This chapter discusses competitive rivalry and competitive dynamics. It presents a model of competitive rivalry that includes competitor analysis, drivers of competitive behavior, interim rivalry, and outcomes. Market commonality, which is the number of shared markets between competitors, and resource similarity are described as important factors for competitor analysis. The chapter also examines how competitive dynamics are affected by factors such as the likelihood of competitive actions and responses, organizational characteristics, and the type of market in terms of its cycle.
The document discusses competitive dynamics and competitor analysis. It provides a comprehensive model of global competitive dynamics that considers industry-based, resource-based, and institutional-based perspectives. Industry-based perspectives focus on factors that enable collusion between firms, such as concentration, product homogeneity, and entry barriers. Resource-based perspectives examine how a firm's valuable and rare resources can provide competitive advantages. Institutional perspectives look at how formal institutions like antitrust policies govern competition domestically and internationally through rules around pricing, dumping, and export cartels.
Competitor analysis involves three main steps:
1) Identifying competitors and grouping them into strategic groups based on similarities.
2) Gathering intelligence on competitors' performance, strategies, capabilities by examining public sources.
3) Analyzing competitors' objectives, assumptions, strategies, and resources to understand their strengths/weaknesses and how they may respond to strategic actions. Conducting a thorough competitor analysis helps firms make strategic decisions and predict competitive dynamics in their industry.
The Five Competitive Forces That Shape Strategyby Michael E..docxcherry686017
The Five Competitive Forces That Shape Strategy
by Michael E. Porter
Editor’s Note: In 1979, Harvard Business Review published “How Competitive Forces Shape Strategy” by a young economist
and associate professor, Michael E. Porter. It was his first HBR article, and it started a revolution in the strategy field. In
subsequent decades, Porter has brought his signature economic rigor to the study of competitive strategy for corporations,
regions, nations, and, more recently, health care and philanthropy. “Porter’s five forces” have shaped a generation of academic
research and business practice. With prodding and assistance from Harvard Business School Professor Jan Rivkin and
longtime colleague Joan Magretta, Porter here reaffirms, updates, and extends the classic work. He also addresses common
misunderstandings, provides practical guidance for users of the framework, and offers a deeper view of its implications for
strategy today.
In essence, the job of the strategist is to understand and cope with competition. Often, however, managers define competition
too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established
industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products.
The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive
interaction within an industry.
As different from one another as industries might appear on the surface, the underlying drivers of profitability are the same. The
global auto industry, for instance, appears to have nothing in common with the worldwide market for art masterpieces or the
heavily regulated health-care delivery industry in Europe. But to understand industry competition and profitability in each of
those three cases, one must analyze the industry’s underlying structure in terms of the five forces. (See the exhibit “The Five
Forces That Shape Industry Competition.”)
The Five Competitive Forces That Shape Strategy - Harvard Business Reviewhttp://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/pr
1 of 16 9/23/2013 8:58 AM
If the forces are intense, as they are in such industries as airlines, textiles, and hotels, almost no company earns attractive
returns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many
companies are profitable. Industry structure drives 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 in the short run—including the weather and the business cycle—industry structure, manifested in the competitive
forces, sets industry profitability in the medium and long run. (See the exhibit “Differences in Industry Profitability.”)
Differences in Ind ...
This document discusses different market structures including perfect competition, monopoly, monopolistic competition, and oligopoly. It begins by introducing the Structure-Conduct-Performance model which links market structure to firm behavior and performance. The key aspects of market structure are the number of firms, product differentiation, barriers to entry/exit, resource mobility, and information availability. Perfect competition is characterized by many small firms, homogeneous products, free entry and exit, and perfect information. A monopoly involves a single seller of unique products with high barriers to entry. The document explores firm behavior and equilibrium under different market structures.
Presentation design
by Charlie Cook
Chapter 5
Competitive Rivalry and Competitive Dynamics
Part 2 Strategic Actions: Strategy Formulation
5–1
1
Studying this chapter should provide you with
the strategic management knowledge needed to:
Learning Objectives
Define competitors, competitive rivalry, competitive behavior, and competitive dynamics.
Describe market commonality and resource similarity as the building blocks of a competitor analysis.
Explain awareness, motivation, and ability as drivers of competitive behavior.
Discuss factors affecting the likelihood a competitor will take competitive actions.
Describe factors affecting the likelihood a competitor will respond to actions taken by its competitors.
Explain competitive dynamics in slow-cycle, in fast-cycle, and in standard-cycle markets.
5–2
2
Where are we in the strategic management process?
5–3
Applications
Ch5 Ex2 First mover advantage of smartphone makers
Learning objectives 4, 5, 6
factors affecting the likelihood a competitor will take competitive actions.
factors affecting the likelihood a competitor will respond to actions taken by its competitors.
competitive dynamics in slow-cycle, in fast-cycle, and in standard-cycle markets
Case Chipotle
Learning objectives 2, 3, 4, 5, 6
Especially, market commonality, resource similarity (LO2), action and response to action (LO4&5)
Video (optional): Inside Chipotle (Bloomberg)
5–4
Prepare for Case Chipotle
5–5
Discussion questions:
General questions from CaseGuideline posted on BB
Case-specific questions in Assignment#7 and as below
1. What business level strategy is Chipotle using in its main business segment? Cost leadership, differentiation, focused, or integrated?
2. Based on internal analysis, what is Chipotle’s core competency, if any? Do you think the business level strategy identified in Q1 fits Chipotle’s core competency?
3. Based on external analysis, how would you describe the competitive dynamics of the fast casual segment in the restaurant industry (higher price than fast service restaurants but lower price than full service restaurants), is it fast-cycle, slow-cycle, or standard-cycle market? What’s the typical strategy for market leaders in such a market (think of the speed of launching new products, brand name, market share, etc.)? What about fast service and full service segments? Do market leaders use different strategies in these segments?
4. Compare Chipotle and its major competitors (Taco Bell, Qdoba, Panera Bread, etc.), how would you describe their market commonality (in scope and in dependence/importance, customer in different age and income groups, international and domestic/US) and resource similarity (both tangible and intangible)?
5. Based on your analysis of the industry and competitors in Q3 and Q4, what do you recommend Chipotle to do to respond to the attack from its competitors, for example, when Taco Bell introduced menu items (steak burrito and burrito bowl) similar to Chipotle.
This document provides an overview of industry analysis and its importance for corporate and business strategy. It discusses how analyzing the determinants of industry profitability - including customer demand, competition intensity, and supplier bargaining power - can help assess industry attractiveness and structure. The document introduces Porter's Five Forces framework for analyzing competition within an industry and identifying factors that influence profit potential. It emphasizes that understanding how macroenvironmental trends affect a firm's industry environment is crucial for strategic planning.
This document discusses Porter's five forces model of competitive strategy. It provides details on each of the five competitive forces: the threat of new entry, competitive rivalry, threat of substitution, bargaining power of suppliers, and bargaining power of customers. It explains how these forces shape industry competition and profitability. The document also discusses Michael Porter's development of the five forces framework and how it can be used to analyze industries and improve a firm's competitive position.
This document provides an overview of a corporate strategy syllabus chapter on competitive rivalry and competitive dynamics. It defines key terms like competitors, competitive behavior, and competitive dynamics. It discusses factors that affect a competitor's likelihood of taking actions or responding to actions. The opening case examines Google's competition in search and other markets from companies like Bing, Yahoo, Amazon and Facebook. It also analyzes competitive behaviors Google takes to build advantages over rivals. The document outlines different types of competitive behaviors firms may exhibit, like conflict, competition, co-existence and cooperation.
The document discusses competitive dynamics and competitor analysis. It provides a comprehensive model of global competitive dynamics that considers industry-based, resource-based, and institutional-based perspectives. Industry-based perspectives focus on factors that enable collusion between firms, such as concentration, product homogeneity, and entry barriers. Resource-based perspectives examine how a firm's valuable and rare resources can provide competitive advantages. Institutional perspectives look at how formal institutions like antitrust policies govern competition domestically and internationally through rules around pricing, dumping, and export cartels.
Competitor analysis involves three main steps:
1) Identifying competitors and grouping them into strategic groups based on similarities.
2) Gathering intelligence on competitors' performance, strategies, capabilities by examining public sources.
3) Analyzing competitors' objectives, assumptions, strategies, and resources to understand their strengths/weaknesses and how they may respond to strategic actions. Conducting a thorough competitor analysis helps firms make strategic decisions and predict competitive dynamics in their industry.
The Five Competitive Forces That Shape Strategyby Michael E..docxcherry686017
The Five Competitive Forces That Shape Strategy
by Michael E. Porter
Editor’s Note: In 1979, Harvard Business Review published “How Competitive Forces Shape Strategy” by a young economist
and associate professor, Michael E. Porter. It was his first HBR article, and it started a revolution in the strategy field. In
subsequent decades, Porter has brought his signature economic rigor to the study of competitive strategy for corporations,
regions, nations, and, more recently, health care and philanthropy. “Porter’s five forces” have shaped a generation of academic
research and business practice. With prodding and assistance from Harvard Business School Professor Jan Rivkin and
longtime colleague Joan Magretta, Porter here reaffirms, updates, and extends the classic work. He also addresses common
misunderstandings, provides practical guidance for users of the framework, and offers a deeper view of its implications for
strategy today.
In essence, the job of the strategist is to understand and cope with competition. Often, however, managers define competition
too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established
industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products.
The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive
interaction within an industry.
As different from one another as industries might appear on the surface, the underlying drivers of profitability are the same. The
global auto industry, for instance, appears to have nothing in common with the worldwide market for art masterpieces or the
heavily regulated health-care delivery industry in Europe. But to understand industry competition and profitability in each of
those three cases, one must analyze the industry’s underlying structure in terms of the five forces. (See the exhibit “The Five
Forces That Shape Industry Competition.”)
