Five Forces, Clusters And Co Opetition As Mindmaps

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the task was to summarize somer classic strategy articles and to present them in what the prof calls mind map presentations. and so we did.

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  • Five Forces, Clusters And Co Opetition As Mindmaps

    1. 1. Competition and Collaboration: A Mind Map Presentation Five Competitive Clusters Co-opetition Forces perative ompetit ion” ive and Coo & Strategy ”, omics o fC ompetit ebuff Shape w Econ c. 1998. o-pet ition: C rategies”, Nal Leadership es That rc nd the N e -De “Co s St Busines urger, Strategy & titive Fo lusters a ter, HBR Nov. ve Compe y 2008). “C l Por Brande nb “The Fi R (Januar Michae HB Porter,
    2. 2. Five Competitive Co-opetition Forces Clusters
    3. 3. Five Competitive Co-opetition Forces Clusters
    4. 4. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    5. 5. High if: urope. But to under- - Supply ition and profitabil- sid The Five Forces That Shape Deman e e Competition - Industryconomies d o ree cases, Five must one Competitive - Custo -side benefits f scale m o s underlying struc- - Capita er switching c f scale Forces l os - Incum requierements ts e forces. (See the ex- ba Threat - unequ ncy advantage al s That Shape Industry of New- restric access to dist independent o tive gov ri f Entrants ernmen bution channe size t policy ls ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    6. 6. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    7. 7. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargainingou Gr p is es, many companies po Power of Existing - p chas werful if: Power of ur ry structure drives Suppliers Buyers st es large v Competitors - andardise olum e ability, not whether - few swit d produc s ching cos ts product or service, is - threat o ts f backwar ds integra gh tech or low tech, tion also impo ed. While a myriad rtant: pric e senstivi ty ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    8. 8. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    9. 9. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services ff petitive forces, sets -o c e trade n the medium and eat if: erfo rman h thr e price-p s Hig ctiv Co-opetition ibit “Differences in ost - attra itching c sw - low ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    10. 10. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    11. 11. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers Gro ability, not whetherp is pu - mo re co owerful product or service, is nce sells ntra if: - n tech, gh tech or low ot de to ted t pend han - hig indu ed. While a- myriadit ent on h sw stry diffe c it rent hing cos one indu ndustry profitabilityiate - no subs d pr ts stry Threat of uding the tweatherutes oducts - hr eat o it t Substitute f fo – industry structure,rward Products or integ Services petitive forces, sets ratio n n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    12. 12. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    13. 13. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- sity if: High inten tition That Shape Industry to perfect compe Threat ustry close - ind of New th - slow grow low entry barriers Entrants and ther ense, as they are in - high exit rity w ith one ano ck of familia e wars nes, textiles, and ho- - la entiat ion and pric y earns attractive re- - low differ he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    14. 14. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- sity if: High inten tition That Shape Industry to perfect compe Threat ustry close - ind of New th - slow grow low entry barriers Entrants and ther ense, as they are in - high exit rity w ith one ano ck of familia e wars nes, textiles, and ho- - la entiat ion and pric y earns attractive re- - low differ he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    15. 15. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    16. 16. urope. But to under- ition and profitabil- The Five Forces That Shape Industry Competition ree cases, Five must one Competitive s underlying struc- Forces e forces. (See the ex- Threat That Shape Industry of New Entrants ense, as they are in nes, textiles, and ho- y earns attractive re- he forces are benign, Rivalry es such as software, Bargaining Among Bargaining es, many companies Power of Existing Power of ry structure drives Suppliers Competitors Buyers ability, not whether product or service, is gh tech or low tech, ed. While a myriad ndustry profitability Threat of uding the weather Substitute – industry structure, Products or Services petitive forces, sets n the medium and ibit “Differences in Co-opetition ompetitive forces, and their under- The strongest competitive force or forces determine the main roots of an industry’s current profit- Clusters profitability of an industry and become the most important
    17. 17. LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must Five Competitive analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- hibit “The Five Forces That Shape Industry Threat Forces of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies Bargaining Power of Rivalry Among Existing Bargaining Power of determines industry‘s long-run profit potential are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and long run. (See the exhibit “Differences in Industry Profitability.”) Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- are crucial to strategy. graphic film, learned with the advent of digital photography. In such a situation, coping with the substitute product be- Forces That Shape Competition comes the number one strategic priority. The configuration of the five forces differs by industry. In Industry structure grows out of a set of economic and the market for commercial aircraft, fierce rivalry between technical characteristics that determine the strength of dominant producers Airbus and Boeing and the bargain- each competitive force. We will examine these drivers in the ing power of the airlines that place huge orders for aircraft pages that follow, taking the perspective of an incumbent, are strong, while the threat of entry, the threat of substi- or a company already present in the industry. The analysis tutes, and the power of suppliers are more benign. In the can be readily extended to understand the challenges facing movie theater industry, the proliferation of substitute forms a potential