Professional Documents
Culture Documents
Strategy
ManEc 300
Prof. Bryson
Michael E. Porter’s New Approach
Enormous popularity
The Five Competitive Forces
• How many can we remember?
• There were two threats, two bargaining
powers, and some jockeying.
The Five Competitive Forces
• the threat of new entrants,
• the bargaining power of customers,
• the bargaining power of suppliers,
• the threat of substitute products or
services, and
• the jockeying among current contestants.
Porter and Strategy Today
• Strategy has now become a regular field
in management schools. It is mostly a
haven for economists.
• Brickley, Smith and Zimmerman devote
Chapter 8 to the “Economics of Strategy:
Creating and Capturing Value.”
• In their approach, what is “Value
Creation”?
Porter and Strategy Today
• Value Creation is finding an approach, a
cost-reduction technique, or some manner
permitting the firm to compete effectively.
Establishing a Strategic Agenda
• What must a firm be able to do before it
can establish a strategic agenda for
dealing with the five competitive forces?
Establishing a Strategic Agenda
• To establish a strategic agenda for dealing
with these forces and to grow despite
them, a company must understand how
they work in it’s own industry and
particular situation.
• What makes them vary?
• The essence of strategy formulation is
coping with the specific kinds of
competition experienced.
Establishing a Strategic Agenda
. Different forces take on prominence, of
course, in shaping competition in each
industry.
• Every industry has an underlying
structure, or a set of fundamental
economic and technical characteristics,
whether an industry is dealing in services
or selling products.
Establishing a Strategic Agenda
substantial resources.
Threat of Entry
• So it is very strategic to try
to inhibit entry if possible.
• Can you think of the six
major barriers to entry?
• Did you ever do a scripture
chase?
Barriers to Entry
• Economies of scale - - These economies
deter entry by forcing the aspirant either to
come in on a large scale or to accept a
cost disadvantage.
• Product differentiation -- Brand
identification creates a barrier by forcing
entrants to spend heavily on marketing
Barriers to Entry
1. Positioning the
company so that its
capabilities provide the
best defense against the
competitive force.
Formulation of Strategy
2. Influencing the balance
of the forces through
strategic moves, thereby
improving the company's
position.
Formulation of Strategy
• 3. Exploiting industry change
Anticipating shifts in the factors
underlying the forces and responding to
them, with the hope of exploiting change
by choosing a strategy appropriate for the
new competitive balance before
opponents recognize it.
Formulation of Strategy
• 4. Recognizing Multifaceted Rivalry
Porter and numerous other authorities
have stressed the need to look beyond
product to function in defining a business,
beyond national boundaries to potential
international competition, and beyond the
ranks of one's competitors tomorrow.
Formulation of Strategy
• BSZ remind us (pp.217-220) that to
formulate strategy we must
• understand our resources and capabilities
• understand the environment, and
• combine knowledge of strategy and
organizational architecture.
Conclusions
• The key to growth -- even survival -- is to
stake out a position that is
– less vulnerable to attack from head-to-
head opponents, whether established or
new, and
– less vulnerable to erosion from the
direction of buyers, suppliers, and
substitute goods.
Conclusions
• Establishing such a position can take
many forms
– solidifying relationships with favorable
customers,
– differentiating the product either
substantively or psychologically through
marketing, integrating forward or
backward, or
– establishing technological leadership.