The Five Competitive Forces That Shape Strategy - Harvard Business Reviewhttp://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/pr
1 of 16 9/23/2013 8:58 AM
If the forces are intense, as they are in such industries as airlines, textiles, and hotels, almost no company earns attractive
returns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many
companies are profitable. Industry structure drives 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 in the short run—including the weather and the business cycle—industry structure, manifested in the competitive
forces, sets industry profitability in the medium and long run. (See the exhibit “Differences in Industry Profitability.”)
Differences in Ind ...
This document discusses different market structures including perfect competition, monopoly, monopolistic competition, and oligopoly. It begins by introducing the Structure-Conduct-Performance model which links market structure to firm behavior and performance. The key aspects of market structure are the number of firms, product differentiation, barriers to entry/exit, resource mobility, and information availability. Perfect competition is characterized by many small firms, homogeneous products, free entry and exit, and perfect information. A monopoly involves a single seller of unique products with high barriers to entry. The document explores firm behavior and equilibrium under different market structures.
Presentation design
by Charlie Cook
Chapter 5
Competitive Rivalry and Competitive Dynamics
Part 2 Strategic Actions: Strategy Formulation
5–1
1
Studying this chapter should provide you with
the strategic management knowledge needed to:
Learning Objectives
Define competitors, competitive rivalry, competitive behavior, and competitive dynamics.
Describe market commonality and resource similarity as the building blocks of a competitor analysis.
Explain awareness, motivation, and ability as drivers of competitive behavior.
Discuss factors affecting the likelihood a competitor will take competitive actions.
Describe factors affecting the likelihood a competitor will respond to actions taken by its competitors.
Explain competitive dynamics in slow-cycle, in fast-cycle, and in standard-cycle markets.
5–2
2
Where are we in the strategic management process?
5–3
Applications
Ch5 Ex2 First mover advantage of smartphone makers
Learning objectives 4, 5, 6
factors affecting the likelihood a competitor will take competitive actions.
factors affecting the likelihood a competitor will respond to actions taken by its competitors.
competitive dynamics in slow-cycle, in fast-cycle, and in standard-cycle markets
Case Chipotle
Learning objectives 2, 3, 4, 5, 6
Especially, market commonality, resource similarity (LO2), action and response to action (LO4&5)
Video (optional): Inside Chipotle (Bloomberg)
5–4
Prepare for Case Chipotle
5–5
Discussion questions:
General questions from CaseGuideline posted on BB
Case-specific questions in Assignment#7 and as below
1. What business level strategy is Chipotle using in its main business segment? Cost leadership, differentiation, focused, or integrated?
2. Based on internal analysis, what is Chipotle’s core competency, if any? Do you think the business level strategy identified in Q1 fits Chipotle’s core competency?
3. Based on external analysis, how would you describe the competitive dynamics of the fast casual segment in the restaurant industry (higher price than fast service restaurants but lower price than full service restaurants), is it fast-cycle, slow-cycle, or standard-cycle market? What’s the typical strategy for market leaders in such a market (think of the speed of launching new products, brand name, market share, etc.)? What about fast service and full service segments? Do market leaders use different strategies in these segments?
4. Compare Chipotle and its major competitors (Taco Bell, Qdoba, Panera Bread, etc.), how would you describe their market commonality (in scope and in dependence/importance, customer in different age and income groups, international and domestic/US) and resource similarity (both tangible and intangible)?
5. Based on your analysis of the industry and competitors in Q3 and Q4, what do you recommend Chipotle to do to respond to the attack from its competitors, for example, when Taco Bell introduced menu items (steak burrito and burrito bowl) similar to Chipotle.
This document provides an overview of industry analysis and its importance for corporate and business strategy. It discusses how analyzing the determinants of industry profitability - including customer demand, competition intensity, and supplier bargaining power - can help assess industry attractiveness and structure. The document introduces Porter's Five Forces framework for analyzing competition within an industry and identifying factors that influence profit potential. It emphasizes that understanding how macroenvironmental trends affect a firm's industry environment is crucial for strategic planning.
This document discusses Porter's five forces model of competitive strategy. It provides details on each of the five competitive forces: the threat of new entry, competitive rivalry, threat of substitution, bargaining power of suppliers, and bargaining power of customers. It explains how these forces shape industry competition and profitability. The document also discusses Michael Porter's development of the five forces framework and how it can be used to analyze industries and improve a firm's competitive position.
This document provides an overview of a corporate strategy syllabus chapter on competitive rivalry and competitive dynamics. It defines key terms like competitors, competitive behavior, and competitive dynamics. It discusses factors that affect a competitor's likelihood of taking actions or responding to actions. The opening case examines Google's competition in search and other markets from companies like Bing, Yahoo, Amazon and Facebook. It also analyzes competitive behaviors Google takes to build advantages over rivals. The document outlines different types of competitive behaviors firms may exhibit, like conflict, competition, co-existence and cooperation.
INDUSTRY ANALYSIS One of the major competences that str.docxcarliotwaycave
INDUSTRY ANALYSIS
One of the major competences that strategic managers need is the ability to define their business, conduct an effective industry analysis,
and identify the "key success factors" for firms competing in their industry. This brief note discusses the steps most often found in a
solid analysis of an industry.
A.DEFINE THE INDUSTRY.
The boundaries for an industry analysis are determined by the markets and products that best describe the domain of the industry. Once
you fully understand the business segment that is to be analyzed, you are in a position to identify the capabilities required to participate
successfully in that industry, and the competitors that are likewise able to effectively target the same business segments. These
elements set the parameters for understanding and analyzing the industry. As industries converge and shift, business definitions become
more difficult. In virtually all industries, consumers are becoming more demanding for customized products and services. These
demands encourage the development of innovations, products, and competitors.
B. DESCRIBE THE INDUSTRY STRUCTURE.
For each product-market segment, an industry analysis will describe the "five-forces" of competition. The five forces discussed briefly
below predict the long run profitability of an industry and are an important first step in analyzing the industry once it has been identified.
1. Bargaining Power of Buyers: This primary force comes from the customer segments that make up the markets in which firms
compete. The size and importance of customers influences their power to negotiate prices and terms that reduce the overall
profitability of the industry. The sizes and types of buyers present in an industry determine their potential influence on product
development and influence the level of competition to be found in the industry.
2. Intensity of Rivalry: A second force comes from the competitors and the ways they compete. Each competitor offers a set of
products and services that attempts to provide higher value to the product-market segments they address. Strategies can be
designed to provide combinations of higher performance, more fashion and features, higher quality, or lower price. Increased
rivalry always leads to price or service competition that reduces the profitability of the industry.
3. Bargaining Power of Suppliers: A third influence on the profitability of an industry comes from its suppliers. In some industries,
suppliers might control critical inputs that can affect all firms’ ability to compete. Analogous to Bargaining power of Buyers,
whenever suppliers are large or few, their leverage tends to be high. Limited access to critical factors of production, equipment,
materials, or components can increase prices and accordingly limit profit potential.
4. Threat of New Entrants; a fourth force represents the ease with which a new competitor can compete for exi ...
This document discusses competitor analysis and brand development. It begins by defining competitors as either direct or indirect. Direct competitors offer similar products, while indirect competitors satisfy similar needs. It then discusses Porter's five forces model for analyzing competition, including the threat of new entrants, substitute products, rivalry between firms, supplier power, and buyer power. A large part of the document focuses on branding, defining it as a way to differentiate products and create monopoly power. It traces the history of branding from agricultural practices to modern marketing strategies. Branding allows firms to charge premium prices and build long-term, stable demand.
CHAPTER 3EVALUATING A COMPANY’S EXTERNAL ENVIRONMENT.docxwalterl4
CHAPTER 3
EVALUATING A COMPANY’S
EXTERNAL ENVIRONMENT
McGraw-Hill/Irwin
Copyright ®2012 The McGraw-Hill Companies, Inc.
3–*
Gain command of the basic concepts and analytical tools widely used to diagnose the competitive conditions in a company’s industry.Learn how to diagnose the factors shaping industry dynamics and to forecast their effects on future industry profitability.Become adept at mapping the market positions of key groups of industry rivals.Understand why in-depth evaluation of a business’s strengths and weaknesses in relation to the specific industry conditions it confronts is an essential prerequisite to crafting a strategy that is well-matched to its external situation.
3–*
3.1
From Thinking Strategically about the Company’s Situation to Choosing a Strategy
Chapter 3
Chapter 4
Thinking
strategically
about a firm’s
external
environment
Thinking
strategically
about a firm’s
internal
environment
Forming a
strategic
vision of
where the
firm needs
to head
Identifying
promising
strategic
options
for the firm
Selecting the
best strategy
and business
model for
the firm
3–*
3.2
The Components of a Company’s Macro-Environment
3–*
3.1
The Seven Components of the Macro-EnvironmentComponentDescriptionDemographicsThe size, growth rate, and age distribution of different sectors of the population. It includes the geographic distribution of the population, the distribution of income across the population, and trends in these factors.Social forces Societal values, attitudes, cultural factors, and lifestyles that impact businesses. Social forces vary by locale and change over time. Political, legal, and regulatory factors Political policies and processes, as well as the regulations and laws with which companies must comply—labor laws, antitrust laws, tax policy, regulatory policies, the political climate, and the strength of institutions such as the court system.Natural environment Ecological and environmental forces such as weather, climate, climate change, and associated factors like water shortages.Technological
factors The pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering, the rise of the Internet, changes in communication technologies, and knowledge and controlling the use of technology, Global forces Conditions and changes in global markets, including political events and policies toward international trade, sociocultural practices and the institutional environment in which global markets operate.General economic
conditions Rates of economic growth, unemployment, inflation, interest, trade deficits or surpluses, savings, per capita domestic product, and conditions in the markets for stocks and bonds affecting consumer confidence and discretionary income.
3–*
THINKING STRATEGICALLY ABOUT A COMPANY’S INDUSTRY AND COMPETITIVE ENVIRONMENT
Does the industry offer attractive opportunities for growth?
What k.