entrant. of entertainment and the power of the movie producers THREAT OF ENTRY. New entrants to an industry bring and distributors who supply movies, the critical input, are new capacity and a desire to gain market share that puts important. pressure on prices, costs, and the rate of investment nec- essary to compete. Particularly when new entrants are Michael E. Porter is the Bishop William Lawrence University Pro- diversifying from other markets, they can leverage exist- fessor at Harvard University, based at Harvard Business School in ing capabilities and cash flows to shake up competition, as Boston. He is a six-time McKinsey Award winner, including for his Pepsi did when it entered the bottled water industry, Micro- most recent HBR article, “Strategy and Society,” coauthored with soft did when it began to offer internet browsers, and Apple Mark R. Kramer (December 2006). did when it entered the music distribution business. Co-opetition 80 Harvard Business Review | January 2008 | hbr.org 1808 Porter.indd 80 12/5/07 5:34:13 PM main Clusters
    18. 18. LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must Five Competitive analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- hibit “The Five Forces That Shape Industry Threat Forces of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies Bargaining Power of Rivalry Among Existing Bargaining Power of determines industry‘s long-run profit potential are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and long run. (See the exhibit “Differences in Industry Profitability.”) Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- are crucial to strategy. graphic film, learned with the advent of digital photography. industry growth rate In such a situation, coping with the substitute product be- Forces That Shape Competition comes the number one strategic priority. The configuration of the five forces differs by industry. In Industry structure grows out of a set of economic and the market for commercial aircraft, fierce rivalry between dominant producers Airbus and Boeing and the bargain- technical characteristics that determine the strength of each competitive force. We will examine these drivers in the but: also technology and innovation ing power of the airlines that place huge orders for aircraft are strong, while the threat of entry, the threat of substi- pages that follow, taking the perspective of an incumbent, or a company already present in the industry. The analysis affected by other factors government (not forces) tutes, and the power of suppliers are more benign. In the can be readily extended to understand the challenges facing movie theater industry, the proliferation of substitute forms of entertainment and the power of the movie producers a potential entrant. THREAT OF ENTRY. New entrants to an industry bring complementary products and distributors who supply movies, the critical input, are new capacity and a desire to gain market share that puts important. pressure on prices, costs, and the rate of investment nec- essary to compete. Particularly when new entrants are Michael E. Porter is the Bishop William Lawrence University Pro- diversifying from other markets, they can leverage exist- fessor at Harvard University, based at Harvard Business School in ing capabilities and cash flows to shake up competition, as Boston. He is a six-time McKinsey Award winner, including for his Pepsi did when it entered the bottled water industry, Micro- most recent HBR article, “Strategy and Society,” coauthored with soft did when it began to offer internet browsers, and Apple Mark R. Kramer (December 2006). did when it entered the music distribution business. Co-opetition 80 Harvard Business Review | January 2008 | hbr.org 1808 Porter.indd 80 12/5/07 5:34:13 PM main Clusters
    19. 19. LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must Five Competitive analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- hibit “The Five Forces That Shape Industry Threat Forces of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies Bargaining Power of Rivalry Among Existing Bargaining Power of determines industry‘s long-run profit potential are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and long run. (See the exhibit “Differences in Industry Profitability.”) Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- are crucial to strategy. graphic film, learned with the advent of digital photography. industry growth rate In such a situation, coping with the substitute product be- Forces That Shape Competition comes the number one strategic priority. The configuration of the five forces differs by industry. In Industry structure grows out of a set of economic and the market for commercial aircraft, fierce rivalry between dominant producers Airbus and Boeing and the bargain- technical characteristics that determine the strength of each competitive force. We will examine these drivers in the but: also technology and innovation ing power of the airlines that place huge orders for aircraft are strong, while the threat of entry, the threat of substi- pages that follow, taking the perspective of an incumbent, or a company already present in the industry. The analysis affected by other factors government (not forces) tutes, and the power of suppliers are more benign. In the can be readily extended to understand the challenges facing movie theater industry, the proliferation of substitute forms of entertainment and the power of the movie producers a potential entrant. THREAT OF ENTRY. New entrants to an industry bring complementary products and distributors who supply movies, the critical input, are new capacity and a desire to gain market share that puts important. pressure on prices, costs, and the rate of investment nec- essary to compete. Particularly when new entrants are Michael E. Porter is the Bishop William Lawrence University Pro- diversifying from other markets, they can leverage exist- fessor at Harvard University, based at Harvard Business School in ing capabilities and cash flows to shake up competition, as Boston. He is a six-time McKinsey Award winner, including for his Pepsi did when it entered the bottled water industry, Micro- most recent HBR article, “Strategy and Society,” coauthored with soft did when it began to offer internet browsers, and Apple Mark R. Kramer (December 2006). did when it entered the music distribution business. Co-opetition 80 Harvard Business Review | January 2008 | hbr.org 1808 Porter.indd 80 12/5/07 5:34:13 PM main Clusters
