On Competition

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On Competition
M. Porter

• 2003. 2. 25

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1. How competitive forces shape strategy

• 5 forces governing competition in an industry
• The goal of corporate strategy is
• to find a position in the industry where his or
  her company can best defend against above forces
• to influence competitors in its favor

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1. How competitive forces shape strategy

• Threat of entry

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1. How competitive forces shape strategy

• Suppliers are powerful if
• Market is dominated by a fewer company.
• It builds up switching cost due to uniqueness or
  differentiation.
• The industry is not an important customer of the
  supplier group.
• They doesnt contend with other products for sale
  to the industry.
• Buyers are powerful if
• They purchases in large volumes.
• The products they purchases from the industry are
  standard or undifferentiated
• The industrys product is unimportant to the
  quality of the buyers products or services.
• The buyers pose a credible threat of integrating
  backward t make the industrys product.

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1. How competitive forces shape strategy

• Formulation of strategy

• Identifying the structure of the industry
• Matching the companys strengths and
• weaknesses to the structure

Positioning the company

• Offensive posture
• Innovation in marketing to raise brand
  identification
• Capital investment in large-scale facilities
• Vertical integration

Influencing the balance

• Identifying the trend carrying the highest
  priority
• Predict the eventual profitability on an industry
  due to
• the trends

Exploiting industry change
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2. What is strategy?

• Operational effectiveness is not strategy!

Operational Effectiveness means performing
similar activities better than rivals perform
them.
Strategic Positioning means performing different
activities from rivals or performing similar
activities in different ways.
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2. What is strategy?

• Strategy rests on unique activities!

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2. What is strategy?

• Strategy rests on unique activities!

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2. What is strategy?

• Strategy rests on unique activities!

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2. What is strategy?

• The origins of strategic positioning
• Variety-based positioning
• Positioning based on producing a subset of an
  industrys products or services.
• Ex) Vanguard Group
• Needs-based positioning
• Positioning comes from targeting a segment of
  customers
• Ex) Bessemer Trust Company
• Access-based positioning
• Positioning of segmenting customers who are
  accessible in different ways.
• Ex) Carmike Cinemas

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2. What is strategy?

• Alternative views of strategy
• The implicit strategy model of the past decade
• One ideal competitive position in the industry
• Benchmarking of all activities and achieving best
  practice
• Aggressive outsourcing and partnering to gain
  efficiencies
• Advantages rest on a few key success factors,
  critical resources, core competencies
• Flexible and rapid responses to all competitive
  and market changes
• Sustainable competitive advantage
• Unique competitive position for the company
• Activities tailored to strategy
• Clear trade-offs and choices with competitors
• Competitive advantage arises from fit across
  activities
• Sustainability comes from the activity system,
  not the parts
• Operational effectiveness a given

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3. How information gives you
competitive advantage

• Influences of the information revolution on
  competition
• It changes industry structure and alters the
  rules of competition.
• It creates competitive advantage by giving
  companies new ways to outperform their rivals.
• It spawns whole new businesses, often from within
  a companys existing operations.

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3. How information gives you
competitive advantage

• Transforming the value chain
• Traditional value chain

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3. How information gives you
competitive advantage

• Transforming the value chain
• Value chain using information technology

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3. How information gives you
competitive advantage

• Changing direction pace of change

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3. How information gives you
competitive advantage

• Changing the nature of competition
• IT increases the power of buyers in industries
  assembling purchased components.
• IT requiring large investments in complex
  software have raised the barriers to entry.
• Flexible computer-aided design and manufacturing
  system have influenced the threat of substitution
  by making it quicker, easier, and cheaper to
  incorporate enhanced features into products.
• The automation of order processing and customer
  billing has increased rivalry in distribution
  industries.

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3. How information gives you
competitive advantage

• Five steps for opportunities from IT

Assess information intensity
Determine the role of IT in industry structure
Identify and rank the ways in which IT might
create competitive advantage
Investigate how IT might spawn new businesses
Develop a plan for taking advantage of IT
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4. End-game strategies
for declining industries

• Strategies for declining businesses

Has competitive strengths for remaining demand
pockets
Lacks competitive strengths for remaining demand
pockets
Favorable industry structure for decline
Unfavorable industry structure for decline
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4. From competitive advantage
to corporate strategy

• Competitive strategy vs. corporate strategy

Competitive strategy - How to create
competitive advantage in each of the businesses
in which a company competes.
Corporate strategy - What businesses the
corporation should be - How the corporate office
should manage the array of business unit.
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4. From competitive advantage
to corporate strategy

• Concepts of corporate strategy
• Prerequisites for Portfolio management
• Superior insight into identifying and acquiring
  undervalued companies
• Willingness to sell off losers quickly
• Broad guidelines for and constraints on the types
  of units in the portfolio so that senior
  management can play the review role effectively
• Ability to shift away from portfolio management
  as the capital markets get more efficient or the
  company gets unwieldy
• Autonomous business units
• A very small, low-cost, corporate staff
• Incentives based largely on business unit results

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4. From competitive advantage
to corporate strategy

• Concepts of corporate strategy
• Prerequisites for Restructuring
• Superior insight into identifying restructuring
  opportunities
• Willingness and capability to intervene to
  transform acquired units
• Willingness to sell units when restructuring is
  complete
• Autonomous business unit
• Incentives based largely on acquired units
  results

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4. From competitive advantage
to corporate strategy

• Concepts of corporate strategy
• Prerequisites for Transferring skills
• Proprietary skills in activities important to
  competitive advantage in target industries
• Ability to accomplish the transfer of skills
  among units on an ongoing basis
• Acquisitions of beachhead positions in new
  industries as a base
• Largely autonomous but collaborative business
  unit
• High-level corporate staff members who see their
  role primarily as integrators
• Objectives of line managers that include skills
  transfer
• Incentives based in part on corporate results

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4. From competitive advantage
to corporate strategy

• Concepts of corporate strategy
• Prerequisites for Sharing activities
• Activities in existing units that can be shared
  with new business units to gain competitive
  advantage
• Benefits of sharing that outweigh the costs
• Both start-ups and acquisitions as entry vehicles
• Ability to overcome organizational resistence to
  business unit collaboration
• Strategic business units that are encouraged to
  share activities
• High-level corporate staff members who see their
  roles primarily as integrators
• Incentives based heavily on group and corporate
  result

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4. From competitive advantage
to corporate strategy

• Steps for choosing a corporate strategy
• Identifying the interrelationships among already
  existing business units
• Selecting the core businesses that will be the
  foundation of the corporate strategy
• Creating horizontal organizational mechanisms to
  facilitate interrelationships among the core
  businesses and lay the groundwork for future
  related diversification
• Pursuing diversification opportunities that allow
  shared activities
• Pursuing diversification through the transfer of
  skills if opportunities for sharing activities
  are limited or exhausted
• Pursuing a strategy of restructuring in this fits
  the skills of management or no good opportunities
  exist for forging corporate interrelationships.
• Paying dividends so that the shareholders can be
  the portfolio managers