Competitor analysis is essential for developing effective marketing strategies. There are several dimensions to consider when analyzing competitors. First, direct competitors within the same strategic group should be the initial focus, but potential entrants and substitutes must also be considered over the long term. Second, competitor analysis involves assessing their objectives, current strategies, resources, and predicting future strategies. Understanding competitors' goals provides insight into where they intend to expand or compete aggressively. Analyzing resources indicates their capabilities, and strategies reveal their current approach. Combining these analyses allows predicting likely future actions to identify opportunities and threats from competitors.
Porter’s Five Force Model:
THREAT TO NEW ENTRANTS
THREAT TO SUBSTITUTE
RIVALRY AMONG EXISTING FIRMS
BARGAINING POWER OF BUYERS & SUPPLIERS
COMPETITIVE CHANGES DURING INDUSTRY LIFE CYCLE:
Industry lifecycle comprises four stages including fragmentation, growth, maturity and decline. An understanding of the industry lifecycle can help competing companies survive during periods of transition.
The Fragmentation or birth stage of the organization is dominated by the entrepreneur as it is based on concentration and niche marketing.
The growth is carried out with the help of integration of both horizontal & vertical. Here focus is given more on the functional management.
In maturity stage the industry focuses on concentration and diversification. The centers like: profit, investment etc. are established in this stage.
Decline stage is followed by retrenchment strategy. The stage after decline I death which is known as liquidation or bankruptcy.
Strategic Group:
A strategic group consists of those rival firms with similar competitive approaches and positions in the market. The identification of strategic groups within an industry enables the competitive structure of the industry to be redefined to compare strategies of various competitors for similarities and differences.22-Jan-2015
Strategic groups are sets of firms that follow similar strategies to one another (Hunt, 1972; Short et al., 2007). More specifically, a strategic group consists of a set of industry competitors that have similar characteristics to one another but differ in important ways from the members of other groups.
A simple example of a strategic group would be the fast-food restaurant chains in the foodservice industry. Other strategic groups in this industry include fine-dining restaurants, cafes, and family restaurants among many others.30-Sept-2022
Strategic Group Analysis:
Strategic group analysis is used to examine the competitive environment and the rivalry among competitors within an industry.
It helps,
Identify the strategic direction of the direct rivals in the industry. This will in turn help shape the strategic moves of your own organization.
Identify the strategies used by companies in other strategic groups. In certain difficult situations, your organization can use these alternative paths to success as solutions.
Discover untapped opportunities in the industry by revealing the gaps (i.e. disclose areas where there is limited or no competition)
Mapping Strategic Groups:
The strategy group map is used as the primary tool in the analysis of strategic groups. It helps visualize and analyse the competitive positions of industry rivals based on variables (common characteristics) relevant to their strategic significance.
Porter five forces analysis is a framework developed by Michael Porter to analyze industry competition and develop business strategy. It involves analyzing five competitive forces that shape an industry: the threat of new entrants, the threat of substitute products, the bargaining power of suppliers, the bargaining power of customers, and competitive rivalry within an industry. The framework helps assess an industry's profitability and attractiveness.
The document discusses various frameworks for conducting a situation analysis for advertising planning, including the 5Cs analysis, SWOT analysis, Porter's 5 forces model, AIDA model, DAGMAR model, and hierarchy of effects model. It explains how to use these models to analyze the company, competitors, customers, collaborators, climate/environment, and to identify strengths, weaknesses, opportunities, threats. It also discusses how to define advertising objectives and target audiences, and the importance of brand personality in positioning strategy. The planning process involves situation analysis, objective setting, targeting, strategy development, implementation, and evaluation.
The document discusses the GE Nine Cell Matrix, which is a portfolio analysis tool developed by McKinsey & Company for General Electric in the 1970s. It evaluates business units based on their market attractiveness and business strength. Market attractiveness depends on factors like market size, growth rate, and profit margins. Business strength is assessed by metrics such as market share, brand strength, and competitiveness. The matrix plots business units into nine cells that indicate whether a unit should be invested in, maintained, or harvested. It provides a more nuanced analysis than the Boston Consulting Group matrix.
The document discusses various strategic analysis frameworks and concepts including:
1. The PESTEL framework which categorizes environmental influences into political, economic, social, technological, environmental and legal factors.
2. Key drivers of change that are likely to have a high impact on strategy success or failure.
3. Scenario mapping which develops plausible future scenarios based on key uncertain drivers, in order to analyze strategic options.
4. Porter's five forces framework which assesses the attractiveness of an industry based on the threat of entry/substitutes, and bargaining power of buyers/suppliers and competitive rivalry.
5. Types of industries such as monopolistic, oligopolistic, perfectly competitive, and
Awareness of the fi ve forces can help a company understand th.docxrock73
Awareness of the fi ve forces can help a company understand the structure of its
industry and stake out a position that is more profi table and less vulnerable to attack.
78 Harvard Business Review | January 2008 | hbr.org
1808 Porter.indd 781808 Porter.indd 78 12/5/07 5:33:57 PM12/5/07 5:33:57 PM
P
e
te
r
C
ro
w
th
e
r
Editor’s Note: In 1979, Harvard Business Review
published “How Competitive Forces Shape Strat-
egy” by a young economist and associate professor,
Michael E. Porter. It was his fi rst HBR article, and it
started a revolution in the strategy fi eld. In subsequent
decades, Porter has brought his signature economic
rigor to the study of competitive strategy for corpora-
tions, regions, nations, and, more recently, health care
and philanthropy. “Porter’s fi ve forces” have shaped a
generation of academic research and business practice.
With prodding and assistance from Harvard Business
School Professor Jan Rivkin and longtime colleague
Joan Magretta, Porter here reaffi rms, updates, and
extends the classic work. He also addresses common
misunderstandings, provides practical guidance for
users of the framework, and offers a deeper view of
its implications for strategy today.
THE FIVE
COMPETITIVE
FORCES THAT
by Michael E. Porter
hbr.org | January 2008 | Harvard Business Review 79
SHAPE
IN ESSENCE, the job of the strategist is to under-
STRATEGYSTRATEGY
stand and cope with competition. Often, however,
managers defi ne competition too narrowly, as if
it occurred only among today’s direct competi-
tors. Yet competition for profi ts goes beyond es-
tablished industry rivals to include four other
competitive forces as well: customers, suppliers,
potential entrants, and substitute products. The
extended rivalry that results from all fi ve forces
defi nes an industry’s structure and shapes the
nature of competitive interaction within an
industry.
As different from one another as industries
might appear on the surface, the underlying driv-
ers of profi tability are the same. The global auto
industry, for instance, appears to have nothing
in common with the worldwide market for art
masterpieces or the heavily regulated health-care
1808 Porter.indd 791808 Porter.indd 79 12/5/07 5:34:06 PM12/5/07 5:34:06 PM
LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy
80 Harvard Business Review | January 2008 | hbr.org
delivery industry in Europe. But to under-
stand industry competition and profi tabil-
ity in each of those three cases, one must
analyze the industry’s underlying struc-
ture in terms of the fi ve forces. (See the ex-
hibit “The Five Forces That Shape Industry
Competition.”)
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 a ...
Awareness of the fi ve forces can help a company understand th.docxcelenarouzie
Awareness of the fi ve forces can help a company understand the structure of its
industry and stake out a position that is more profi table and less vulnerable to attack.
78 Harvard Business Review | January 2008 | hbr.org
1808 Porter.indd 781808 Porter.indd 78 12/5/07 5:33:57 PM12/5/07 5:33:57 PM
P
e
te
r
C
ro
w
th
e
r
Editor’s Note: In 1979, Harvard Business Review
published “How Competitive Forces Shape Strat-
egy” by a young economist and associate professor,
Michael E. Porter. It was his fi rst HBR article, and it
started a revolution in the strategy fi eld. In subsequent
decades, Porter has brought his signature economic
rigor to the study of competitive strategy for corpora-
tions, regions, nations, and, more recently, health care
and philanthropy. “Porter’s fi ve forces” have shaped a
generation of academic research and business practice.
With prodding and assistance from Harvard Business
School Professor Jan Rivkin and longtime colleague
Joan Magretta, Porter here reaffi rms, updates, and
extends the classic work. He also addresses common
misunderstandings, provides practical guidance for
users of the framework, and offers a deeper view of
its implications for strategy today.
THE FIVE
COMPETITIVE
FORCES THAT
by Michael E. Porter
hbr.org | January 2008 | Harvard Business Review 79
SHAPE
IN ESSENCE, the job of the strategist is to under-
STRATEGYSTRATEGY
stand and cope with competition. Often, however,
managers defi ne competition too narrowly, as if
it occurred only among today’s direct competi-
tors. Yet competition for profi ts goes beyond es-
tablished industry rivals to include four other
competitive forces as well: customers, suppliers,
potential entrants, and substitute products. The
extended rivalry that results from all fi ve forces
defi nes an industry’s structure and shapes the
nature of competitive interaction within an
industry.
As different from one another as industries
might appear on the surface, the underlying driv-
ers of profi tability are the same. The global auto
industry, for instance, appears to have nothing
in common with the worldwide market for art
masterpieces or the heavily regulated health-care
1808 Porter.indd 791808 Porter.indd 79 12/5/07 5:34:06 PM12/5/07 5:34:06 PM
LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy
80 Harvard Business Review | January 2008 | hbr.org
delivery industry in Europe. But to under-
stand industry competition and profi tabil-
ity in each of those three cases, one must
analyze the industry’s underlying struc-
ture in terms of the fi ve forces. (See the ex-
hibit “The Five Forces That Shape Industry
Competition.”)
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 a.
This document discusses Porter's Five Forces framework for analyzing industry competition and outlines the key forces: competitive rivalry, bargaining power of suppliers, bargaining power of customers, threat of new entrants, and threat of substitute products. It then provides an example analysis of the athletic footwear and apparel industry using Under Armour, examining how each of the five forces applies. Finally, it introduces PESTEL analysis, outlining the political, economic, social, technological, environmental, and legal factors that shape the business environment.
Awareness of the fi ve forces can help a company understand thkacie8xcheco
Awareness of the fi ve forces can help a company understand the structure of its
industry and stake out a position that is more profi table and less vulnerable to attack.
