the five competitive forces that shape strategy

THE

FIVE

COMPETI

TIVE

FORCES T

HAT S

HAPE

STRAT

EGY

PREPARED BY:

MITESH AGARWAL C002SUSHANT AGRAWAL C005ABHAY ARYA C008MAHESH BVS C017APOORV JAIN C031PARAS MEHTA C040DEEPANSHU RUSTAGI C044

PORTER’S FIVE FORCES

JOB OF A STRATEGIST

• UNDERSTAND AND COPE WITH COMPETITION• NOT ONLY DIRECT COMPETITION• DRIVERS OF PROFITABILITY SAME ACROSS INDUSTRIES• INTENSE FORCES - DRIVE DOWN PROFITABILITY• BENIGN FORCES - DRIVE UP• INDUSTRY STRUCTURE DECIDES THE FORCES

SHAPING STRATEGY

THE FIVE COMPETITIVE FORCES• POTENTIAL ENTRANTS• SUPPLIERS• CUSTOMERS• SUBSTITUTE PRODUCTS• EXISTING COMPETITION

DEFENDING & SHAPING THE COMPETITIVE FORCES

KEY COMPETITIVE FORCES SHAPE STRATEGY FORMULATION

POTENTIAL ENTRANTS –THREAT OF ENTRY

NEW ENTRANTS• ADD ADDITIONAL CAPACITY

• PUT A CAP ON PROFIT BY DRIVING DOWN PRICES

BARRIERS TO ENTRY

• SUPPLY SIDE (INTEL)• DEMAND SIDE (IBM, e-BAY)• CUSTOMER SWITHCING COSTS (SAP)• CAPITAL REQUIREMENTS• INCUMBANCY ADVANTAGES INDEPENDENT OF SIZE• UNEQUAL ACCESS TO DISTRBN CHANNELS-E.g. LOW COST

AIRLINES• RESTRICTIVE GOVT. POLICY• EXPECTED RETALIATION (Retail Associations in India)

POWER OF SUPPLIERS

• MORE POWERFUL CAPTURE MORE VALUE (MICROSOFT)

• SUPPLIER DEPENDENCY (BLOOMBERG)

• DIFFERENTIATED PRODUCTS

• HIGH CUSTOMER SWITCHING COSTS

POWER OF BUYERS

• FEW BUYERS HIGH VOLUMES E.g. BSNL

• STANDARDISED PRODUCTS

• LOW/MINIMUM SWITHCING COSTS

• POSSIBILITY OF BACKWARD INTERGARTION BY CUSTOMERS

THREATS OF SUBSTITUTES

• ALTERNATE CHEAPER PRODUCTS/ SERVICES

• ATTRACTIVE PRICE PERFORMANCE TRADE OFF

• SWITHCING COSTS TO NEW SUBSTITUTE LOW

RIVALRY AMONG EXISTING COMPETITORS

• NUMEROUS COMPETITORS OF EQUIVALENT SIZE

• SLOW GROWTH RATE

• HIGH EXIT BARRIERS

• HIGHLY COMMITTED RIVALS

• HIGH PRICE COMPETITION

VISIBLE INDUSTRY ATTRIBUTES

• INDUSTRY GROWTH RATE

• TECHNOLOGY AND INNOVATION

• GOVERNMENT

• COMPLEMENTARY PRODUCTS AND SERVICES (E.g. Microsoft, Antivirus bundled PC)

CHANGES IN INDUSTRY STRUCTURE

• INDUSTRY DEVELOPMENTS DICTATE CHANGE

• SHIFTING THREAT OF NEW ENTRY (E.g. PATENT EXPIRY FOR DRUGS)

• CHANGING SUPPLIER OR BUYER POWER (BIG BAZAR)

• SHIFTING THREAT OF SUBSTITUTION (E.g. PENDRIVE)

• NEW BASES OF RIVALRY

IMPLICATIONS FOR STRATEGY

• FIVE FORCES REVEAL MOST SIGNIFICANT OF THE INDUSTRY ASPECTS

• SWOT ANALYSIS

• SHAPING THE FORCES

• POSITIONING THE COMPANY

• EXPLOITING INDUSTRY CHANGE (Apple i-tunes)

• SHAPING INDUSTRY STRUCTURE• REDIVIDING PROFITABILITY• EXPANDING PROFIT POOL

DEFINING INDUSTRY

• SCOPE OF PRODUCTS/ SERVICES

• GEOGRAPHICAL SCOPE

TYPICAL STEPS IN INDUSTRY ANALYSIS

• DEFINE THE RELEVANT INDUSTRY

• IDENTIFY PARTICIPANTS

• ASSESS DRIVERS OF COMPETITIVE FORCES

• DETERMINE OVERALL INDUSTRY STRUCTURE

• TEST ANALYSIS FOR CONSISTENCY

TYPICAL STEPS IN INDUSTRY ANALYSIS (CONTD..)

ANALYSE RECENT AND LIKELY FUTURE CHANGES• POSITIVE / NEGATIVE

INDUSTRY ASPECTS INFLUENCED BY OTHER FORCES

COMMON PITFALLS

COMPETITION AND VALUE

• UNCOVERING OPPORTUNITIES

• THINKING STRUCTURALLY ABOUT COMPETITION

• ATTRACTION TO THE INDUSTRY

• CREATE TRUE ECONOMIC VALUE THAN “ PLEASING THE WALL STREET”

THANK YO

U