSTITUTE PRODUCTS
SUBSTITUTE PRODUCTS THAT DESERVE THE MOST
ATTENTION ARE THOSE THAT
 ARE SUBJECT TO TRENDS IMPROVING THEIR PRICE-
PERFORMANCE TRADEOFF WITH THE INDUSTRY’S
PRODUCT,
OR
 ARE PRODUCED BY INDUSTRIES EARNING HIGH PROFITS.
9

10. Breadth of
Competitive Scope
Source of Competitive Advantage
Broad
Target
Market
Narrow
Target
Market
Cost
Focused
Differen-
tiation
Cost
Leadership
Differen-
tiation
Focused
Low Cost
Generic Business Level Strategies
Uniqueness
10

11. Gaining competitive advantage out of Generic strategy
Example
11

12. SWOT Analysis
STRENGTH WEAKNESS
OPPORTUNITY THREAT
12

13. Strategy
Internal
Environment
External
Environment
Strategy
13

14. Resources, Capabilities, and Competitive
Advantage: The Basic Relationships
14
COMPETITIVE
ADVANTAGE STRATEGY
INDUSTRY
KEY
SUCCESS
FACTORS -
EXTERNAL
ORGANIZATIONAL
CAPABILITIES
RESOURCES
Tangible Intangible Human

15. Outcomes from External and
Internal Environmental Analyses
15
Examine opportunities
and threats
Examine unique
resources, capabilities,
and competencies

16. Firm and Environment
Organization
Competitors
Strategic Groups
Industry
General Environment
16

17. Distinctive Competencies and Role
of Resources and Capabilities
17
Resources
• Tangible (physical) and intangible (non-physical)
• Allow a company to create value for its customers
• Must have skills to take advantage of the resources
• Firm-specific and difficult-to-imitate resources
as well as valuable resources that create strong
demand for a company’s products lead to
distinctive competencies
Capabilities
• Coordinating resources & putting to productive use
• Skills reside in the organization’s rules, routines
and procedures
• Product of its organization, processes & controls
• Firm-specific capabilities to manage its resources
lead to distinctive competencies

18. We would study three trools
Core-Competence
Value Chain
VRIN
18

19. Core Compt. and Tree
Leaves-
End
Products
Branches- Businesses
Stem- Core Products Roots- Core
Competence

20. What core competence is
 Core competencies are the collective learning in an
organization, on how to coordinate & integrate diverse
streams of technological ability
 Competencies are the glue that bind existing businesses
 They guide patterns of diversification and market entry
 Core products/businesses contribute to a wide range of
end products, thus it is vital to protect them from being
acquired by a rival
20

21. Core competence have following
characteristics….
Core
Competence
Different
Markets
Difficult
to imitate
Valuable
21

22. The Value Chain
Support
activities
Primary activities
Inbound logistics Materials receiving, storing, and distribution to manufacturing premises
Operations Transforming inputs into finished products.
Outbound logistics Storing and distributing products
Marketing and Sales Promotions and sales force
Service Service to maintain or enhance product value
Corporate infrastructure Support of entire value chain, e.g. general management planning,
financing, accounting, legal services, government affairs, and QM
Human resources management Recruiting, hiring, training, and development
Technology Development Improving product and manufacturing process
Procurement Purchasing input
22

23. Inbound Logistics
Inbound
Logistics
Operations
Outbound
Logistics
Marketing and
Sales
Service
Inbound logistics
 Activities used to receive, store, and
disseminate inputs to a product
(materials handling, warehousing,
inventory control, vehicle scheduling,
return to suppliers, etc.)
 Walmart’s Logistics, Fed Ex: sorting of
Packages
 GE’s investment in bar coding, sorting
and inventory checking system
 Honda and Toyota’s inventory less
ordering, JIT
23

24. Operations
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
and Sales
Service
Operation
 Activities necessary to convert the inputs provided
by inbound logistics into final product form
(machining, packaging, assembly, testing, printing
facility operations, etc.)
 Type of technology used, size of plant, degree of
automation, productivity gains, wage rates
 E.g. Toyota’s and Samsung’s
Flexible Manufacturing System , check clearing for
brokerage houses, TQM, Mini-mills in steel, Intel
standardized machinery and processes, stoppages
of flow in chemical industry
24

