Competitive Strategy: Techniques for Analyzing Industries and Competitors
Authors: Michael E. Porter, Michael E. Porter
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Overview
Competitive Strategy explains how to analyze an industry’s structure to assess its overall profitability and formulate a competitive strategy for a business operating within it. The five competitive forces – the threat of new entrants, the bargaining power of suppliers and buyers, the threat of substitutes, and rivalry among existing competitors – collectively determine an industry’s profit potential.
The book provides frameworks for analyzing these forces and predicting industry evolution, understanding competitors, and choosing a competitive position. It identifies three generic strategies – cost leadership, differentiation, and focus – to outperform rivals. Competitive moves should be backed by commitment and designed to influence the balance of forces favorably. Market signals can help predict competitor behavior, while understanding one’s industry dynamics through frameworks like the strategic group map aids in anticipating competitive actions. The book also covers strategies for operating in different industry environments, such as fragmented, emerging, mature, declining, and global industries, as well as strategic decisions around vertical integration, capacity expansion, and entry into new businesses.
This book is aimed at managers, strategists, and business leaders, as well as students and academics in the fields of strategy and economics. Its relevance extends beyond specific industries or technologies, presenting timeless principles of competition. The concepts help businesses not only survive, but also achieve superior profitability by effectively positioning themselves in their industry.
In the current rapidly changing business environment, the book’s framework emphasizes the enduring importance of understanding competitive forces, rather than solely focusing on internal resources or dynamic capabilities. It addresses the interplay of industry and firm-level factors in determining competitive success. The frameworks help make concrete the often abstract concepts of strategic planning and provide managers with clear analytical tools for crafting their own firm’s competitive strategy. In an age of AI and rapid technological changes, understanding industry dynamics is more critical than ever as industries undergo reshaping and disruption.
Book Outline
1. The Structural Analysis of Industries
Industry structure, manifested in the competitive forces, sets the rules of competition and the strategies potentially available to firms. The collective strength of the five competitive forces (new entrants, supplier power, buyer power, substitutes, and rivalry) determines an industry’s ultimate profit potential. Industry structure should be the starting point for strategic analysis.
Key concept: Five Forces: Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products or Services Rivalry Among Existing Competitors These forces collectively determine an industry’s profit potential by influencing prices, costs, and the investment required to compete. A profitable strategy requires a firm to find a position in its industry where it can best defend itself against these forces or influence them in its favor.
2. Generic Competitive Strategies
There are three potentially successful generic strategies for outperforming other firms in an industry: overall cost leadership, differentiation, and focus. These strategies work by creating a defensible position against the five forces.
Key concept: Generic Strategies: Overall Cost Leadership: Aiming to be the lowest-cost producer in the industry. Differentiation: Creating a unique and desirable product or service offering. Focus: Concentrating on a narrow segment, customer group, or geographic market. These strategies can be used to establish a defensible position and outperform competitors.
3. A Framework for Competitor Analysis
Effective strategy relies on understanding competitors. Competitor analysis involves examining their future goals, current strategy, assumptions about themselves and the industry, and their capabilities. This analysis helps predict competitor behavior and formulate appropriate responses.
Key concept: Competitor Analysis Framework: Future Goals Current Strategy Assumptions Capabilities These elements provide a framework for predicting competitors’ responses, identifying vulnerabilities, and formulating effective competitive strategies.
4. Market Signals
Competitor behavior gives off market signals that can be useful in anticipating their actions. Accurately reading market signals involves interpreting competitor actions in light of their goals, assumptions, and capabilities.
Key concept: Market signals are actions by competitors that reveal their intentions, motives, or goals, whether truthfully or as bluffs. These signals can be as direct as announcements or as subtle as the manner in which strategic changes are implemented.
5. Competitive Moves
Competitive moves are most effective when backed by commitment. Commitment, communicated through signals and actions, shapes competitor perceptions and reduces the likelihood of undesirable responses.
Key concept: Commitment is a powerful tool in competitive dynamics because it influences how competitors perceive a firm’s intentions and available resources. It can involve staying with a move, promising retaliation, or building trust by committing to restrain from an action.
6. Strategy Toward Buyers and Suppliers
Buyer selection involves choosing the right customers or customer groups to serve. It’s crucial to find buyers whose needs you can meet better than the competition and who have the least power to drive down prices or demand greater service.
Key concept: Buyer selection emphasizes that choosing the right customer segments to serve is a strategic decision. Target those buyers whose needs you are best positioned to meet and who have the least power to negatively influence your profitability.
