The nature of competition in an industry in large part determines the content of strategy, especially business-level strategy. Based as it is on the fundamental economics of the industry, the very profit potential of an industry is determined by competitive interactions. Where these interactions are intense, profits tend to be whittled away by the activities of competing. Where they are mild and competitors appear docile, profit potential tends to be high. Yet a full understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend.
Porter’s Competitive Forces Model is one of the most recognized framework for the analysis of business strategy. It is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on an understanding of industry structures and the way they change.
Porter’s Competitive Forces Model – The Five Competitive Forces
The model of the Five Competitive Forces was developed by Michael E. Porter 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes.
Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porter’s competitive forces model supports analysis of the driving forces in an industry. … Read the rest
When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Competitive advantages are capabilities that are difficult to replicate or imitate and are non-tradable.
Pitts and Snow define a competitive advantage as “any feature of a business firm that enables it to earn a high return on investment despite counter pressure from competitors.”
A competitive advantage exists when the firm is able to deliver the same benefits as the competitors are but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables a firm to create superior value for its customers and superior profits for itself.
Competitive advantage is gained at the corporate and business levels through synergy and market share, respectively.
Synergy evolves from size and diversification. By being large, a firm can gain advantage by: (1) paying less interest to its creditors and underwriters; and (2) paying less tax by internally shifting funds from one business to another. Diversified firms can use portfolio planning to produce synergistic advantage by assisting the firm in allocating resources according to the product’s relative market share and market growth which in turn, directs the organization in its placement of managers in appropriate cells.
Market share derives from three different sources: (1) economies of scale attained through specialization, automation, and vertical integration: (2) experience attained through employee learning as well as product and process development; and (3) market power-which is the amount of control the firm has over suppliers, customers, and competitors.… Read the rest
The 10-P framework for globalization symbolizes the aspirations and needs of employees and organizations in the new competitive settings. It comes a long way from the initial impetus provided to the subject by Michael Porter in his book Competitive Strategy (1980), and goes beyond his purely industrial organization perspective. The framework operationalizes the 4-Diamonds for a nation’s competitive advantage of Porter. The 10-P framework integrates theory of strategic management and practice of business policy and provides a structure for the practicing manager to evaluate competitiveness at regular intervals.
The 10-P framework explores a fine `fit’ between the soft and hard strategic choices. It seeks a self-motivated network of stakeholders who are able to self-actualize a high sense of satisfaction, self-worth, liberty and freedom in business organizational settings.
True to the vision of a world-class organization, the central fulcrum in the framework is a PEOPLE-ORIENTATION-both inside and outside the corporation. This approach presents a humane perspective to issues at hand and differentiates between a `satisfying’ approach and an `excellent’ approach. It realizes and reflects that modern economies and corporations thrive mainly on innovation in all respects of value-augmentation-creative thinking at the design stage, ensuring production at highest efficiency and minimum costs, and satisfying the customer in a most effective manner.
The rest of the 9-Ps are levered in a highly interactive mode with People and amongst themselves. A change in any of the Ps affects performance of the other levers and therefore the final outcome for the organization. The 9-Ps are: Purpose, Perspective, Positioning, Plans (and policies), Partnerships, Products, Productivity, Politics, and Performance (and profits).… Read the rest