25. Outbound Logistics
Inbound
Logistics
Operations
Outbound
Logistics
Marketing and
Sales
Service
Outbound logistics
 Activities involved with collecting,
storing, and physically distributing the
product to customers (finished goods
warehousing, order processing,
scheduling, delivery vehicle
operations, etc.)
 E.g. HUL’s distribution, Asian Paints,
Cemex’s , P and G’s linkages with
wholesalers and retailers(bar coding,
RFID), Walmart, ordering and tracking
systems
25

26. Marketing and Sales
Inbound
Logistics
Operations
Outbound
Logistics
Marketing and Sales Service
Marketing and sales
 Activities completed to
provide means through
which customers can
purchase products and to
induce them to do so
(advertising, promotion,
distribution channels, sales
force, quoting, channel
selection, channel relations,
product design, pricing
etc.)
 E.g. Virgin, Coca Cola vs.
Rest, Invst. Banking
26

27. Service
Inbound
Logistics
Operations
Outbound
Logistics
Marketing and
Sales
Service
Service
 Activities designed to enhance or
maintain a product’s value (repair,
training, adjustment, parts supply,
product adjustment, installation, etc.)
 E.g. Maruti, Tata, UPS allows customer
to track their packages so does Fedex,
Using Internet for feedback E.g. Intel,
Dell, GE, Amazon customers order to
distribution centre, factories and
suppliers
27

28. Support Activities-Procurement
HR
•HR
Procurement
•Procurement
Technology
•Technology
 Procurement
 Activities completed to
purchase the inputs
needed to produce a
firm’s products
(documentation and
ordering processsystems
for raw materials and
supplies, machines,
laboratory equipment,
etc.)
E.g. Walmart, Future Group,
Reliance, Nirma
28
HR
•HR
Procurement
•Procurement
Technology
•Technology

29. Primary Activities
Support
Activities
Cost Effective
MIS Systems
Relatively Few
Management Layers to
Reduce Overhead
Simplified Planning
Practices to Reduce
Planning Costs
Consistent Policies to
Reduce Turnover Costs
Effective Training Programs
to Improve Worker
Efficiency and Effectiveness
Highly Efficient
Systems to Link
Suppliers’
Products with the
Firm’s Production
Processes Timing of Asset
Purchases
Efficient Plant
Scale to Minimize
Manufacturing
Costs
Selection of Low
Cost Transport
Carriers
Delivery Schedule
that Reduces
Costs
National Scale
Advertising
Products Priced to
Generate Sales
Volume
Small, Highly
Trained Sales
Force
Effective Product
Installations to
Reduce Frequency
and Severity
of Recalls
Easy-to-Use Manufacturing
Technologies
Investments in Technology in order
to Reduce Costs Associated with
Manufacturing Processes
Systems and Procedures to find the
Lowest Cost Products to Purchase
Raw Materials
Frequent Evaluation Processes to
Monitor Suppliers’ Performances
Located in Close
Proximity with
Suppliers
Policy Choice of
Plant Technology
Organizational
Learning
Efficient Order
Sizes
Interrelationships
with Sister Units
Value Creating Activities common to a
Cost Leadership Business Level Strategy 29

30. A company wide
emphasis on producing
high quality products
Highly Developed Information
Systems to better understand
customers’ purchasing preferences
Compensation programs
intended to encourage worker
creativity and productivity
Extensive use of subjective
rather than objective
performance measures
Superior
handling of
incoming raw
materials to
minimize
damage and
improve the
quality of the
final product
Rapid responses
to customers
unique
manufacturing
specifications
Consistent
manufacturing of
attractive
products
Accurate and
responsive order
processing
procedures
Complete field
stocking of
replacement parts
Strong
capability in
basic research
Investments in technologies that will
allow the firm to consistently produce
highly differentiated products
Systems and procedures used to find
the highest quality raw materials
Purchase of highest quality
replacement parts
Rapid and timely
product deliveries
to customers
Superior
personnel
training
Coordination among R&D,
product development and
marketing
Extensive
personal
relationships
with buyers
Strong Coordin-
ation among
functions in R&D,
Marketing and
Product
Development
Premium
Pricing
Value Creating Activities common to a
Differentiation Business Level Strategy
Primary Activities
Support
Activities
30