7. Structural Analysis within Industries
Industries can be further analyzed by identifying strategic groups, or clusters of firms with similar strategies. Mobility barriers protect these groups and influence intergroup rivalry. Firms should analyze these groups and barriers to find favorable positions.
Key concept: Strategic groups are clusters of firms within an industry that follow similar strategies. Analyzing the mobility barriers between groups is key to understanding the industry’s competitive dynamics and finding a defensible strategic position.
8. Industry Evolution
Industries evolve due to several dynamic evolutionary processes. These processes affect industry structure and require firms to adapt their strategies. Understanding these processes is key to forecasting industry evolution and making proactive strategic adjustments.
Key concept: Industry evolution is driven by various predictable processes, including changes in growth, buyer segments, buyer learning, reduction of uncertainty, diffusion of proprietary knowledge, accumulation of experience, changes in scale, changes in input costs, product, process, and marketing innovation, changes in adjacent industries and government policies, and entries and exits.
9. Competitive Strategy in Fragmented Industries
Fragmented industries offer opportunities for firms to achieve above-average returns by overcoming the fragmentation. This often involves strategic innovation to create economies of scale or experience, standardize product offerings, or neutralize other drivers of fragmentation.
Key concept: Overcoming fragmentation involves strategies such as creating economies of scale or experience, standardizing diverse needs, neutralizing specific factors driving fragmentation, making acquisitions, and recognizing industry trends. This is often accomplished through innovations in various aspects of the business.
10. Competitive Strategy in Emerging Industries
Emerging industries, characterized by undefined rules and rapid change, present both opportunities and risks. Key success factors include shaping the nascent industry structure, managing technological uncertainty, and overcoming the problems inherent in a young industry.
Key concept: Key challenges in emerging industries include technological uncertainty, strategic uncertainty, high initial costs, customer confusion, first-time buyers, short time horizons, and the response of threatened entities. Overcoming these challenges often requires strategic innovations and a focus on shaping the industry structure itself.
11. The Transition to Industry Maturity
The transition to maturity is a critical period requiring strategic readjustment. Firms must adapt to slowing growth, more sophisticated buyers, increased competition, and changes in industry practices. Avoiding the common pitfalls of this transition is essential.
Key concept: The transition to maturity is a volatile period where many established strategies become obsolete. Firms must adapt by rationalizing their product mix, enhancing cost analysis, adopting new manufacturing methods, increasing scope of purchase, and competing internationally.
12. Competitive Strategy in Declining Industries
Declining industries require distinct strategies depending on the industry structure and the firm’s strengths. Options include seeking leadership, focusing on a niche, harvesting the remaining demand, or quickly divesting the business. Careful analysis is needed to avoid the pitfalls common in declining industries.
Key concept: Strategic choices in declining industries include leadership, niche, harvest, and quick divestment. The chosen strategy should align with the firm’s strengths and the industry’s structural characteristics.
13. Competition in Global Industries
Global industries require firms to compete globally or face disadvantages. Global competition creates strategic advantages from several sources, including scale economies, differentiation, and technology transfer.
Key concept: Global competition requires firms to compete in multiple national markets simultaneously. Advantages can arise from factors such as comparative advantage, scale and experience economies, differentiation advantages, and the ability to apply technology globally.
14. The Strategic Analysis of Vertical Integration
Vertical integration involves performing activities internally rather than relying on the market. Benefits can arise from economies, technology access, and increased differentiation. However, costs arise from entry barriers, reduced flexibility, and management challenges.
Key concept: Vertical integration is the combination of technologically distinct economic processes within the confines of a single firm. Benefits can include economies of combined operations and information, avoiding market costs, improved differentiation, and better access to technology. Costs can arise from entry costs, reduced flexibility, and difficulties in achieving balance.
15. Capacity Expansion
Capacity expansion is a key strategic decision fraught with the risk of overbuilding. Understanding the drivers of overbuilding, as well as managing competitor dynamics and carefully assessing future demand, is essential.
Key concept: Capacity expansion decisions are crucial but complex, affected by factors like industry structure, competitor behavior, demand forecasts, technological trends, and financial resources.
16. Entry into New Businesses
Entry into new businesses requires overcoming entry barriers and potential retaliation. Favorable conditions for entry include industries in disequilibrium, slow retaliation, lower entry costs, the ability to shape industry structure, and synergy with existing businesses.
