25-05-2012, 05:34 PM
The Five Competitive Forces That Shape Strategy
Five Competitive Forces That Shape Strategy.pdf (Size: 370.85 KB / Downloads: 28)
In essence, the job of the strategist is to understand
and cope with competition. Often, however,
managers define competition too narrowly,
as if it occurred only among today’s
direct competitors. Yet competition for profits
goes beyond established industry rivals to include
four other competitive forces as well:
customers, suppliers, potential entrants, and
substitute products. The extended rivalry that
results from all five forces defines an industry’s
structure and shapes the nature of competitive
interaction within an industry.
As different from one another as industries
might appear on the surface, the underlying
drivers of profitability are the same. The global
auto industry, for instance, appears to
have nothing in common with the worldwide
market for art masterpieces or the heavily
regulated health-care delivery industry in Europe.
But to understand industry competition
and profitability in each of those three cases,
one must analyze the industry’s underlying
structure in terms of the five forces. (See the
exhibit “The Five Forces That Shape Industry
Competition.”)
Forces That Shape Competition
The configuration of the five forces differs by
industry. In the market for commercial aircraft,
fierce rivalry between dominant producers
Airbus and Boeing and the bargaining
power of the airlines that place huge orders
for aircraft are strong, while the threat of entry,
the threat of substitutes, and the power of
suppliers are more benign. In the movie theater
industry, the proliferation of substitute
forms of entertainment and the power of the
movie producers and distributors who supply
movies, the critical input, are important.
The strongest competitive force or forces determine
the profitability of an industry and become
the most important to strategy formulation.
The most salient force, however, is not
always obvious.
Factors, Not Forces
Industry structure, as manifested in the
strength of the five competitive forces, determines
the industry’s long-run profit potential
because it determines how the economic
value created by the industry is divided—how
much is retained by companies in the industry
versus bargained away by customers and suppliers,
limited by substitutes, or constrained by
potential new entrants. By considering all five
forces, a strategist keeps overall structure in
mind instead of gravitating to any one element.
In addition, the strategist’s attention remains
focused on structural conditions rather
than on fleeting factors.