    20. 20. LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must Five Competitive analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- hibit “The Five Forces That Shape Industry Threat Forces of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies Bargaining Power of Rivalry Among Existing Bargaining Power of determines industry‘s long-run profit potential are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and long run. (See the exhibit “Differences in Industry Profitability.”) Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as are crucial to strategy. also important: competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- graphic film, learned with the advent of digital photography. dynamism and change of Forces That Shape Competition In such a situation, coping with the substitute product be- comes the number one strategic priority. industry growth rate forces The configuration of the five forces differs by industry. In Industry structure grows out of a set of economic and the market for commercial aircraft, fierce rivalry between dominant producers Airbus and Boeing and the bargain- technical characteristics that determine the strength of each competitive force. We will examine these drivers in the but: also technology and innovation ing power of the airlines that place huge orders for aircraft are strong, while the threat of entry, the threat of substi- pages that follow, taking the perspective of an incumbent, or a company already present in the industry. The analysis affected by other factors government (not forces) tutes, and the power of suppliers are more benign. In the can be readily extended to understand the challenges facing movie theater industry, the proliferation of substitute forms of entertainment and the power of the movie producers a potential entrant. THREAT OF ENTRY. New entrants to an industry bring complementary products and distributors who supply movies, the critical input, are new capacity and a desire to gain market share that puts important. pressure on prices, costs, and the rate of investment nec- essary to compete. Particularly when new entrants are Michael E. Porter is the Bishop William Lawrence University Pro- diversifying from other markets, they can leverage exist- fessor at Harvard University, based at Harvard Business School in ing capabilities and cash flows to shake up competition, as Boston. He is a six-time McKinsey Award winner, including for his Pepsi did when it entered the bottled water industry, Micro- most recent HBR article, “Strategy and Society,” coauthored with soft did when it began to offer internet browsers, and Apple Mark R. Kramer (December 2006). did when it entered the music distribution business. Co-opetition 80 Harvard Business Review | January 2008 | hbr.org 1808 Porter.indd 80 12/5/07 5:34:13 PM main Clusters
    21. 21. LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must Five Competitive analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- hibit “The Five Forces That Shape Industry Threat Forces of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies Bargaining Power of Rivalry Among Existing Bargaining Power of determines industry‘s long-run profit potential are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and long run. (See the exhibit “Differences in Industry Profitability.”) Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as are crucial to strategy. also important: competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- graphic film, learned with the advent of digital photography. dynamism and change of Forces That Shape Competition In such a situation, coping with the substitute product be- comes the number one strategic priority. industry growth rate forces The configuration of the five forces differs by industry. In Industry structure grows out of a set of economic and the market for commercial aircraft, fierce rivalry between dominant producers Airbus and Boeing and the bargain- technical characteristics that determine the strength of each competitive force. We will examine these drivers in the but: also technology and innovation ing power of the airlines that place huge orders for aircraft are strong, while the threat of entry, the threat of substi- pages that follow, taking the perspective of an incumbent, or a company already present in the industry. The analysis affected by other factors government (not forces) tutes, and the power of suppliers are more benign. In the can be readily extended to understand the challenges facing movie theater industry, the proliferation of substitute forms of entertainment and the power of the movie producers a potential entrant. THREAT OF ENTRY. New entrants to an industry bring complementary products and distributors who supply movies, the critical input, are new capacity and a desire to gain market share that puts important. pressure on prices, costs, and the rate of investment nec- essary to compete. Particularly when new entrants are Michael E. Porter is the Bishop William Lawrence University Pro- diversifying from other markets, they can leverage exist- fessor at Harvard University, based at Harvard Business School in ing capabilities and cash flows to shake up competition, as Boston. He is a six-time McKinsey Award winner, including for his Pepsi did when it entered the bottled water industry, Micro- most recent HBR article, “Strategy and Society,” coauthored with soft did when it began to offer internet browsers, and Apple Mark R. Kramer (December 2006). did when it entered the music distribution business. Co-opetition 80 Harvard Business Review | January 2008 | hbr.org 1808 Porter.indd 80 12/5/07 5:34:13 PM main Clusters
