MICHAEL PORTER DIDN'T GET to be a giant in the field of competition and Porter and you will understand not only how companies sustain competitive. Competitive advantage. The value chain. Five forces. Industry structure. Differentiation. Relative cost. If you want to understand how companies achieve and. Understanding Michael Porter: The Essential Guide to Competition and Strategy From Adam Smith to Michael Porter: Evolution of Competitiveness Theory.
|Language:||English, Spanish, Hindi|
|Distribution:||Free* [*Registration Required]|
Understanding Michael Porter: The Essential Guide to Competition and Strategy PDF DOWNLOAD. Understanding Michael Porter: The. Michael E. Porter . with how to translate that understanding into a competitive advantage. cated understanding of the rules of competition that determine an. Understanding Michael Porter: The Essential Guide to Competition and Strategy.
If you click the Speed-Pay button on any product detail page, your order will be charged to the most recent credit card information attached to your account and shipped if applicable to the last address we have on file for you. For more details. If you need to make additional copies to distribute, please download copyright permission. Hardcopy, paperback, softbound, magazine: Physical copy shipped from our warehouse to your requested shipping location. PDF digital file.
A themed collection containing two or more items at a special savings. A security code is added protection against credit card fraud. It is a 3 or 4 digit number appearing on the front or back of your credit card. See examples below. If you have a promotion code, please enter it below. This promotion code field is case sensitive so please type all capital letters.
This product is intended for individual use only. To learn more about volume discounts for organizations and license opportunities for consultants, contact Lindsey. Dietrich harvardbusiness. Understanding Michael Porter: Sometimes access to distribution is so high a barrier that a new entrant must create its own distribution channels. Thus, upstart low-cost airlines in Europe have avoided distribution through travel agents, who tend to favor established higher-fare carriers, and have encouraged passengers to book their own flights via Internet websites.
Restrictive government policy—Government can limit or even foreclose entry to industries via controls such as license requirements, patent protection, foreign investment barriers, and limits on access to local raw material sources. Regulated industries such as liquor retailing and taxi services are visible examples in most developed countries; more subtle government restrictions operate in fields such as health care and coal mining.
The government can also heighten entry barriers indirectly through controls such as pollution and safety regulations, which raise the standards newcomers must meet. Of course, government policies may also make entry easier—for instance, by funding basic research and making it available to all firms, new and old. The expectations of potential new entrants about the reaction of existing competitors will also influence their decision to enter or stay out of an industry.
Entry barriers should be assessed relative to the capabilities of potential entrants, which may be foreign firms or companies in related industries. And, as some of our examples illustrate, the strategist must be mindful of how newcomers might find creative ways to circumvent apparent barriers. The Power of Suppliers Suppliers can exert bargaining power by raising prices, shifting costs downstream to industry participants, or limiting the quality of the goods and services they provide.
Powerful suppliers can thereby squeeze profitability out of an industry that is unable to pass on cost increases in its own prices. Microsoft, for instance, has contributed to the erosion of profitability among personal computer makers by raising prices on operating systems. The PC makers, competing fiercely for customers who can easily switch among them, have limited freedom to raise their prices accordingly. The power of each important supplier group depends on a number of structural characteristics of the industry.
When switching costs are high, industry participants find it hard to play suppliers off against one another, and suppliers are then positioned to extract profits from an industry.
Pharmaceutical makers, each with patented drugs that offer different medical benefits, have more power over hospitals, health maintenance organizations, and other drug downloaders, for example, than do suppliers that produce me-too products. Here, if industry participants make too much money relative to suppliers, they will only induce suppliers to enter the market. Suppliers serving many industries will not hesitate to extract maximum profits from each one.
The Power of Customers Analogous to suppliers, powerful customers can force down prices, demand higher quality or more service thereby driving up costs , and play competitors off against each other—all at the expense of industry profits. As with suppliers, groups of customers may differ in their bargaining power.
Customers are powerful if 1 they have clout relative to industry participants and especially if 2 they emphasize price reductions as the means to exercise their clout. Large-volume downloaders are particularly powerful if heavy fixed costs characterize an industry— as they do in telecommunications equipment, large-scale software development, and bulk chemicals; this amplifies the need to keep capacity filled.
If downloaders believe they can always find equivalent suppliers, they tend to play one vendor against another. The makers of soft drinks and beer have long controlled the power of can makers by threatening to make, and at times actually making, cans themselves.
Here downloaders are likely to bargain hard for a favorable price, as consumers do for home mortgages. Highly profitable or cash-rich downloaders, in contrast, are generally less price sensitive that is, of course, if the item does not represent a large fraction of their costs. Internet content providers, for instance, became far more selective and powerful downloaders of computer equipment after the Internet bubble burst and capital became scarcer.
When downloading or renting production-quality cameras, for instance, makers of major motion pictures opt for equipment made by vendors with strong reputations for quality. They pay limited attention to price. This is true in businesses like the logging of oil wells, where an accurate survey can save thousands of dollars in drilling costs, and in services such as investment banking and public accounting, where poor performance can be costly and embarrassing.
Most of these sources of downloader power apply to consumers, not just to industrial and commercial downloaders. Consumers tend to be more price sensitive if they are downloading products that are undifferentiated, expensive relative to their incomes, and of a sort where product performance has limited consequences.
Channels can also be analyzed the same way, with one important addition. Channels gain significant bargaining power over upstream manufacturers when they influence the downloading decisions of downstream customers, as they do in consumer electronics and jewelry retailing and in agricultural equipment distribution.
