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Industry Structure and Structural Change

A company’s profitability depends in part on the structure of the industry in which it competes. Industry structure resides in five basic forces of competing: the intensity of rivalry among existing competitors; the threat of new entrants; the threat of substitute products or services; the bargaining power of suppliers; and the bargaining power of buyers. Industry structure is relatively stable, but industries are sometimes transformed by changes in buyer needs, regulation, or technology. Companies can shape industry structure rather than passively react to it.

Framework Publications


"How Competitive Forces Shape Strategy"
Michael E. Porter
     Harvard Business Review, 1979.
Many factors determine the nature of competition, including not only rivals, but also the economics of particular industries, new entrants, the bargaining power of customers and suppliers, and the threat of substitute services or products. A strategic plan of action based on this might include: positioning the company so that its capabilities provide the best defense against the competitive forces; influencing the balance of forces through strategic moves; and anticipating shifts in the factors underlying competitive forces. McKinsey Award Winner.
Order article at Harvard Business Online



The Five Competitive Forces That Shape Strategy
     Michael E. Porter
     Harvard Business Review
     January 2008

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.

-- summary article and video interview

-- related McKinsey Award video interview

-- purchase full article




Harvard Business School Cases and Notes

Available through Harvard Business Online:

Edward Jones (case)
Edward Jones is a leading, highly profitable retail brokerage firm with a unique strategy vis--vis its rivals. The case describes Jones's activities and allows a rich discussion of its positioning choices, supporting activities, and tradeoffs. Jones must cope with a rapidly evolving industry, which at least on the surface, is threatening to its strategy. Teaching Purpose: Reviews strategic positioning and strategy in changing industries.

Industry Transformation (note)
One of the steepest challenges a strategist faces is to navigate his or her company through a period of industry transformation--an era of rapid and wholesale changes in industry structure. This note considers how periods of transformation typically unfold. It then examines how the core tools of the strategist can be deployed during such periods and how new tools come to the fore. Periods of industry transformation pose grave threats and tremendous opportunities to companies. Industry leaders are often unseated during such times, replaced by underdogs and entrants. Perhaps most importantly, periods of transformation give companies unusual latitude to influence future industry structure. Teaching purpose: Designed to support course modules that consider strategy-making under uncertainty or the intersection of competitive strategy and technology.


Reference Chapters in On Competition

"How Competitive Forces Shape Strategy"
On Competition, Chapter 1
Michael E. Porter
See description above for Harvard Business Review article of the same title.

"End-Game Strategies for Declining Industries"
On Competition, Chapter 4
     Kathryn Rudie Harrigan and Michael E. Porter
Many companies are faced with declining product demand beyond their control. A study of the strategies of over 95 companies that confronted declining markets suggests that companies can often be very successful if they analyze all the characteristics that shape competition in the end game and act in accordance with their own needs. Strategic alternatives for declining business include leadership; niche; harvest; and quick divestment.

Industry Analyses

The U.S. Homebuilding Industry 
and the Competitive Position of Large Builders
     Michael E. Porter
     Centex Investor Conference, New York
     November 18, 2003


Windows Media Player

"Strategy in Deal-Based Industries"
     Michael E. Porter
     Remarks to the 1989 HBS Real Estate Symposium

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