Key concept: Choosing industries in disequilibrium, or where the firm enjoys advantages like lower entry cost or the ability to shape the industry, increases the odds of entry success.
Essential Questions
1. What are the five forces that shape industry competition, and how can they be used to analyze industry profitability?
The five forces framework is the cornerstone of Porter’s analysis. These forces – the threat of new entrants, supplier and buyer power, the threat of substitutes, and rivalry among existing competitors – shape the competitive landscape. By understanding these forces, a business can identify its strategic opportunities and threats. For example, if supplier power is high, a company might consider vertical integration. If the threat of substitutes is significant, innovation and differentiation become crucial.
2. What are the three generic competitive strategies, and how can a company choose the right one?
Porter outlines three generic strategies: cost leadership, differentiation, and focus. Cost leadership involves becoming the lowest-cost producer. Differentiation involves offering a unique and valued product or service. Focus involves targeting a specific segment or niche. The choice of generic strategy depends on the firm’s resources and capabilities, as well as industry structure. For instance, a company with strong R&D capabilities might pursue a differentiation strategy, whereas a company with efficient production processes might pursue cost leadership.
3. What are the key components of competitor analysis, and how do they inform strategic decision-making?
Thorough competitor analysis requires considering their future goals, current strategy, assumptions, and capabilities. These factors help predict competitor reactions and shape strategic moves. For instance, knowing a competitor’s goals can help a firm anticipate their response to a price cut. Understanding their assumptions can uncover blind spots that could be exploited.
4. How do industries evolve, and what are the implications for competitive strategy?
Industries evolve through dynamic processes like changes in growth, technology, customer needs, and government policies. Forecasting industry evolution is crucial for proactive strategic adjustments. For example, anticipating a shift towards cost-consciousness in an industry can prompt a firm to invest in process improvements. Analyzing industry trends can help a business identify emerging opportunities or threats.
5. What are the key strategic considerations in deciding whether or not to vertically integrate?
Vertical integration involves bringing different stages of the value chain within a single firm. The decision to vertically integrate should be based on a balance of potential benefits and costs. Benefits can include economies, better coordination, and access to technology. Costs include reduced flexibility and potential imbalances in capacity. For instance, a company might vertically integrate to secure access to a critical raw material or to improve control over distribution. However, integration can also limit a firm’s flexibility to adapt to changing technology or market conditions. Understanding these trade-offs is crucial.
1. What are the five forces that shape industry competition, and how can they be used to analyze industry profitability?
The five forces framework is the cornerstone of Porter’s analysis. These forces – the threat of new entrants, supplier and buyer power, the threat of substitutes, and rivalry among existing competitors – shape the competitive landscape. By understanding these forces, a business can identify its strategic opportunities and threats. For example, if supplier power is high, a company might consider vertical integration. If the threat of substitutes is significant, innovation and differentiation become crucial.
2. What are the three generic competitive strategies, and how can a company choose the right one?
Porter outlines three generic strategies: cost leadership, differentiation, and focus. Cost leadership involves becoming the lowest-cost producer. Differentiation involves offering a unique and valued product or service. Focus involves targeting a specific segment or niche. The choice of generic strategy depends on the firm’s resources and capabilities, as well as industry structure. For instance, a company with strong R&D capabilities might pursue a differentiation strategy, whereas a company with efficient production processes might pursue cost leadership.
3. What are the key components of competitor analysis, and how do they inform strategic decision-making?
Thorough competitor analysis requires considering their future goals, current strategy, assumptions, and capabilities. These factors help predict competitor reactions and shape strategic moves. For instance, knowing a competitor’s goals can help a firm anticipate their response to a price cut. Understanding their assumptions can uncover blind spots that could be exploited.
4. How do industries evolve, and what are the implications for competitive strategy?
Industries evolve through dynamic processes like changes in growth, technology, customer needs, and government policies. Forecasting industry evolution is crucial for proactive strategic adjustments. For example, anticipating a shift towards cost-consciousness in an industry can prompt a firm to invest in process improvements. Analyzing industry trends can help a business identify emerging opportunities or threats.
5. What are the key strategic considerations in deciding whether or not to vertically integrate?
Vertical integration involves bringing different stages of the value chain within a single firm. The decision to vertically integrate should be based on a balance of potential benefits and costs. Benefits can include economies, better coordination, and access to technology. Costs include reduced flexibility and potential imbalances in capacity. For instance, a company might vertically integrate to secure access to a critical raw material or to improve control over distribution. However, integration can also limit a firm’s flexibility to adapt to changing technology or market conditions. Understanding these trade-offs is crucial.