78 Harvard Business Review | January 2008 | hbr.org
1808 Porter.indd 781808 Porter.indd 78 12/5/07 5:33:57 PM12/5/07 5:33:57 PM
P
et
er
C
ro
w
th
er
Editor’s Note: In 1979, Harvard Business Review
published “How Competitive Forces Shape Strat-
egy” by a young economist and associate professor,
Michael E. Porter. It was his fi rst HBR article, and it
started a revolution in the strategy fi eld. In subsequent
decades, Porter has brought his signature economic
rigor to the study of competitive strategy for corpora-
tions, regions, nations, and, more recently, health care
and philanthropy. “Porter’s fi ve forces” have shaped a
generation of academic research and business practice.
With prodding and assistance from Harvard Business
School Professor Jan Rivkin and longtime colleague
Joan Magretta, Porter here reaffi rms, updates, and
extends the classic work. He also addresses common
misunderstandings, provides practical guidance for
users of the framework, and offers a deeper view of
its implications for strategy today.
THE FIVE
COMPETITIVE
FORCES THAT
by Michael E. Porter
hbr.org | January 2008 | Harvard Business Review 79
SHAPE
IN ESSENCE, the job of the strategist is to under-
STRATEGYSTRATEGY
stand and cope with competition. Often, however,
managers defi ne competition too narrowly, as if
it occurred only among today’s direct competi-
tors. Yet competition for profi ts goes beyond es-
tablished industry rivals to include four other
competitive forces as well: customers, suppliers,
potential entrants, and substitute products. The
extended rivalry that results from all fi ve forces
defi nes an industry’s structure and shapes the
nature of competitive interaction within an
industry.
As different from one another as industries
might appear on the surface, the underlying driv-
ers of profi tability are the same. The global auto
industry, for instance, appears to have nothing
in common with the worldwide market for art
masterpieces or the heavily regulated health-care
1808 Porter.indd 791808 Porter.indd 79 12/5/07 5:34:06 PM12/5/07 5:34:06 PM
LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy
80 Harvard Business Review | January 2008 | hbr.org
delivery industry in Europe. But to under-
stand industry competition and profi tabil-
ity in each of those three cases, one must
analyze the industry’s underlying struc-
ture in terms of the fi ve forces. (See the ex-
hibit “The Five Forces That Shape Industry
Competition.”)
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, an ...
This document discusses competitive rivalry and competitive dynamics. It defines key terms like competitors, competitive rivalry, competitive behavior, and competitive dynamics. It presents a model of competitive rivalry that shows how firms are interdependent and affect each other through competitive actions and responses. It discusses competitor analysis, market commonality, resource similarity, and the drivers of competitive behavior. It also addresses the likelihood of attack and response between competitors, considering factors like first-mover benefits, organizational size, and quality.
This document outlines the topics to be covered in chapters 3, 5, 6, 7, 9, and 10 of a strategic management course. It includes discussions of SWOT analysis, the value chain, resource-based theory, generic strategies, industry life cycles, diversification, international expansion, strategic control systems, organizational structure, and conducting case study analyses of markets. The case study section provides an example case analysis of the mineral water market in Cambodia, including market description, segmentation, demand projections, recommended marketing mix, and formulation of a market strategy.
This document summarizes Michael Porter's framework of the five competitive forces that shape industry competition and profitability. The five competitive forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and rivalry among existing competitors. Understanding how these forces interact in an industry allows companies to develop strategies to enhance long-term profits, such as positioning in areas where competitive forces are weakest. Porter provides examples of industries like commercial aviation that have many intense competitive forces, resulting in low profitability, and industries like software that have more benign forces and higher profits.
International Journal of Engineering and Science Invention (IJESI) is an international journal intended for professionals and researchers in all fields of computer science and electronics. IJESI publishes research articles and reviews within the whole field Engineering Science and Technology, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Porter's generic strategies framework outlines three types of competitive advantage - cost leadership, differentiation, and focus. Firms can pursue one of these advantages across a broad or narrow scope. Competitive advantage is created through value chain activities that are difficult for competitors to imitate. It is sustained through durable sources of advantage, multiple distinct sources, and continuous upgrading. Alternatively, the core competence framework emphasizes developing dynamic capabilities rather than positioning within an industry. Core competencies allow firms to enter new markets and are sustained through continuous investment. Both frameworks provide guidance for analyzing competitive advantage but must be tailored to a specific company's challenges.
The Most Inspiring Entrepreneurs to Follow in 2024.pdfthesiliconleaders
In a world where the potential of youth innovation remains vastly untouched, there emerges a guiding light in the form of Norm Goldstein, the Founder and CEO of EduNetwork Partners. His dedication to this cause has earned him recognition as a Congressional Leadership Award recipient.
INDUSTRY ANALYSIS One of the major competences that str.docxcarliotwaycave
INDUSTRY ANALYSIS
One of the major competences that strategic managers need is the ability to define their business, conduct an effective industry analysis,
and identify the "key success factors" for firms competing in their industry. This brief note discusses the steps most often found in a
solid analysis of an industry.
A.DEFINE THE INDUSTRY.
The boundaries for an industry analysis are determined by the markets and products that best describe the domain of the industry. Once
you fully understand the business segment that is to be analyzed, you are in a position to identify the capabilities required to participate
successfully in that industry, and the competitors that are likewise able to effectively target the same business segments. These
elements set the parameters for understanding and analyzing the industry. As industries converge and shift, business definitions become
more difficult. In virtually all industries, consumers are becoming more demanding for customized products and services. These
demands encourage the development of innovations, products, and competitors.
B. DESCRIBE THE INDUSTRY STRUCTURE.
For each product-market segment, an industry analysis will describe the "five-forces" of competition. The five forces discussed briefly
below predict the long run profitability of an industry and are an important first step in analyzing the industry once it has been identified.
1. Bargaining Power of Buyers: This primary force comes from the customer segments that make up the markets in which firms
compete. The size and importance of customers influences their power to negotiate prices and terms that reduce the overall
profitability of the industry. The sizes and types of buyers present in an industry determine their potential influence on product
development and influence the level of competition to be found in the industry.
2. Intensity of Rivalry: A second force comes from the competitors and the ways they compete. Each competitor offers a set of
products and services that attempts to provide higher value to the product-market segments they address. Strategies can be
designed to provide combinations of higher performance, more fashion and features, higher quality, or lower price. Increased
rivalry always leads to price or service competition that reduces the profitability of the industry.
3. Bargaining Power of Suppliers: A third influence on the profitability of an industry comes from its suppliers. In some industries,
suppliers might control critical inputs that can affect all firms’ ability to compete. Analogous to Bargaining power of Buyers,
whenever suppliers are large or few, their leverage tends to be high. Limited access to critical factors of production, equipment,
materials, or components can increase prices and accordingly limit profit potential.
4. Threat of New Entrants; a fourth force represents the ease with which a new competitor can compete for exi ...
This document discusses competitor analysis and brand development. It begins by defining competitors as either direct or indirect. Direct competitors offer similar products, while indirect competitors satisfy similar needs. It then discusses Porter's five forces model for analyzing competition, including the threat of new entrants, substitute products, rivalry between firms, supplier power, and buyer power. A large part of the document focuses on branding, defining it as a way to differentiate products and create monopoly power. It traces the history of branding from agricultural practices to modern marketing strategies. Branding allows firms to charge premium prices and build long-term, stable demand.
CHAPTER 3EVALUATING A COMPANY’S EXTERNAL ENVIRONMENT.docxwalterl4
CHAPTER 3
EVALUATING A COMPANY’S
EXTERNAL ENVIRONMENT
McGraw-Hill/Irwin
Copyright ®2012 The McGraw-Hill Companies, Inc.
3–*
Gain command of the basic concepts and analytical tools widely used to diagnose the competitive conditions in a company’s industry.Learn how to diagnose the factors shaping industry dynamics and to forecast their effects on future industry profitability.Become adept at mapping the market positions of key groups of industry rivals.Understand why in-depth evaluation of a business’s strengths and weaknesses in relation to the specific industry conditions it confronts is an essential prerequisite to crafting a strategy that is well-matched to its external situation.
3–*
3.1
From Thinking Strategically about the Company’s Situation to Choosing a Strategy
Chapter 3
Chapter 4
Thinking
strategically
about a firm’s
external
environment
Thinking
strategically
about a firm’s
internal
environment
Forming a
strategic
vision of
where the
firm needs
to head
Identifying
promising
strategic
options
for the firm
Selecting the
best strategy
and business
model for
the firm
3–*
3.2
The Components of a Company’s Macro-Environment
3–*
3.1
The Seven Components of the Macro-EnvironmentComponentDescriptionDemographicsThe size, growth rate, and age distribution of different sectors of the population. It includes the geographic distribution of the population, the distribution of income across the population, and trends in these factors.Social forces Societal values, attitudes, cultural factors, and lifestyles that impact businesses. Social forces vary by locale and change over time. Political, legal, and regulatory factors Political policies and processes, as well as the regulations and laws with which companies must comply—labor laws, antitrust laws, tax policy, regulatory policies, the political climate, and the strength of institutions such as the court system.Natural environment Ecological and environmental forces such as weather, climate, climate change, and associated factors like water shortages.Technological
factors The pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering, the rise of the Internet, changes in communication technologies, and knowledge and controlling the use of technology, Global forces Conditions and changes in global markets, including political events and policies toward international trade, sociocultural practices and the institutional environment in which global markets operate.General economic
conditions Rates of economic growth, unemployment, inflation, interest, trade deficits or surpluses, savings, per capita domestic product, and conditions in the markets for stocks and bonds affecting consumer confidence and discretionary income.
3–*
THINKING STRATEGICALLY ABOUT A COMPANY’S INDUSTRY AND COMPETITIVE ENVIRONMENT
Does the industry offer attractive opportunities for growth?
What k.
