Strategy: The Quest too Keep Profit from Eroding Flashcards
Succeeding in the face of competition requires that
you first find a way to create an advantage and then figure out how to protect it
Firms have a competitive advantage when they deliver the same product or service
as their competitors but at a lower cost or superior product or service benefits
The industrial organization economics perspective
locates the source of advantage at the industry level
The resource based view
locates it at the individual firm level
The essence of IO is that a firms performance in the marketplace depends
critically on the characteristics of the industry environment in which it competes
An industry is a group of firms producing products that
are close substitutes to each other
For multi-product companies the analysis needs to be
done on a product-by-product bases
Porters Five Forces Model
low threat of entry, low buyer power, low supplier power, low threat from substitutes, and low levels of rivalry between firms
Suppliers can charge higher prices and capture more
of the industry value when they have greater power
Supplier power tends to be higher when
the inputs they provide are critical inputs or highly differentiated
If buyers are concentrated or if is easy for buyers to switch
from from firm to firm, buyer power tends to be higher
Threats from new entrants will quickly erode
the profit of an industry unless barriers prevent or slow their entry
If close substitutes are available and buyers find it
inexpensive to switch, it will be hard for a firm to build and maintain high profits
Rivalry tends to be higher when products are not
very well differentiated
The resource based view explains that firms may exhibit
sustained performance advantages due to their superior resources
