Competitive Strategy

MBA-Day
 Context in which Competitive Strategy is Formulated

Company Industry
S&W O&T

External
Internal factors
Competitive
factors
strategy

Personal Broader
Values of Societal
C.E.O. Expectations
Process for formulating C.S.
 What is the business doing now?
-identification, implied assumptions
 What is happening in the environment?

-industry analysis, competitor analysis,

societal analysis, strengths & weaknesses
 What should the business be doing?

-tests of assumptions and strategy,strategic

alternatives, strategic choice
The Structural Analysis of
Industries:
 The 5-forces model
 Michael E. Porter
 Potential Entrants
Potential entrants

Threat of
new entrants

Bargaining Industry Competitors

Power of
buyers
Buyers
suppliers
Suppliers suppliers
Bargaining power
Rivalry among of buyers
Existing firms

Threat of substitute
products &services

substitutes
Substitutes
Threat of New Entry—Barriers to
entry
 Economies of scale
 Product differentiation
 Capital requirements
 Switching costs
 Access to distribution channels
 Cost disadvantages independent of scale
 Government policy
Barriers to entry
 Expected retaliation
 The entry deterring price
Intensity of Rivalry among
existing competitors
 Numerous or equally balanced
competitors
 Slow industry growth
 High fixed or storage costs
 Lack of differentiation or switching costs
 Capacity augmented in large increments
Intensity of Rivalry….
 High strategic stakes
 High exit barriers
Pressure from substitute products
 Advantageous price-performance tradeoff
with industry’s product
 Substitute’s industries earning high profits
Bargaining Power of Buyers
 It is concentrated or purchases large
volumes relative to seller sales
 The products it purchases from the
industry represent a significant fraction of
the buyer’s costs or purchases
 The product it purchases from the industry
are standard or undifferentiated
 It faces few switching costs
Bargaining Power of buyers….
 It earns low profits
 Buyers pose a credible threat of backward
integration
 The industry’s product is unimportant to
the quality of the buyers’ product or
services
 The buyer has full information
Bargaining Power of Suppliers
 Dominated by few cos. and is more conc.
than the industry it sells to
 It is not obliged to contend with substitutes
 The industry is not an imp. customer of the
supplier group
 The supplier’s product is an imp. input to
the buyer’s business
Bargaining power of suppliers-----
 The supplier’s products are differentiated
or it has built up switching costs
 The supplier group poses a credible threat
of forward integration