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
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-à-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.