Where channels are powerful, exclusive arrangements often arise as producers attempt to mitigate this clout. Videoconferencing is a substitute for travel, plastic is a substitute for aluminum, and e-mail is a substitute for express mail, for example. Substitutes nearly always exist.
Many times, one substitute is to do without a product, and another is for customers to perform a service for themselves. An industry must distance itself from substitutes via performance or marketing or it will suffer in terms of earnings and possibly growth.
Sugar producers confronted with the large-scale commercialization of high-fructose corn syrup, a sugar substitute, learned this lesson in the s and s. More recently, conventional providers of long-distance telephone service have suffered from the advent of Internet-based phone services such as Skype and Vonage. Similarly, video rental outlets are struggling with the emergence of video-on-demand services offered by cable and satellite television service providers and the rise of Internet video sites such as Google Video and YouTube.
Substitutes not only limit profits in normal times; they also reduce the bonanza an industry can reap in good times while constraining the size of the industry. In emerging economies, for example, the surge in demand for wired telephone lines has been capped as many consumers have opted to make a mobile telephone their first and only phone line.
Substitutes can rapidly come into play if intensifying competition in their industry causes price reduction or performance improvement. For example, fierce competition among Internet portals in the late s led to quick introduction of free e-mail services by the likes of Yahoo!
Rivalry among Existing Competitors Rivalry among existing competitors takes many familiar forms: price discounting, new-product introductions, advertising campaigns, service escalation, and so forth. Price is typically the most destructive basis of competition for industry profitability. Price reductions transfer profits directly from an industry to its customers, and they are usually easy for competitors to see and match, making successive rounds of retaliatory cuts more likely.
Conversely, competition on services or features can allow industry competitors to support good margins.
This makes it easy for downloaders to shift vendors and encourages competitors to believe that a modest price cut will bring many new customers. Years of airline price wars reflect these circumstances in that industry.
This creates intense pressures for competitors to cut prices below their average costs, even close to their marginal costs, in order to steal incremental customers who will make some contribution to covering fixed costs. Many basic materials businesses, such as paper and aluminum, suffer from this problem, especially when demand slackens. Perishability creates a strong temptation to cut prices and sell a product while it still has value.
More products and services are perishable than is commonly thought. Just as tomatoes are perishable because they rot quickly, models of computers are perishable because they quickly become obsolete, airline seats are perishable because they are worthless if not sold by flight time, and information may be perishable if it diffuses and thereby loses its value. Indeed, many services are perishable in the sense that unused capacity can never be recovered.
In such a situation, rivals find it hard to avoid poaching business. Without an industry leader, practices desirable for the industry go unenforced. Slow growth precipitates fights for market share. Slow or negative growth in popular music in the s has intensified rivalry, and pressure on profitability is driving consolidation in the industry. These barriers keep companies competing even though they may be earning low or even negative returns on investment. Excess capacity remains in use, and the profitability of the healthy competitors suffers as the sick ones hang on.
Clashes of personalities and egos have sometimes exaggerated rivalry in fields such as the media and high technology. By considering all five forces, a strategist keeps overall structure in mind instead of gravitating to any one element.
In addition, attention is paid to long-run industry conditions rather than fleeting factors; industry structure is reflected in profitability over a business cycle, not in a single year.
In assessing industry competition, analysts are often drawn to a number of industry attributes. These attributes can be highly salient, but their significance depends on their effect on the competitive forces.
Consider, for instance: Industry growth rate A common mistake is to assume that fast-growing industries are attractive industries. Growth does tend to mute rivalry because an expanding pie offers opportunities for all competitors. The full effect of growth, however, depends on how growth influences overall industry structure.
Fast growth can put suppliers in a powerful position, and high growth with low entry barriers will draw in entrants. Even without new entry, a high growth rate certainly does not guarantee profitability if customers are powerful or substitutes are attractive.
Indeed, some fast- 8 Understanding Industry Structure growth businesses such as the personal computer industry have been among the least profitable industries in recent years.
Government Government involvement is not inherently good or bad for industry profitability, nor is government best understood as a sixth force. Instead, it is often most fruitful to analyze each specific government policy to see whether it improves or undermines industry structure. Either effect is possible. For instance, patents raise barriers to entry, boosting industry profit potential.
Conversely, government policies favoring unions may raise supplier power and diminish profit potential. Bankruptcy rules that allow failing companies to reorganize rather than exit can lead to excess capacity and intense rivalry.
The best way to understand the influence of government on competition is to analyze how present government policies affect the competitive forces. Technology and innovation Technology or innovations alone are not themselves enough to make an industry structurally attractive or unattractive.
The impact of technology on industry attractiveness depends on how the technology affects the full set of competitive forces.
Mundane, low-technology industries are often far more profitable than sexy industries such as software and Internet technology that attract competitors. Computer hardware and software, for instance, are valuable together and worthless when separated. Personal digital assistants PDAs are valuable on their own, but their value is enhanced by thousands of applications that third-party developers have created. In recent years, strategy researchers have highlighted the role of complements, especially in high- technology industries.
The value of a car, for example, is greater when the driver also has access to gasoline stations, paved roads, spare parts, auto insurance, a car navigation system, and so forth. Especially when demand is small or stagnant, firms should encourage the provision of complements and sometimes produce complementary products themselves or partner with other firms to do so.
Employee solidarity e. Competitive rivalry[ edit ] For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully market a product. Positioning pertains to how the public perceives a product and distinguishes it from competitors. An organization must be aware of its competitors' marketing strategies and pricing and also be reactive to any changes made.
Usage[ edit ] Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm 's strategic position. However, for most consultants, the framework is only a starting point and value chain analysis or another type of analysis may be used in conjunction with this model.