    22. 22. LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must Five Competitive analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- hibit “The Five Forces That Shape Industry Threat Forces of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies Bargaining Power of Rivalry Among Existing Bargaining Power of determines industry‘s long-run profit potential are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and long run. (See the exhibit “Differences in Industry Profitability.”) Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as are crucial to strategy. also important: competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- graphic film, learned with the advent of digital photography. dynamism and change of Forces That Shape Competition In such a situation, coping with the substitute product be- comes the number one strategic priority. industry growth rate forces The configuration of the five forces differs by industry. In Industry structure grows out of a set of economic and the market for commercial aircraft, fierce rivalry between dominant producers Airbus and Boeing and the bargain- technical characteristics that determine the strength of each competitive force. We will examine these drivers in the but: also technology and innovation ing power of the airlines that place huge orders for aircraft are strong, while the threat of entry, the threat of substi- pages that follow, taking the perspective of an incumbent, or a company already present in the industry. The analysis affected by other factors government (not forces) tutes, and the power of suppliers are more benign. In the can be readily extended to understand the challenges facing movie theater industry, the proliferation of substitute forms of entertainment and the power of the movie producers a potential entrant. THREAT OF ENTRY. New entrants to an industry bring complementary products and distributors who supply movies, the critical input, are new capacity and a desire to gain market share that puts important. pressure on prices, costs, and the rate of investment nec- essary to compete. Particularly when new entrants are Michael E. Porter is the Bishop William Lawrence University Pro- diversifying from other markets, they can leverage exist- Implications positio fessor at Harvard University, based at Harvard Business School in Boston. He is a six-time McKinsey Award winner, including for his ing capabilities and cash flows to shake up competition, as Pepsi did when it entered the bottled water industry, Micro- ning o most recent HBR article, “Strategy and Society,” coauthored with soft did when it began to offer internet browsers, and Apple for strategy explo f iting in company Mark R. Kramer (December 2006). did when it entered the music distribution business. dustry Co-opetition 80 Harvard Business Review | January 2008 | hbr.org shapin c definin g industry hange 1808 Porter.indd 80 g indu struct 12/5/07 5:34:13 PM stry ure main Clusters
    23. 23. Five Competitive Co-opetition Forces Clusters
    24. 24. Five Competitive Co-opetition Forces Clusters
    25. 25. Co-opetition Clusters Five Competitive main Forces
    26. 26. Co-opetition LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- Threat hibit “The Five Forces That Shape Industry of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, Rivalry as they are in industries such as software, Bargaining Among Bargaining Clusters soft drinks, and toiletries, many companies Power of Existing Power of are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, Competition regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and Five Competitive long run. (See the exhibit “Differences in Industry Profitability.”) main Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is Forces influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- are crucial to strategy. graphic film, learned with the advent of digital photography.
    27. 27. Co-opetition LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- Threat hibit “The Five Forces That Shape Industry of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, Rivalry as they are in industries such as software, Bargaining Among Bargaining Clusters soft drinks, and toiletries, many companies Power of Existing Power of are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, Cooperation Competition regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and Five Competitive long run. (See the exhibit “Differences in Industry Profitability.”) main Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is Forces influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- are crucial to strategy. graphic film, learned with the advent of digital photography.
    28. 28. Co-opetition es is? Synth LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy delivery industry in Europe. But to under- stand industry competition and profitabil- The Five Forces That Shape Industry Competition ity in each of those three cases, one must analyze the industry’s underlying struc- ture in terms of the five forces. (See the ex- Threat hibit “The Five Forces That Shape Industry of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and ho- tels, almost no company earns attractive re- turns on investment. If the forces are benign, Rivalry as they are in industries such as software, Bargaining Among Bargaining Clusters soft drinks, and toiletries, many companies Power of Existing Power of are profitable. Industry structure drives Suppliers Competitors Buyers competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, Cooperation Competition regulated or unregulated. While a myriad of factors can affect industry profitability Threat of in the short run – including the weather Substitute and the business cycle – industry structure, Products or Services manifested in the competitive forces, sets industry profitability in the medium and Five Competitive long run. (See the exhibit “Differences in Industry Profitability.”) main Understanding the competitive forces, and their under- The strongest competitive force or forces determine the lying causes, reveals the roots of an industry’s current profit- profitability of an industry and become the most important ability while providing a framework for anticipating and to strategy formulation. The most salient force, however, is Forces influencing competition (and profitability) over time. A not always obvious. healthy industry structure should be as much a competitive For example, even though rivalry is often fierce in com- concern to strategists as their company’s own position. Un- modity industries, it may not be the factor limiting profit- derstanding industry structure is also essential to effective ability. Low returns in the photographic film industry, for strategic positioning. As we will see, defending against the instance, are the result of a superior substitute product – as competitive forces and shaping them in a company’s favor Kodak and Fuji, the world’s leading producers of photo- are crucial to strategy. graphic film, learned with the advent of digital photography.

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