Competitor analysis is essential for developing effective marketing strategies. There are several dimensions to consider when analyzing competitors. First, direct competitors within the same strategic group should be the initial focus, but potential entrants and substitutes must also be considered over the long term. Second, competitor analysis involves assessing their objectives, current strategies, resources, and predicting future strategies. Understanding competitors' goals provides insight into where they intend to expand or compete aggressively. Analyzing resources indicates their capabilities, and strategies reveal their current approach. Combining these analyses allows predicting likely future actions to identify opportunities and threats from competitors.
Porter’s Five Force Model:
THREAT TO NEW ENTRANTS
THREAT TO SUBSTITUTE
RIVALRY AMONG EXISTING FIRMS
BARGAINING POWER OF BUYERS & SUPPLIERS
COMPETITIVE CHANGES DURING INDUSTRY LIFE CYCLE:
Industry lifecycle comprises four stages including fragmentation, growth, maturity and decline. An understanding of the industry lifecycle can help competing companies survive during periods of transition.
The Fragmentation or birth stage of the organization is dominated by the entrepreneur as it is based on concentration and niche marketing.
The growth is carried out with the help of integration of both horizontal & vertical. Here focus is given more on the functional management.
In maturity stage the industry focuses on concentration and diversification. The centers like: profit, investment etc. are established in this stage.
Decline stage is followed by retrenchment strategy. The stage after decline I death which is known as liquidation or bankruptcy.
Strategic Group:
A strategic group consists of those rival firms with similar competitive approaches and positions in the market. The identification of strategic groups within an industry enables the competitive structure of the industry to be redefined to compare strategies of various competitors for similarities and differences.22-Jan-2015
Strategic groups are sets of firms that follow similar strategies to one another (Hunt, 1972; Short et al., 2007). More specifically, a strategic group consists of a set of industry competitors that have similar characteristics to one another but differ in important ways from the members of other groups.
A simple example of a strategic group would be the fast-food restaurant chains in the foodservice industry. Other strategic groups in this industry include fine-dining restaurants, cafes, and family restaurants among many others.30-Sept-2022
Strategic Group Analysis:
Strategic group analysis is used to examine the competitive environment and the rivalry among competitors within an industry.
It helps,
Identify the strategic direction of the direct rivals in the industry. This will in turn help shape the strategic moves of your own organization.
Identify the strategies used by companies in other strategic groups. In certain difficult situations, your organization can use these alternative paths to success as solutions.
Discover untapped opportunities in the industry by revealing the gaps (i.e. disclose areas where there is limited or no competition)
Mapping Strategic Groups:
The strategy group map is used as the primary tool in the analysis of strategic groups. It helps visualize and analyse the competitive positions of industry rivals based on variables (common characteristics) relevant to their strategic significance.
Porter five forces analysis is a framework developed by Michael Porter to analyze industry competition and develop business strategy. It involves analyzing five competitive forces that shape an industry: the threat of new entrants, the threat of substitute products, the bargaining power of suppliers, the bargaining power of customers, and competitive rivalry within an industry. The framework helps assess an industry's profitability and attractiveness.
The document discusses various frameworks for conducting a situation analysis for advertising planning, including the 5Cs analysis, SWOT analysis, Porter's 5 forces model, AIDA model, DAGMAR model, and hierarchy of effects model. It explains how to use these models to analyze the company, competitors, customers, collaborators, climate/environment, and to identify strengths, weaknesses, opportunities, threats. It also discusses how to define advertising objectives and target audiences, and the importance of brand personality in positioning strategy. The planning process involves situation analysis, objective setting, targeting, strategy development, implementation, and evaluation.
The document discusses the GE Nine Cell Matrix, which is a portfolio analysis tool developed by McKinsey & Company for General Electric in the 1970s. It evaluates business units based on their market attractiveness and business strength. Market attractiveness depends on factors like market size, growth rate, and profit margins. Business strength is assessed by metrics such as market share, brand strength, and competitiveness. The matrix plots business units into nine cells that indicate whether a unit should be invested in, maintained, or harvested. It provides a more nuanced analysis than the Boston Consulting Group matrix.
The document discusses various strategic analysis frameworks and concepts including:
1. The PESTEL framework which categorizes environmental influences into political, economic, social, technological, environmental and legal factors.
2. Key drivers of change that are likely to have a high impact on strategy success or failure.
3. Scenario mapping which develops plausible future scenarios based on key uncertain drivers, in order to analyze strategic options.
4. Porter's five forces framework which assesses the attractiveness of an industry based on the threat of entry/substitutes, and bargaining power of buyers/suppliers and competitive rivalry.
5. Types of industries such as monopolistic, oligopolistic, perfectly competitive, and
Awareness of the fi ve forces can help a company understand th.docxrock73
Awareness of the fi ve forces can help a company understand the structure of its
industry and stake out a position that is more profi table and less vulnerable to attack.
78 Harvard Business Review | January 2008 | hbr.org
1808 Porter.indd 781808 Porter.indd 78 12/5/07 5:33:57 PM12/5/07 5:33:57 PM
P
e
te
r
C
ro
w
th
e
r
Editor’s Note: In 1979, Harvard Business Review
published “How Competitive Forces Shape Strat-
egy” by a young economist and associate professor,
Michael E. Porter. It was his fi rst HBR article, and it
started a revolution in the strategy fi eld. In subsequent
decades, Porter has brought his signature economic
rigor to the study of competitive strategy for corpora-
tions, regions, nations, and, more recently, health care
and philanthropy. “Porter’s fi ve forces” have shaped a
generation of academic research and business practice.
With prodding and assistance from Harvard Business
School Professor Jan Rivkin and longtime colleague
Joan Magretta, Porter here reaffi rms, updates, and
extends the classic work. He also addresses common
misunderstandings, provides practical guidance for
users of the framework, and offers a deeper view of
its implications for strategy today.
THE FIVE
COMPETITIVE
FORCES THAT
by Michael E. Porter
hbr.org | January 2008 | Harvard Business Review 79
SHAPE
IN ESSENCE, the job of the strategist is to under-
STRATEGYSTRATEGY
stand and cope with competition. Often, however,
managers defi ne competition too narrowly, as if
it occurred only among today’s direct competi-
tors. Yet competition for profi ts goes beyond es-
tablished industry rivals to include four other
competitive forces as well: customers, suppliers,
potential entrants, and substitute products. The
extended rivalry that results from all fi ve forces
defi nes an industry’s structure and shapes the
nature of competitive interaction within an
industry.
As different from one another as industries
might appear on the surface, the underlying driv-
ers of profi tability are the same. The global auto
industry, for instance, appears to have nothing
in common with the worldwide market for art
masterpieces or the heavily regulated health-care
1808 Porter.indd 791808 Porter.indd 79 12/5/07 5:34:06 PM12/5/07 5:34:06 PM
LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy
80 Harvard Business Review | January 2008 | hbr.org
delivery industry in Europe. But to under-
stand industry competition and profi tabil-
ity in each of those three cases, one must
analyze the industry’s underlying struc-
ture in terms of the fi ve forces. (See the ex-
hibit “The Five Forces That Shape Industry
Competition.”)
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 a ...
Awareness of the fi ve forces can help a company understand th.docxcelenarouzie
Awareness of the fi ve forces can help a company understand the structure of its
industry and stake out a position that is more profi table and less vulnerable to attack.
78 Harvard Business Review | January 2008 | hbr.org
1808 Porter.indd 781808 Porter.indd 78 12/5/07 5:33:57 PM12/5/07 5:33:57 PM
P
e
te
r
C
ro
w
th
e
r
Editor’s Note: In 1979, Harvard Business Review
published “How Competitive Forces Shape Strat-
egy” by a young economist and associate professor,
Michael E. Porter. It was his fi rst HBR article, and it
started a revolution in the strategy fi eld. In subsequent
decades, Porter has brought his signature economic
rigor to the study of competitive strategy for corpora-
tions, regions, nations, and, more recently, health care
and philanthropy. “Porter’s fi ve forces” have shaped a
generation of academic research and business practice.
With prodding and assistance from Harvard Business
School Professor Jan Rivkin and longtime colleague
Joan Magretta, Porter here reaffi rms, updates, and
extends the classic work. He also addresses common
misunderstandings, provides practical guidance for
users of the framework, and offers a deeper view of
its implications for strategy today.
THE FIVE
COMPETITIVE
FORCES THAT
by Michael E. Porter
hbr.org | January 2008 | Harvard Business Review 79
SHAPE
IN ESSENCE, the job of the strategist is to under-
STRATEGYSTRATEGY
stand and cope with competition. Often, however,
managers defi ne competition too narrowly, as if
it occurred only among today’s direct competi-
tors. Yet competition for profi ts goes beyond es-
tablished industry rivals to include four other
competitive forces as well: customers, suppliers,
potential entrants, and substitute products. The
extended rivalry that results from all fi ve forces
defi nes an industry’s structure and shapes the
nature of competitive interaction within an
industry.
As different from one another as industries
might appear on the surface, the underlying driv-
ers of profi tability are the same. The global auto
industry, for instance, appears to have nothing
in common with the worldwide market for art
masterpieces or the heavily regulated health-care
1808 Porter.indd 791808 Porter.indd 79 12/5/07 5:34:06 PM12/5/07 5:34:06 PM
LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy
80 Harvard Business Review | January 2008 | hbr.org
delivery industry in Europe. But to under-
stand industry competition and profi tabil-
ity in each of those three cases, one must
analyze the industry’s underlying struc-
ture in terms of the fi ve forces. (See the ex-
hibit “The Five Forces That Shape Industry
Competition.”)
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 a.
This document discusses Porter's Five Forces framework for analyzing industry competition and outlines the key forces: competitive rivalry, bargaining power of suppliers, bargaining power of customers, threat of new entrants, and threat of substitute products. It then provides an example analysis of the athletic footwear and apparel industry using Under Armour, examining how each of the five forces applies. Finally, it introduces PESTEL analysis, outlining the political, economic, social, technological, environmental, and legal factors that shape the business environment.
Awareness of the fi ve forces can help a company understand thkacie8xcheco
Awareness of the fi ve forces can help a company understand the structure of its
industry and stake out a position that is more profi table and less vulnerable to attack.