31. The Product Manager’s Interactions
Product
Manager
Advertising
agency
Manufacturing
and
distribution
Research
and
development
Legal
Fiscal
Market
research
Sales
Publicity
Purchasing
Packaging
Promotion
services
Media
Agency media dept.
Company media dept.
Media sales reps
Premium suppliers
Premium screening
Store testing
Sampling
Couponing
Designers
Researchers
Suppliers
Trade
Research
Suppliers
Suppliers
Trade
Suppliers

32. SIX CATEGORIES OF NEW PRODUCTS
 New-to-the-world product. New products that create an
entirely new market.
 New-product line. New products that allow a company to
enter an established market for the first time.
 Additions to existing product lines. New products that
supplement a company’s established product lines.
 Improvements in/revisions to existing products. New
products that provide improved performance or greater
perceived value and replace existing products.
 Repositioning. Existing products that are targeted to new
markets or market segments.
 Cost reductions. New products that provide similar
performance at lower cost.

33. PROBLEMS IN NEW PRODUCT
DEVELOPMENT IN FUTURE
 Shortage of important new-product ideas in certain areas. Some
scientists think there are too few feasible new technologies with the
investment potential that was provided by automobiles, television,
computers, xerography, and wonder drugs in times past.
 Fragmented markets. Keen competition is leading to increasingly
fragmented markets. Companies have to aim new products at smaller
market segments rather than the mass market, and this means lower sales
and profits for each product.
 Social and governmental constraints. New products have to satisfy
public-interest criteria such as consumer safety and ecological compatibility.
Government requirements have slowed down innovation in the drug
industry and have complicated product-design and advertising decisions in
such industries as industrial equipments, chemicals, automobiles, and toys.
 Costliness of the new-product-development process. A company
typically has to generate many new-product ideas in order to finish with a
few good ones. Furthermore, the company has to face rising R&D,
manufacturing, and marketing costs.
contd…

34. PROBLEMS IN NEW PRODUCT
DEVELOPMENT IN FUTURE
 Capital shortage. Some companies with good ideas cannot raise the funds needed
to research them. Venture capital has, in recent years, become much more
cautious.
 Shortened time span to completion. Many competitors are likely to get the same
idea at the same time, and the victory often goes to the swiftest. Alert companies
have to compress development time by using computer-aided design and
manufacturing techniques, joint partners, early concept tests, and advanced
marketing planning. Japanese companies see the challenge as “achieving better
quality at a cheaper price at a faster speed than competitors.”
 Shorter life spans for successful products. When a new product is successful,
rivals are to quick to imitate it that the new product’s life cycle is considerably
shortened. Thus IBM finds dozens of imitators offering IBM-compatible personal
computers; and Apple finds foreign “knockoffs” of its computers being sold in the
Far East.

35. Three Levels of Product
Core
benefit
or
service
Packaging
Brand Features
name
Quality Shape Styling
Brand Name Warranty
After
Sale
service
Delivery
and
credit
Installation
Augmented
Product
The Secondary
level product
Tangible Product
Core
Product
Design Texture / color

36. PRODUCT HIERARCHY
 Need family. The core need that underlies the product family. Example :
security.
 Product family All the product classes that can satisfy a core need with more
or less effectiveness. Example : savings and income
 Product class. A group of products within the product family that are
recognized as having a certain functional coherence. Example : financial
instruments.
 Product line.. A group of products within a product class that are closely
related because they function in a similar manner, or are sold to the same
customer groups, or are marketed through the same types of outlets, or fall
within given price ranges. Example : life insurance.
 Product type. Those items within a product line that share one of several
possible forms of the product. Example : term life.
 Brand. The name associated with one or more items in the product line that is
used to identify the source or character of the item(s). Example : Prudential.
 Item. A distinct unit within a brand or product line that is distinguishable by
size, price appearance, or some other attribute. The item is called a
stockkeeping unit, or product variant. Example : Prudential renewable term
insurance.