Key Takeaways
1. Focus can be a powerful competitive strategy, especially in fragmented or rapidly changing industries.
The focus strategy emphasizes serving a particular segment, customer group, or geographic market extremely well. This allows the firm to tailor its products and services to the specific needs of its target market, potentially achieving either differentiation or a cost advantage within that segment. In fragmented industries, focusing on a niche can provide a path to profitability even without achieving large market share. In rapidly changing industries, a focus strategy can enhance responsiveness to specific customer needs and preferences.
Practical Application:
An AI startup developing specialized chips for autonomous vehicles could apply the focus strategy by concentrating on a specific niche within the broader AI chip market. By tailoring its product development and marketing efforts to the unique needs of autonomous vehicle manufacturers, the startup can differentiate itself from larger, more general-purpose AI chip companies.
2. Capital barriers can be a powerful, though often underutilized, form of competitive advantage.
Capital requirements, particularly for risky or unrecoverable investments, can deter entry. Incumbents can exploit this by increasing the capital required to compete, making it difficult for newer entrants or smaller companies to challenge their market position. This is particularly effective in industries with high R&D costs or significant upfront investments in technology or infrastructure.
Practical Application:
A company like Google, with deep pockets, might try to create a capital barrier in the quantum computing industry by investing heavily in R&D and building large-scale facilities. This aggressive investment could deter smaller competitors or force them to find niche markets.
3. Creating switching costs can lock in customers and establish a sustainable competitive advantage.
Switching costs, or the one-time costs facing a buyer in switching to another supplier, lock the buyer to the seller’s product. This can create a significant advantage for incumbents. Strategies to encourage switching costs can include customizing products, offering specialized training, or building a comprehensive ecosystem around a product or platform. In the age of AI and software platforms, developing network effects that create switching costs is particularly important.
Practical Application:
An AI software company could create switching costs by integrating its products deeply into a customer’s workflow, offering specialized training, and developing custom features tailored to the client’s needs. These actions make it costly and disruptive for the customer to switch to a competing AI software provider. This can also lead to a virtuous cycle of learning about the customer and becoming ever more entrenched.
4. Social and political forces can have significant effects on industry structure and competition.
Social and political factors can impact industry competition. Regulations, social movements, and changing ethical norms can shape the competitive landscape. Companies should monitor and analyze these factors, considering their potential impact on industry dynamics, consumer preferences, and their own social license to operate. In the age of AI, addressing ethical considerations and building trust is particularly important for industry acceptance.
Practical Application:
An AI company developing facial recognition technology must consider the threat of deepfakes, which could undermine the utility and credibility of its product, and also consider social concerns about data privacy and potential misuse of the technology. Addressing these societal concerns and developing safeguards is crucial for the success of the business.
5. Preemptive strategies can secure an early lead, but they also carry a high degree of risk.
Preemptive moves are particularly powerful where demand or technology is known with certainty, where economies of scale are significant, and where the preempting firm has credibility. These moves can give a firm an early advantage and a large market share that can be hard to overcome. However, there is a risk of miscalculation of future demand, technology, or competitor behaviour, and the need to credibly signal the preemptive nature of the strategic move.
Practical Application:
In the fiercely competitive cloud computing market, an aggressive competitor like Oracle, with extensive resources, might make a preemptive move by investing heavily in capacity expansion ahead of demand. This creates a credible threat to competitors like AWS and Google, forcing them to respond in kind to maintain their market position and potentially leading to overcapacity in the industry. If the preemptor fails to credibly signal its intent, however, then this entire strategy can fail.
1. Focus can be a powerful competitive strategy, especially in fragmented or rapidly changing industries.
The focus strategy emphasizes serving a particular segment, customer group, or geographic market extremely well. This allows the firm to tailor its products and services to the specific needs of its target market, potentially achieving either differentiation or a cost advantage within that segment. In fragmented industries, focusing on a niche can provide a path to profitability even without achieving large market share. In rapidly changing industries, a focus strategy can enhance responsiveness to specific customer needs and preferences.
Practical Application:
An AI startup developing specialized chips for autonomous vehicles could apply the focus strategy by concentrating on a specific niche within the broader AI chip market. By tailoring its product development and marketing efforts to the unique needs of autonomous vehicle manufacturers, the startup can differentiate itself from larger, more general-purpose AI chip companies.