78 Harvard Business Review | January 2008 | hbr.org
1808 Porter.indd 781808 Porter.indd 78 12/5/07 5:33:57 PM12/5/07 5:33:57 PM
P
et
er
C
ro
w
th
er
Editor’s Note: In 1979, Harvard Business Review
published “How Competitive Forces Shape Strat-
egy” by a young economist and associate professor,
Michael E. Porter. It was his fi rst HBR article, and it
started a revolution in the strategy fi eld. In subsequent
decades, Porter has brought his signature economic
rigor to the study of competitive strategy for corpora-
tions, regions, nations, and, more recently, health care
and philanthropy. “Porter’s fi ve forces” have shaped a
generation of academic research and business practice.
With prodding and assistance from Harvard Business
School Professor Jan Rivkin and longtime colleague
Joan Magretta, Porter here reaffi rms, updates, and
extends the classic work. He also addresses common
misunderstandings, provides practical guidance for
users of the framework, and offers a deeper view of
its implications for strategy today.
THE FIVE
COMPETITIVE
FORCES THAT
by Michael E. Porter
hbr.org | January 2008 | Harvard Business Review 79
SHAPE
IN ESSENCE, the job of the strategist is to under-
STRATEGYSTRATEGY
stand and cope with competition. Often, however,
managers defi ne competition too narrowly, as if
it occurred only among today’s direct competi-
tors. Yet competition for profi ts goes beyond es-
tablished industry rivals to include four other
competitive forces as well: customers, suppliers,
potential entrants, and substitute products. The
extended rivalry that results from all fi ve forces
defi nes an industry’s structure and shapes the
nature of competitive interaction within an
industry.
As different from one another as industries
might appear on the surface, the underlying driv-
ers of profi tability are the same. The global auto
industry, for instance, appears to have nothing
in common with the worldwide market for art
masterpieces or the heavily regulated health-care
1808 Porter.indd 791808 Porter.indd 79 12/5/07 5:34:06 PM12/5/07 5:34:06 PM
LEADERSHIP AND STRATEGY | The Five Competitive Forces That Shape Strategy
80 Harvard Business Review | January 2008 | hbr.org
delivery industry in Europe. But to under-
stand industry competition and profi tabil-
ity in each of those three cases, one must
analyze the industry’s underlying struc-
ture in terms of the fi ve forces. (See the ex-
hibit “The Five Forces That Shape Industry
Competition.”)
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, an ...
This document discusses competitive rivalry and competitive dynamics. It defines key terms like competitors, competitive rivalry, competitive behavior, and competitive dynamics. It presents a model of competitive rivalry that shows how firms are interdependent and affect each other through competitive actions and responses. It discusses competitor analysis, market commonality, resource similarity, and the drivers of competitive behavior. It also addresses the likelihood of attack and response between competitors, considering factors like first-mover benefits, organizational size, and quality.
This document outlines the topics to be covered in chapters 3, 5, 6, 7, 9, and 10 of a strategic management course. It includes discussions of SWOT analysis, the value chain, resource-based theory, generic strategies, industry life cycles, diversification, international expansion, strategic control systems, organizational structure, and conducting case study analyses of markets. The case study section provides an example case analysis of the mineral water market in Cambodia, including market description, segmentation, demand projections, recommended marketing mix, and formulation of a market strategy.
This document summarizes Michael Porter's framework of the five competitive forces that shape industry competition and profitability. The five competitive forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and rivalry among existing competitors. Understanding how these forces interact in an industry allows companies to develop strategies to enhance long-term profits, such as positioning in areas where competitive forces are weakest. Porter provides examples of industries like commercial aviation that have many intense competitive forces, resulting in low profitability, and industries like software that have more benign forces and higher profits.
International Journal of Engineering and Science Invention (IJESI) is an international journal intended for professionals and researchers in all fields of computer science and electronics. IJESI publishes research articles and reviews within the whole field Engineering Science and Technology, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Porter's generic strategies framework outlines three types of competitive advantage - cost leadership, differentiation, and focus. Firms can pursue one of these advantages across a broad or narrow scope. Competitive advantage is created through value chain activities that are difficult for competitors to imitate. It is sustained through durable sources of advantage, multiple distinct sources, and continuous upgrading. Alternatively, the core competence framework emphasizes developing dynamic capabilities rather than positioning within an industry. Core competencies allow firms to enter new markets and are sustained through continuous investment. Both frameworks provide guidance for analyzing competitive advantage but must be tailored to a specific company's challenges.
The Most Inspiring Entrepreneurs to Follow in 2024.pdfthesiliconleaders
In a world where the potential of youth innovation remains vastly untouched, there emerges a guiding light in the form of Norm Goldstein, the Founder and CEO of EduNetwork Partners. His dedication to this cause has earned him recognition as a Congressional Leadership Award recipient.
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NIMA2024 | De toegevoegde waarde van DEI en ESG in campagnes | Nathalie Lam |...BBPMedia1
Nathalie zal delen hoe DEI en ESG een fundamentele rol kunnen spelen in je merkstrategie en je de juiste aansluiting kan creëren met je doelgroep. Door middel van voorbeelden en simpele handvatten toont ze hoe dit in jouw organisatie toegepast kan worden.
Ellen Burstyn: From Detroit Dreamer to Hollywood Legend | CIO Women MagazineCIOWomenMagazine
In this article, we will dive into the extraordinary life of Ellen Burstyn, where the curtains rise on a story that's far more attractive than any script.
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1. Chapter6—Competitive Rivalryand Competitive Dynamics
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Chapter6: Competitive Rivalry and Competitive Dynamics
CHAPTER SUMMARY
This chapter begins with definitions of severalkey terms used throughout the discussion
and an acknowledgement of the distinctiveness of this new, intense age of competition, which is
marked by accelerating actions and reactions amongst competitive players.
An integrative competitive rivalry model is presented at the firm level.
Market commonality and resource similarity are described as building blocks of
competitor analysis.
The effects of organizational characteristics on firms’ competitive behavior are reviewed,
and discussion of the factors that affect the likelihood of competitive action and response guide a
detailed examination of competitive rivalry.
How competitive rivalry is affected by the market cycle closes the chapter’s discussion
on competitive dynamics.
CHAPTER OUTLINE
A Model of Competitive Rivalry
Competitor Analysis
MarketCommonality
Resource Similarity
Drivers of Competitive Actions and Responses
Competitive Rivalry
Strategic and TacticalActions
Likelihood of Attack
First Mover Incentives
Organizational Size
Quality
Likelihood of Response
Type of Competitive Action
Actor’s Reputation
Dependence on the Market
Competitive Dynamics
Slow-Cycle Markets
Fast-Cycle Markets
Standard-Cycle Markets
Summary
KNOWLEDGE OBJECTIVES
1. Define competitors, competitive rivalry, competitive behavior, and competitive
dynamics.
2. Describe market commonality and resource similarity as the building blocks of a
competitor analysis.
3. Explain awareness, motivation, and ability as drivers of competitive behavior.
4. Discuss factors affecting the likelihood a competitor will take competitive actions.
2. Chapter6—Competitive Rivalryand Competitive Dynamics
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5. Discuss factors affecting the likelihood a competitor will respond to actions taken
against it.
6. Explain competitive dynamics in slow-cycle, fast-cycle, and standard-cycle markets.
LECTURE NOTES
See slides 1-4.
See Figure 6.1: From
Competitors to
Competitive
Dynamics (slide 5).
See Additional Notes
Below.
Key Terms
Competitors - firms operating in the same market, offering
similar products and targeting similar customers.
Competitive Rivalry - ongoing set of competitive actions and
competitive responses occurring between competitors as they
contend with each other for an advantageous market position.
Competitive Behavior - set of competitive actions and
competitive responses the firm takes to build or defend its
competitive advantages and to improve its market position.
Competitive Dynamics - total set of actions and responses all
firms competing within a market take.
Multimarket Competition - firms competing against each other
in severalproduct or geographic markets.
Additional Discussion Notesfor Competitive Rivalry - These notes
include additional materials that cover the concept of competitive
rivalry, including an example illustrating the signals and rules of
engagement in the airline industry and an example of personality-driven
competition in the electronics industry.
From Competitors to Competitive Dynamics
Firms use a variety of tactics to draw out and assess the competition. For
example, rivals frequently signal their “rules of engagement,” which
involves letting the competition know one’s intentions and to draw the
competition out and examine how it responds. To examine how the
competition responds, or to test its counter moves, a firm can always
bluff. Signaling and rules of engagement in the airline industry are
rather clear and common.
As an example, Delta was known for briefly lowering fares
significantly on a particular route, say Atlanta to Los Angeles, in
response to another carrier lowering the fares on the same route. The
signal: “If you want to lower fares on this route, you are in for a bloody
battle.” The other airline most often responded by raising fares along
this route because Delta had the resources to enter into a long and
grueling fare war on the route. If, on the other hand, rivals reacted by
lowering fares even further, Delta had to interpret this signal as “they
wished to compete with us for business along this route.” Of course, not
all types of signaling are legal, but here are a couple of common signals:
price movements, prior announcements (“we’ll meet or beat any
competitor’s price”), media (press releases),counterattacks/moves,
announcement of results, and litigation.
3. Chapter6—Competitive Rivalryand Competitive Dynamics
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Strategists must also note that firms might get into competitions that are
not economically driven, but rather are personality driven. These
competitive rivalries are based on an initial competition for resources or
revenues—but that over time can become personal battles between
CEOs. Sony and Matsushita have been battling for world dominance in
the consumer electronics industry for decades. The rivalry has become
so personal between the two CEOs that they refuse to attend the same
dinner parties or events. It escalated to the point where in 1989, after
Sony’s Akio Morita closed the deal to purchase Columbia Pictures for
$3.4 billion, Matsushita’s Masaharu Matsushita, not willing to be one-
upped by his rival, responded by purchasing MCA for $6.1 billion less
than a year later.
