Porters Strategy[1]

7/28/2019 Porters Strategy[1]

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How Competitive ForcesShape StrategyMichael E. Porter

Your presenters:

Omair Arif Vaseer

Shahzeb Khalil


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Strategy?

Strategy is about getting customers andkeeping them.

Strategy is planning that allows you to getmore than your fair share.


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External Analysis

Analyzing the dynamics of the industry in

which an organization competes to help

identify:

Opportunities: conditions in the environment

that a company can take advantage of to

become more profitable

Threats: conditions in the environment that

endanger the integrity and profitability of the

companys business


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External Analysis

Industry Structure

Competitive Structures: conditions in the

environment that a company can take advantageof to become more profitable

Strategic Groups: conditions in the environment

that endanger the integrity and profitability of the

companys business


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COMPETITIVE ADVANTAGES

To survive and thrive an organization must create acompetitive advantage..

a strategic advantage one business has over its rivals

within its competitive industry. an attribute (or combination of attributes) acquired or

developed by a business allowing it to outperform its

competitors.

Example: a product or service that customers place a

greater value on compared to similar offerings from

competitors

Example: access to natural resources, highly skilled

workers, etc.

Or anizations watch their com etition throu h


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Porters Five Forces Model


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PORTERS FIVE FORCES

MODELTreat of New Entrants

Entry barriersCustomers switching cost

Capital Requirements

Access to distribution channels

Economies of scale

Industry Growth rate

Buyers Power

Buyers switching Cost Buyers concentration

Threat of backward integration

Threat of forward integration

Buyers volume

Suppliers Power

Suppliers concentration Cost of switching supplier

Substitute inputs



Threat of Substitutes

Relative quantity of substitutes Relative price of substitutes

Buyers switching cost

Rivalry

Industry

concentration

Market growth

Exit barriers

Buyers switching

costBuyers volume


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Risk of Entry by Potential Competitors

Barriers to entry

Brand loyalty

Absolute cost advantage Superior production operations and processes

Control of particular inputs required for production

Access to cheaper funds because existing

companies represent lower risks than new entrants


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Barriers to entry (contd) Economies of scale

Cost reductions from mass producing a

standardized output Advantages of spreading fixed costs over a large

production volume

Cost savings from marketing and advertising for a

large volume of output Customer switching costs

Government regulation

Risk of Entry by Potential Competitors


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Rivalry Among Established Companies

Industry concentration

Fragmented vs. consolidated (oligopoly or monopoly)

Industry demand

Exit barriers

Investments in assets of little or no alternative value or

that cannot be sold High fixed costs of exit

Emotional attachments to an industry

Need to maintain an expensive collection of assets in

order to participate effectively in an industry


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The Bargaining Power of Buyers

Buyers are most powerful when

The industry that is supplying a particular product or

service is composed of many small companies and thebuyers are large and few in number

Buyers purchase in large quantities

The supply industry depends on the buyers for a largepercentage of its total orders

Switching costs are low

It is economically feasible for buyers to play one supplieragainst another

Buyers can threaten to produce the product themselves


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The Bargaining Power of Suppliers

Suppliers are most powerful when There are few substitute products

The industry is not an important customer to thesupplier

Switching costs are high for companies switchingto a different supplier

Suppliers can threaten to compete directly with

buyers by entering their industry Buyers cannot threaten to enter the suppliers

industry


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Substitute Products

Many substitute products

Are a threat and limit the price that companies in

one industry can charge for their product, andthus industry profitability

Few or weak close substitutes

Gives the industry the opportunity to raise prices

and earn additional profits


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A Sixth Force: Complementors

Complementors are important when their

numbers are increasing

Demand and profits in the industry are boosted(e.g., pc games keep pc sales strong)

When complementors are weak

Industry growth can slow and profits can be

limited (e.g., videocassettes less popular, VCRindustry less profitable)


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WHAT COMES

BEFORE STRATEGICACTION?


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Strategic Planning

Planning how to get more than your fairshare involves:

Scanning the overall environment

Scanning and researching the industryenvironment

Researching direct competitors

Researching a firms skills and resources

Analyzing current strategy


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Macro Forces

Micro Forces

Political SocialTechnologic

alEconomic

Supply Demand

Competitio

n

PEST Forces


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Strategic Action

Buyer Selection A Crucial Strategic

Decision

Above Average Profits How Possible?

What if a company lacks low cost position?


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Generic Strategies

There are three generic (primary) strategies:

Differentiation

Focus (niche marketing) Cost leadership

These definitions characterize strategicpositions at the simplest and broadest levels.


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GeneralManager

Setting

Directionvisionmissionvalues

ImplementingChange

making ithappen

Creating

Strategydetermining

the wayforward

AssessingPerformance

today andtomorrow

The Job of the General Manager


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Product MarketFocus

Goals

CoreActivities

Value

Proposition

Everyday low

prices

Always in

stock Courteous,

reliable

Branded generalmerchandise

Value-oriented

customers

Develop easier

markets first: work

from regional hubs

Integratedlogistics:

supplier to

checkout

Intensely

managed

Local tailoring

Dominatemarkets

Lowest cost

system High

growth

Do it Wal-

Mart way

The Wal-Mart Business Strategy


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Substitute Products

Loses/Limit the Potential of an Industry

Up gradation and differentiation required totackle . . .

Higher the PPTO, firmer the profit potential

The bonanza of an industry can reap


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Jockeying for Position

Intense rivalry is related to the presence of a

number of factors:

Competitors are numerous or are roughly

equal in size and power.

Industry growth is slow, precipitating fights

for market share that involve expansion-

minded members.


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The product or service lacks differentiation or

switching costs, which lock in buyers and

protect one combatant from raids on its

customers, by another.

Fixed costs are high or the product is

perishable, creating strong temptation to cutprices.

Capacity is normally augmented in largeincrements.


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Formulation of Strategy

1. Positioning the company

Positioning the company

so that its capabilities

provide the best defenseagainst the competitive

force.


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2. Influencing the balance

Influencing the balance

of the forces through

strategic moves, therebyimproving the

company's position.


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3. Exploiting industry change

Anticipating shifts in the factors underlying

the forces and responding to them, with thehope of exploiting change by choosing a

strategy appropriate for the new competitive

balance before opponents recognize it.


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4. Recognizing Multifaceted Rivalry

Porter and numerous other authorities have

stressed the need to look beyond product tofunction in defining a business, beyond

national boundaries to potential international

competition, and beyond the ranks of one's

competitors tomorrow.


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Exploiting Industry Change

Evolution Bring Changes in Competition

Vertical Integration in MicrocomputerIndustry

Raising Barriers to Entry

Solar Heated Business


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THE END

Porters Strategy[1]

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