Bryson on Porter

7/31/2019 Bryson on Porter

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Michael Porter and

Strategy

ManEc 300

Prof. Bryson


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Michael E. Porters New Approach

Harvard Business School

1980: The Five Competitive Forces

The Competitive Advantage ofNations, 1990.

First strategist, a field that is,

basically, straight economics

Enormous popularity


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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 currentcontestants.


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Establishing a Strategic Agenda

To establish a strategic agenda for dealingwith these contending currents and to

grow despite them, a company must

understand how they work in its ownindustry and particular situation.

The essence of strategy formulation iscoping with competition.


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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 sellingproducts.


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Threat of Entry

New entrants to anindustry bring new

capacity, the desire

to gain market

share, and often

substantial

resources.

There are sixmajor sources ofbarriers to entry:
http://search.gallery.yahoo.com/search/corbis_id?p=cid%3A10416615


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Barriers to Entry

Economies of scale - - These economiesdeter entry by forcing the aspirant either to

come in on a large scale or to accept a

cost disadvantage.

Product differentiation -- Brandidentification creates a barrier by forcing

entrants to spend heavily on marketing


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Barriers to Entry

Cost disadvantages independent ofsize -- Entrenched companies may have

cost advantages not available to potentialrivals, no matter what their size and

attainable economies of scale.


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Barriers to Entry

Access to distribution channels -- Thenewcomer must, of course, secure

distribution of its product or service.

Government policy -- Governments canlimit or even foreclose entry to industries

with such controls as license requirements

and limits on access to raw materials.


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Barriers to Entry, BSZ

BSZ tell us that withoutbarriers to entry, new firmstend to erode profits withinthe industry.

They discuss the degree ofrivalry, the threat of

substitutes, buyer andsupplier power, and market

power and strategy.See pp. 187ff.


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Powerful Suppliers and Buyers

The power of each important supplier or

buyer group depends on a number of

characteristics of its market situation and

on the relative importance of its sales orpurchases to the industry compared with

its overall business.


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Powerful Suppliers and Buyers

A company's choice of suppliers to buy

from or buyer groups to sell to should be

viewed as a crucial strategic decision.

Most common is the situation of acompany being able to choose whom it will

sell to, in other words, buyer selection.


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Substitute Products

Substitute products place a ceiling on

prices a competing firm can charge,

limiting the potential of an industry.

Substitutes not only limit profits in normaltimes; they also reduce the bonanza an

industry can reap in boom times.


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Substitute Products

Substitutes often come rapidly into play if

some development increases competitionin their industries and causes price

reduction or performance improvement.


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Jockeying for Position

Intense rivalry isrelated to thepresence of a

number of factors:

Competitors arenumerous or are

roughly equal in sizeand power.


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Industry growth isslow, precipitatingfights for market

share that involveexpansion-mindedmembers.


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The product orservice lacks

differentiation orswitching costs,which lock in buyersand protect onecombatant from

raids on itscustomers, byanother.


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Formulation of Strategy

1. Positioning the company

Positioning the companyso that its capabilities

provide the best defenseagainst the competitiveforce.


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2. Influencing the balance

Influencing the balanceof the forces through

strategic moves, therebyimproving the company'sposition.


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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.


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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.


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BSZ remind us (pp.203-208) that to

formulate strategy we must

understand our resources and capabilities

understand the environment, and

combine knowledge of strategy and

organizational architecture.


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Conclusions

The key to growth -- even survival -- is to

stake out a position that is

less vulnerable to attack from head-to-headopponents, whether established or new, and

less vulnerable to erosion from the direction of

buyers, suppliers, and substitute goods.


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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.

Documents

Bryson on Porter