2. Capital barriers can be a powerful, though often underutilized, form of competitive advantage.
Capital requirements, particularly for risky or unrecoverable investments, can deter entry. Incumbents can exploit this by increasing the capital required to compete, making it difficult for newer entrants or smaller companies to challenge their market position. This is particularly effective in industries with high R&D costs or significant upfront investments in technology or infrastructure.
Practical Application:
A company like Google, with deep pockets, might try to create a capital barrier in the quantum computing industry by investing heavily in R&D and building large-scale facilities. This aggressive investment could deter smaller competitors or force them to find niche markets.
3. Creating switching costs can lock in customers and establish a sustainable competitive advantage.
Switching costs, or the one-time costs facing a buyer in switching to another supplier, lock the buyer to the seller’s product. This can create a significant advantage for incumbents. Strategies to encourage switching costs can include customizing products, offering specialized training, or building a comprehensive ecosystem around a product or platform. In the age of AI and software platforms, developing network effects that create switching costs is particularly important.
Practical Application:
An AI software company could create switching costs by integrating its products deeply into a customer’s workflow, offering specialized training, and developing custom features tailored to the client’s needs. These actions make it costly and disruptive for the customer to switch to a competing AI software provider. This can also lead to a virtuous cycle of learning about the customer and becoming ever more entrenched.
4. Social and political forces can have significant effects on industry structure and competition.
Social and political factors can impact industry competition. Regulations, social movements, and changing ethical norms can shape the competitive landscape. Companies should monitor and analyze these factors, considering their potential impact on industry dynamics, consumer preferences, and their own social license to operate. In the age of AI, addressing ethical considerations and building trust is particularly important for industry acceptance.
Practical Application:
An AI company developing facial recognition technology must consider the threat of deepfakes, which could undermine the utility and credibility of its product, and also consider social concerns about data privacy and potential misuse of the technology. Addressing these societal concerns and developing safeguards is crucial for the success of the business.
5. Preemptive strategies can secure an early lead, but they also carry a high degree of risk.
Preemptive moves are particularly powerful where demand or technology is known with certainty, where economies of scale are significant, and where the preempting firm has credibility. These moves can give a firm an early advantage and a large market share that can be hard to overcome. However, there is a risk of miscalculation of future demand, technology, or competitor behaviour, and the need to credibly signal the preemptive nature of the strategic move.
Practical Application:
In the fiercely competitive cloud computing market, an aggressive competitor like Oracle, with extensive resources, might make a preemptive move by investing heavily in capacity expansion ahead of demand. This creates a credible threat to competitors like AWS and Google, forcing them to respond in kind to maintain their market position and potentially leading to overcapacity in the industry. If the preemptor fails to credibly signal its intent, however, then this entire strategy can fail.
Suggested Deep Dive
Chapter: Chapter 3 - A Framework for Competitor Analysis
In today’s fast-paced technological landscape, AI product engineers must understand how to analyze their competition. This chapter offers tools and frameworks for effective competitor analysis that are particularly relevant to technology-driven businesses. This is relevant to the AI product engineer because such analysis plays a critical role in product development, marketing, and investment decisions in today’s highly competitive landscape.
Memorable Quotes
Chapter 1 - Threat of Entry. 5
The intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure and goes well beyond the behavior of current competitors.
Chapter 1 - Structural Analysis and Competitive Strategy. 29
An effective competitive strategy takes offensive or defensive action in order to create a défendable position against the five competitive forces.
Chapter 2 - Stuck in the Middle. 47
The firm stuck in the middle is almost guaranteed low profitability.
Chapter 5 - Commitment. 100
Perhaps the single most important concept in planning and executing offensive or defensive competitive moves is the concept of commitment.
Chapter 9 - Overcoming Fragmentation. 191
Overcoming fragmentation can be a very significant strategic opportunity.
Chapter 1 - Threat of Entry. 5
The intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure and goes well beyond the behavior of current competitors.
Chapter 1 - Structural Analysis and Competitive Strategy. 29
An effective competitive strategy takes offensive or defensive action in order to create a défendable position against the five competitive forces.
Chapter 2 - Stuck in the Middle. 47
The firm stuck in the middle is almost guaranteed low profitability.
Chapter 5 - Commitment. 100
Perhaps the single most important concept in planning and executing offensive or defensive competitive moves is the concept of commitment.