Understanding competition is important, as research shows that
intensified rivalry within an industry may result in decreased industry
average profitability. As discussed in the textbook, in 2001, Dell
launched an intense price war in the PC and server business, causing
prices to drop by as much as 50%. Profit margins declined for all firms,
including Dell. CEO Michael Dell believed that his direct-sales model
would enable Dell to better endure its own reduced profitability than
rivals who seek economies of scale could. Competitors, however,
responded to Dell’s pricing competitive action. For example, to increase
their advantage from economies of scale and scope, Hewlett-Packard’s
merged with Compaq Computer Corporation. While it remains to be
seen whether the new HP would be able to sustain the intense rivalry,
Dell’s strategy may contribute to its ability to outperform its rivals.
Indeed, it has been suggested that Dell sets the pace for the PC industry,
reflecting the strength of its direct sales strategy, and its superior cash
flow management.
A Model ofCompetitive Rivalry - This section presents a straightforward, yet integrative,
model of competitive rivalry at the firm level to provide a useful way to discuss the various
aspects of competitive dynamics.
See Figure 6.2: A
Model of
Competitive Rivalry
(slide 6).
See slide 7.
1. Describe the major components of the competitive rivalry
model.
a. Competitor Analysis
b. Drivers of Competitive Behavior
c. Interim Rivalry
d. Outcomes
2. How do the patterns of action and response that result in
competitive rivalry influence a firm’s business-level strategy?
a. The mutual interdependence of competitors’ actions.
b. The intensity of rivalry within a market.
3. What determines the intensity of rivalry within a market?
4. Chapter6—Competitive Rivalryand Competitive Dynamics
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a. The total number of competitors
b. Market characteristics
c. Quality of individual firms’ strategies
d. Drivers of competitive behavior
Competitor Analysis - This section discusses how the concept of competitor analysis was
addressed earlier in the text and is now extended to describe what firms study as the first step to
being able to predict competitors’ behavior in the form of its competitive actions and responses.
See slide 8. 4. What determines the extent to which firms are competitors?
a. Market commonality - the number of shared markets
b. Resource similarity - the similarity in resources
Market Commonality - This section presents the concepts of market commonality, multi-market
competition and how the potential to respond competitively across markets complicates and
impacts the rivalry between competitors.
See slide 9. Key Terms
Market Commonality - number of markets with which the firm
and a competitor are jointly involved and the degree of
importance of the individual markets to each.
Additional Discussion Notes for Competitor Analysis - These notes
include additional materials that cover market commonality, providing
several marketplace situations that illustrate the concept.
MarketCommonality
Firms with high market commonality and highly similar resources are
direct and mutually acknowledged competitors. However,direct rivals
do not always intensify their competition. The drivers of competitive
behavior—as well as the likelihood that a competitor will initiate
competitive actions or reactions—influence the intensity of rivalry, even
for direct competitors.
Market Commonality is concerned with the number of markets
with which the firm and a competitor are jointly involved and the degree
of importance of the individual markets to each. For example,
McDonald’s and Burger King compete against each other in multiple
global fast-food markets, while Prudential and Cigna
(financial/insurance) compete against each other in severalmarket
segments (institutional and retail) as well as product markets such as life
insurance and health insurance. Airlines, chemicals, and
pharmaceuticals are other industries in which firms often simultaneously
engage each other in multiple market competitions. More recently. AOL
5. Chapter6—Competitive Rivalryand Competitive Dynamics
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and Microsoft entered into a stiff competition for Internet Service
Provider (ISP) dominance. The key to ISP profits is in selling add-ons
and auxiliary products and services to its customers. AOL has a
significant size advantage with 31 million subscribers to Microsoft’s
seven million. The rivalry between the two firms for customers is
becoming increasingly intense. When AOL increased rates,Microsoft
responded by holding its rates and offering three free months to new
subscribers. AOL responded by initiating negotiations with PC
manufacturers to install AOL on new PC desktops. The two firms also
compete for the instant messaging application market. While AOL
pioneered the concept, Microsoft developed many added features and
optimized its application. In an effort to capture even greater market
share Microsoft began to bundle MSN Messenger with its newest
Windows operating system, Windows XP. While research suggests that
market commonality and multimarket competition may occur by chance,
once it begins, the rivalry becomes intentional and oftentimes intense.
Resource Similarity - This section presents the concept of resource similarity, how firms with
similar types and amounts of resources are likely to have similar strengths, weaknesses,and
strategies, and the difficulty of assessing competitor resources (particularly, intangible resources).
See slide 10. Key Terms
Resource Similarity - extent to which the firm’s tangible and
intangible resources are comparable to competitors’ resources in
terms of both type and amount.
See Figure 6.3: A
Framework of
Competitive Analysis
(slide 11).
See Additional Notes
Below.
5. Discuss how mapping a firm’s competitor analysis can show the
extent to which firms in an industry compete.
a. Referring to Figure 6.3, firms in Quadrant I are direct
and mutually-acknowledged competitors.
b. Referring to Figure 6.3, firms in Quadrant III share few
markets and have little resource similarity.
Additional Discussion Notes for Competitor Analysis - These notes
include additional materials that cover resource similarity, providing
marketplace situations that illustrate the concept.
Resource Similarity
Resource Similarity is the extent to which the firm’s resources are
comparable to a rival’s in terms of both type and amount. Firms with
similar types and amounts of resources tend to have similar strengths
and weaknesses—and use similar strategies. The rivalry between CVS
and Walgreens demonstrates these expectations in the retail pharmacy
business. These firms are using the integrated cost
leadership/differentiation strategy to offer relatively low-cost goods with
6. Chapter6—Competitive Rivalryand Competitive Dynamics
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some differentiated features, such as services. Resource similarity (net
income of $746 million for CVS vs. $776.9 million for Walgreens;
4,133 CVS stores in 34 states vs. 3,165 Walgreens stores in 43 states)
suggests that the firms might suffer from strategy convergence and
industry orthodoxy.
Drivers ofCompetitive Actions and Responses - This section discusses the factors that
influence competitive behavior.
See slides 12.
See Additional Notes
Below.
6. What are the drivers of competitive behavior?
a. Awareness - extent to which competitors recognize the
degree of their mutual interdependence (resulting from
market commonality and resource similarity) and the
potential consequences of competitive behavior.
b. Motivation - firm’s incentive to take action or to
respond to a competitor’s attack as it relates to
perceived gains and losses.
c. Ability - firm’s resources that allow competitive action
and flexible responsiveness.
d. Resource dissimilarity - resource disadvantages that
delay speed of response to competitive actions.
Additional Discussion Notes for Competitor Analysis - These notes
include additional materials that cover resource similarity, providing
marketplace situations that illustrate the concepts.
Resource Dissimilarity
Resource Dissimilarity also influences competitive actions and re-
sponses between firms. For example, Wal-Mart initially used its cost-
leadership strategy to compete only in small communities (population of
25,000 or less). Using logistics systems and extremely efficient purchas-
ing practices as competitive advantages, Wal-Mart created what was at
that time a new type of value—wide selections of products at the lowest
competitive prices—for customers in small retail markets. Local stores
lacked the ability to marshal resources at the pace required to respond
quickly and effectively. However,even when facing competitors with
greater resources or ability, firms should respond, no matter how daunt-
ing doing so seems. Choosing not to respond can ultimately result in
failure (or greater failure), as happened with many local retailers who
didn’t respond to Wal-Mart’s competitive actions.
Competitive Rivalry - This section highlights the importance of studying the ongoing
competitive action-response sequence between competitors because of its effect on performance
and the successfuluse of strategies. Understanding competitors’ awareness,motivation, and
ability helps to predict the likelihood of competitive action and response.
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Strategic and Tactical Actions - This section defines the nature of competitive actions and
responses used by firms engaged in competitive rivalry.
See slide 13. Key Terms
Competitive Action - strategic or tactical action the firm takes
to build or defend its competitive advantages or improve its
market position.
Competitive Response - strategic or tactical action the firm
takes to counter the effects of a competitor’s action.
Tactical Action (or Response) - market-based move that is taken
to fine-tune a strategy.
See slide 14. 7. What are the differences between strategic and tactical
actions/responses?
a. Strategic actions/responses are market-basedmoves that
signify a significant commitment of organizational
resources to pursue a specific strategy. They are
difficult to implement and reverse.
b. Tactical actions/responses are market-based moves
taken to fine-tune a strategy that is already in place,
involving fewer resources. They are relatively easy to
implement and reverse.
Likelihood ofAttack - This section presents factors (other than market commonality, resource
similarity, and the drivers of competitive behavior) which affect the likelihood a firm will use
strategic and tactical actions to attack its competitors.
See slide 15. 8. What other factors affect the likelihood a firm will use strategic
and tactical actions to attack its competitors?
a. First mover incentives
b. Organizational size
c. Quality
First Mover Incentives - This section categorizes the firms within a marketplace based on
the timing of their competitive behavior. How this timed behavior affects their strategy is
also discussed.
8. Chapter6—Competitive Rivalryand Competitive Dynamics
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See slides 16-17. Key Terms
First Mover - firm that takes an initial competitive action to
build or to defend its competitive advantages or to improve its
market position.
Second Mover - firm that responds to the first mover’s
competitive action, typically through imitation.
Late Mover - firm that responds to a competitive action, but
only after considerable time has elapsed after the first mover’s
action and the second mover’s response.
Slack - buffer or cushion provided by actualor obtainable
resources not being currently used by an organization,
resources in excess of the minimum needed to produce a
given level of output.
See slide 18.
See slide 19.
See slide 20.
See slide 21.
9. What are some of the characteristics of first movers?
a. Often build upon a strategic foundation of superior
research and development skills.
b. Tend to be aggressive and willing to experiment
with innovation.
c. Tend to take higher, yet reasonable, risks.
d. Need to have liquid resources (slack) that can be
quickly allocated to support actions.
10. What are some of the potential benefits of being a successful
first mover?
a. Above-average returns
b. Customer loyalty
c. An early hold on market share
11. What are some of the potential risks of being a first mover in
the market?
a. Difficult to accurately estimate potential returns.
b. Substantial costs of product innovation, which reduces
slack available for other opportunities.
c. Lower likelihood of introducing (or converting to) the
product that becomes the industry standard as the
market evolves.
