5 Strategy Factors

11697 words, 47 pages

Intro Sample...


Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack.

IN ESSENCE, the job of the strategist is to under- stand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competi- tors. Yet competition for profits 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 five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.
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Body Sample...


In the movie theater industry, the proliferation of substitute forms of entertainment and the power of the movie producers and distributors who supply movies, the critical input, are important.
Michael E. Porter is the Bishop William Lawrence University Pro- fessor at Harvard University, based at Harvard Business School in Boston. He is a six-time McKinsey Award winner, including for his most recent HBR article, “Strategy and Society,” coauthored with Mark R. Kramer (December 2006).
The strongest competitive force or forces determine the profitability of an industry and become the most important to strategy formulation. The most salient force, however, is not always obvious.
For example, even though rivalry is often fierce in com- modity industries, it may not be the factor limiting profit- ability. Low returns in the photographic film industry, for instance, are the result of a superior substitute product – as Kodak and Fuji, the world’s leading producers of photo- graphic film, learned with the advent of digital photography. In such a situation, coping with the substitute product be- comes the number one strategic priority.
Industry structure grows out of a set of economic and technical characteristics that determine the strength of each competitive force. We will examine these drivers in the pages that follow, taking the perspective of an incumbent, or a company already present in the industry. The analysis can be readily extended to understand the challenges facing a potential entrant.
THREAT OF ENTRY. New entrants to an industry bring new capacity and a desire to ...

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