How Competitive Forces Shape Strategy
by Michael E. Porter
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Book Summary Information
Author: Michael E. PorterEdition: Digital
Format: Download: PDF
Published: 1979-03-01
ISBN: N/A
Number of pages: 10
Publisher: Harvard Business Review
Book Reviews of How Competitive Forces Shape Strategy
Book Review: How Competitive Forces Shape Strategy
Summary: 5 Stars
Michael Porter is a guru on competition and strategic planning. His article "How Competitive Forces Shape Strategy" is so powerful and incisive that any serious manager wishing to devise strategies to cope with competition in his/her industry needs to read, understand and be fully conversant with the five basic forces which Porter states determines the state of competition in an industry.
According to Porter, competition in an industry is rooted in its underlying economics. There are forces that go beyond the established rivals in a particular industry. The five forces are:
* The bargaining power of customers
* The bargaining power of suppliers
* The threats of new entrants
* The threat of substitute products and services
* Rivalry among the existing competitors.
The collective strengths of the five forces determine the ultimate profit potential of an industry. The task of the corporate strategist is to find a position in the industry where his/her company can best defend itself against the forces or can influence them in his favour. The strongest competitive force or forces determine the profitability of an industry and these are very essential in strategy formulation.
Every industry has an underlying structure that give rise to the five competitive forces. The strategist needs to know what drives the industry if he/she is to position the firm to effectively cope with the environment or influence the environment.
After assessing the forces affecting competition in an industry and their underlying causes, the strategic planner can identify the company's strengths and weaknesses. Strategy can be viewed as building defences against the competitive forces or finding positions in the industry where the forces are weakest.
This is an excellent article which is well presented. It is recommended reading for managers as it will certainly assist them in analysing competitive forces in their industry. I also recommend the article to students studying management, business studies or doing and MBA.
Summary of How Competitive Forces Shape Strategy
Many factors determine the nature of competition, including not only rivals, but also the economics of particular industries, new entrants, the bargaining power of customers and suppliers, and the threat of substitute services or products. A strategic plan of action based on this might include: positioning the company so that its capabilities provide the best defense against the competitive forces; influencing the balance of forces through strategic moves; and anticipating shifts in the factors underlying competitive forces. McKinsey Award Winner.Many factors determine the nature of competition, including not only rivals, but also the economics of particular industries, new entrants, the bargaining power of customers and suppliers, and the threat of substitute services or products. A strategic plan of action based on this might include: positioning the company so that its capabilities provide the best defense against the competitive forces; influencing the balance of forces through strategic moves; and anticipating shifts in the factors underlying competitive forces. McKinsey Award Winner.
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