12. Compared to first movers, what are some of the characteristics
of second movers?
a. Respond to first mover, typically through imitation.
b. More cautious than first movers.
c. Tend to study customer reactions to product
innovations.
d. Tend to learn from the mistakes of first movers,
reducing their risks.
e. Take advantage of time to develop processes and
9. Chapter6—Competitive Rivalryand Competitive Dynamics
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See slide 22.
technologies that are more efficient than first movers,
reducing their costs.
f. Will not benefit from first mover advantages, lowering
potential returns.
13. Compared to first and second movers, what are some of the
characteristics of late movers?
a. Respond to market opportunities only after considerable
time has elapsed after first and second movers,
substantially reducing risks and returns.
Organizational Size - This section describes how an organization’s size affects its likelihood of
taking competitive actions.
See slides 23-24. 1. What is the difference between large and small firms in terms of
their likelihood of taking competitive actions?
a. Small firms are nimble and flexible competitors who
rely on speed and surprise to defend their competitive
advantage. This allows greater variety of competitive
behavior options available to the small firm.
b. Large firms have a greater likelihood to initiate
competitive and strategic actions over time because they
often have greater slack. However,they tend to rely on
a limited variety of competitive actions, which can
ultimately reduce their competitive success.
Quality - This section describes how quality affects competitive rivalry and the need for
managers to create an organizational culture that focuses on quality across all value chain
activities.
See slides 25. Key Terms
Quality - customer perception that the firm’s goods or services
perform in ways that are important to the customer, meeting or
exceeding customers’ expectations.
See Table 6.1:
Quality Dimensions
of Goods and
Services (slide 26).
14. What are some examples of product dimensions that customers
use to measure quality?
a. Product quality dimensions - performance, features,
flexibility, durability, conformance, serviceability,
aesthetics,perceived quality.
b. Service quality dimensions - timeliness, courtesy,
consistency, convenience, completeness, accuracy.
10. Chapter6—Competitive Rivalryand Competitive Dynamics
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Likelihood ofResponse - This section presents factors (other than market commonality, resource
similarity, and the drivers of competitive behavior) which affect the likelihood a firm will
competitively respond to actions by its competitors.
See slide 27. 15. What other factors affect how a firm is likely to respond to
actions by its competitors?
a. Types and effectiveness of the competitive action
b. Reputation of the firm making competitive actions
c. Dependence on the market
d. Whether the action significantly strengthens or weakens
the firm’s competitive position
Actor’s Reputation - This section discusses how a firm’s reputation to its competitors influences
the likelihood of a competitive response to their competitive actions.
See slide 28. Key Terms
Actor - firm taking an action or response (in the context of
competitive rivalry).
Reputation - positive or negative attribute ascribed by one rival
to another based on past competitive behavior.
Additional Discussion Notesfor Actor Reputation - These notes
include additional materials that cover the impact of actor’s reputation
on competitive response, providing marketplace situations that illustrate
the concept.
Actor Reputation
Competitors are more likely to respond to strategic and tactical actions
taken by market leaders. For example, Home Depot—the world’s largest
home improvement retailer and the second largest U.S. retailer (behind
Wal-Mart)—is known as an innovator in the home improvement market
and for its ability to develop new store formats (EXPO Design Centers
and Villager’s Hardware Stores). As such,Home Depot knows that its
rivals study its strategic actions and respond to them. For example,
watching Home Depot, Lowe’s has transformed from a chain of small
stores into a chain of home improvement warehouses,thus increasing
the similarity of its store design with Home Depot’s.
Similarly, evidence shows that successfulstrategic actions are
quickly imitated, almost regardless of the actor’s reputation. For
example, although a second mover, IBM committed significant
Type ofCompetitive Action - This section explains that strategic actions generally elicit fewer
responses than tactical actions because of the significant resource commitment and the amount of
time needed for implementation.
11. Chapter6—Competitive Rivalryand Competitive Dynamics
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resources to enter the PC market. When IBM succeeded in this
endeavor, rivals (Dell, Compaq, and Gateway) responded with strategic
actions (imitation) to enter the market. IBM’s reputation as well as its
successfulstrategic action strongly influenced entry by these
competitors. Thus, in terms of competitive rivalry, IBM could predict
that responses would follow its entry to a market if that entry proved
successful. In addition, IBM could predict that those competitors would
try to create value in slightly different ways, such as Dell’s direct sales
and built-to-order rather than to use storefronts as a distribution channel.
Dependence on the Market- This section describes why competitors with high market
dependence are likely to respond strongly to attacks threatening their market position.
See slide 29. Key Terms
Market Dependence - extent to which a firm’s revenues or
profits are derived from a particular market.
Competitive Dynamics - This section explains the effects of varying rates of competitive speed
in different markets on the behavior of all competitors within a given market. Sustainability of
competitive advantage is an important difference among the three market types that are outlined.
See slide 30. 16. What are the three market types determined by the prevalent
speed of competition within the market?
a. Slow-cycle markets
b. Fast-cycle markets
c. Standard-cycle markets
Slow-Cycle Markets - This section discusses how firms achieve success in low-velocity
environments.
See slide 31. Key Terms
Slow-Cycle Markets - markets in which the firm’s competitive
advantages are shielded from imitation for what are commonly
long periods of time and where imitation is costly.
See slide 32.
See Figure 6.4:
Gradual Erosion of a
Sustained
Competitive
Advantage (slide 33).
17. How do firms achieve competitive success in a slow-cycle
market?
a. Build a one-of-a-kind competitive advantage that is
proprietary and difficult for competitors to understand -
sustainability.
b. Once a proprietary advantage is developed, competitive
behavior should be oriented to protecting, maintaining,
12. Chapter6—Competitive Rivalryand Competitive Dynamics
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See Additional Notes
Below.
and extending that advantage.
c. Organizational structure that an organization should use
to effectively support its strategic efforts.
Additional Discussion Notesfor Competitive Rivalry - These notes
include additional materials that cover slow-cycle markets, providing
marketplace situations that illustrate the concept.
Slow-Cycle Markets
Slow-Cycle Markets are markets in which competitive advantages are
shielded from imitation for longer periods of time and/or where
imitation is costly. Historical conditions, causalambiguity, social
complexity, copyrights, location, patents, and proprietary information
could all lead to one-of-a-kind advantages.
Walt Disney Co. continues to extend its proprietary characters,
such as Mickey Mouse, Minnie Mouse, and Goofy. These characters
have a unique historical development. Because patents shield it, the
proprietary nature of Disney’s advantage in terms of animated
characters protects the firm from imitation by competitors (e.g.,the
company once sued a day-care center, forcing it to remove the likeness
of Mickey Mouse from a wall of the facility).
Once a patent expires, a firm is no longer shielded from
competition. For example, in 2002 Merck got rocked by the loss of
revenue as the patent protection for leading drugs, such as
gastroesophagealreflux soother Prilosec, cholesterol drug Mevacor, and
hypertension medication Prinivil, expired.
Fast-Cycle Markets - This section discusses how firms achieve success in high-velocity
environments.
See slide 34. Key Terms
Fast-Cycle Markets - markets in which the firm’s capabilities
that contribute to competitive advantages are not shielded from
imitation and where imitation is often rapid and inexpensive.
See slides 35.
See Figure 6.5:
Obtaining Temporary
Advantages to Create
Sustained Advantage
(slide 36).
18. How do firms achieve competitive success in a fast-cycle
market?
a. Focus on learning how to rapidly and continuously
develop new competitive advantages that are superior to
those they replace - innovation.
b. Avoid loyalty to any of their products, possibly
cannibalizing their own current products to launch new
ones before competitors learn how to do so through
successfulimitation.
13. Chapter6—Competitive Rivalryand Competitive Dynamics
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See Additional
Notes Below.
c. Continually try to move on to another temporary
competitive advantage before competitors can respond
to the first one.
Additional Discussion Notes for Competitive Rivalry - These notes
include additional materials that cover fast-cycle markets,providing
marketplace situations that illustrate the concept.
Fast-Cycle Markets
Fast-Cycle Markets are markets in which competitive advantages are not
shielded from imitation and where imitation happens quickly and
somewhat inexpensively. Competitive advantages are not sustainable in
fast-cycle markets. The pace of competition in fast-cycle markets is
almost frenzied as companies rely on ideas and the innovations resulting
from them as the engines of their growth. Because prices fall quickly in
these markets, companies need to introduce new or improved product
faster. For example, rapid declines in the prices of Intel’s and Advanced
Micro Devices’ (AMD) microprocessor chips made it possible for PC
manufacturers to continuously reduce their prices to end users. Imitation
of many fast-cycle products is relatively easy. Dell and Gateway have
imitated IBM’s initial PC design to create their own PCs. Continuous
declines in the cost of parts,as well as the fact that the information and
knowledge required to assemble a PC isn’t complicated and is readily
available, made it possible for additional competitors to enter this
market without significant difficulty.
Standard-Cycle Markets - This section discusses how firms achieve success in moderate-
velocity environments.
See slide 37. Key Terms
Standard-Cycle Markets - markets in which the firm’s
competitive advantages are moderately shielded from imitation
and where imitation is moderately costly.
See slides 38. 19. How do firms achieve competitive success in a standard-cycle
market?
a. Competitive advantages can be partially sustained when
their quality is continuously upgraded.
b. Seek to serve many customers and gain a large market
share.
c. Gain brand loyalty through brand names.
d. Carefully control operations to manage a consistent
experience for the customer.
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Ethical Questions - Recognizing the need for firms to effectively interact with stakeholders
during the strategic management process,all strategic management topics have an ethical
dimension. A list of ethical questions appears after the Summary section of each chapter in the
textbook. The topic of ethics is best covered throughout the course to emphasize its prevalence
and importance. We recommend posing at least one of these questions during your class time to
stimulate discussion of ethical issues relevant to the chapter material that you are covering. (See
slides 39-43.)