Chapter 9 - Overcoming Fragmentation. 191
Overcoming fragmentation can be a very significant strategic opportunity.
Comparative Analysis
In the realm of strategic management literature, ‘Competitive Strategy’ stands out for its rigorous, economics-based approach to industry analysis. Unlike earlier works that focused primarily on internal firm resources or later ones that emphasized dynamic capabilities, Porter’s framework anchors competitive advantage in the external environment. This contrasts, for example, with the resource-based view popularized by authors like Barney, which emphasizes internal resources as the source of competitive advantage. While acknowledging the role of internal resources and capabilities, Porter stresses that their value is ultimately determined by their alignment with the industry structure. Porter’s work complements the insights of authors like Grant, who emphasizes resource-based strategy, by providing a framework for understanding the external forces that shape the competitive landscape. ‘Competitive Strategy’ differs from ‘The Innovator’s Dilemma’ by Christensen, which analyzes disruptive innovation, in that Porter focuses on competitive advantage within an existing industry structure. In contrast to Kim and Mauborgne’s ‘Blue Ocean Strategy’, which focuses on creating uncontested markets, Porter analyzes competition within existing markets and industries.
Reflection
Porter’s ‘Competitive Strategy’ remains a landmark work in the field, providing a durable framework for understanding competition. Its lasting power stems from its focus on fundamental economic principles that transcend specific industries and technologies. While business practices and digital technologies have evolved dramatically since the book’s publication, the five forces framework continues to be relevant in analyzing industries and competitor behavior. A skeptic might argue that the pace of technological change and industry disruption renders Porter’s emphasis on structural analysis less relevant. Indeed, Porter himself has adapted his work over time to account for globalization and dynamic competitive behavior, as his later works like ‘On Competition’ discuss. However, even in the face of such change, the core principles of industry analysis remain relevant in understanding how value is created and divided, though the specific factors shaping those forces may shift. One weakness of the book is its limited treatment of non-market forces like government policy and social responsibility, which can have substantial effects on industry structure, a deficiency Porter partly addressed in later works. Nonetheless, ‘Competitive Strategy’ remains essential reading for any business leader or strategist seeking a deep understanding of how to achieve sustainable competitive advantage.
Flashcards
What are Porter’s Five Forces?
The five forces that shape competition are: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and rivalry among existing competitors.
What are the three generic competitive strategies?
Cost leadership, differentiation, and focus.
What are market signals?
Actions or announcements that provide direct or indirect indications of a competitor’s intentions, motives, goals, or internal situation.
What are the four components of competitor analysis?
Future Goals, Current Strategy, Assumptions, and Capabilities.
What are strategic groups?
Strategic groups are clusters of firms in an industry following the same or a similar strategy along the strategic dimensions.
What are mobility barriers?
Factors that inhibit the movement between strategic groups in an industry are mobility barriers.
What is strategic commitment?
Committing to a course of action in a way that makes it difficult to reverse. It communicates credible threats or promises to competitors.
What are exit barriers?
Factors that keep companies competing in an industry even if they are earning low or negative returns, due primarily to specialized assets and fixed exit costs.
What does it mean to be ‘stuck in the middle’?
A firm ‘stuck in the middle’ is one that attempts to be all things to all customers and is thus caught between the strategic imperatives of the low-cost, differentiation, and focus strategies.
What are Porter’s Five Forces?
The five forces that shape competition are: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and rivalry among existing competitors.
What are the three generic competitive strategies?
Cost leadership, differentiation, and focus.
What are market signals?
Actions or announcements that provide direct or indirect indications of a competitor’s intentions, motives, goals, or internal situation.
What are the four components of competitor analysis?
Future Goals, Current Strategy, Assumptions, and Capabilities.
What are strategic groups?
Strategic groups are clusters of firms in an industry following the same or a similar strategy along the strategic dimensions.
What are mobility barriers?
Factors that inhibit the movement between strategic groups in an industry are mobility barriers.
What is strategic commitment?
Committing to a course of action in a way that makes it difficult to reverse. It communicates credible threats or promises to competitors.
What are exit barriers?
Factors that keep companies competing in an industry even if they are earning low or negative returns, due primarily to specialized assets and fixed exit costs.
What does it mean to be ‘stuck in the middle’?
A firm ‘stuck in the middle’ is one that attempts to be all things to all customers and is thus caught between the strategic imperatives of the low-cost, differentiation, and focus strategies.