2-the 5 competitive forces that shape strategy Flashcards
job of the strategist cope with the competition - 4 forces
in case of underlying drivers of profitability is the same-like car industry
customer/supplier/new entrant service
markets
benign competition forces
industry vs company
commercial aircraft vs movies
commodity vs photography
4 factors in avaition
position your company where the forces are the weakest
reshape forces
barriers to entrys
supply side:large production numbers drive down the cost
demand side: trust in established names and network effects of fellow customers
customer switching costs: ERP software
Capital requirements: huge lump sum
Incumbents: technically savey, cost structure
unequal access to distribution channels, low fare airlines
government policies: regulation like taxi and alcohol
five forces
average ROIC for 50% of industries were. zero or negative -median 15%
power of suppliers
-supplier does not depend on one individual company for profits
-industry participants face high switching cost-Bloomberg terminals
-differentiated products: patented drugs
-unions in airlines
-suppliers threaten if make much less profit than participants
good industry analysis
Power of buyers
-buy large sum and have leverage
-undifferentiated products and easy switch
-price sensitive customer shops around vs product can pay itself overtime- tax a accounting
the threat of substitutes
reason for substitution
existing companies rivalary intensity
rivalry occurs
same dimensions -zero sum game
positive sum competition
expands the industry for different needs
industry structure for profitably- which part can be reduced by suppliers or customers
growth rate: suppliers in power, more entrants
technology: low switching, and scale is dominant
government: how policymakers influence factors, pos or neg
complementary products: especially in high tech, can make substitute easier, positive or negative
industry structure changes-not a single point in time
industry structure changes
-shifting threat of new entry: changes of any factors mentioned above/patent expiration, increase fixed cost to gain scale
-changing suppliers/buyers power: consolidation in industry(best buy for all appliances), travel agent(internet replaced airlines)
-shifting threat of substitute: new technology changes substitutes and price performance comparison-flash memory
-new bases of rivalry: can come from industry maturation as profit margin falls or M&A to increase competitiveness and/or remove rivals -television /telecom
implications for strategy in idustries
each company should know the average probability of its industry and its projection based on five forces to create a baseline and balancing the company wrt baseline
positioning the company for forces
building defenses against current forces -capital industry have fierce cyclical forces during downtime however build to order can save them like customized trucks with owner operators
paccer
paccer profitable for 68 years in truck business due to optimized value chain and charging extra for custom build trucks-20% roe
five forces
five forces factor can analyze the prospect of the industry as well /entry vs exit points
exploit industry changes
: internet for music industry removed entry barriers/however the main barrier was access to fresh artists and market on new stations
shaping industry structure:to change forces is the best strategy to force competition to follow suit
- 2 ways: redivide the profits or expand the profits by industry growth
define the relevant industry: not too broad or narrow
/ 2 defining factors: scope of products and geographical - like sysco as a food distributor has multiple strategies across the board and not competing solely based on price
distinct industry
any large differences in 5 factor can lead to distinct industry -
industry analysis framework
