Understanding Industry Culture (Michael Porter)

1. What is the essence of the job of a strategist?
2. What are the 5 basic competitive forces of an industry?
 Threat of new entrants
 Bargaining Power of Customers
 Bargaining Power of Suppliers
 Threat of substitutes
 Competition from other players / competitors
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3. What are the barriers to entry?
[Supply side economies of scale, Demand side benefits of scale, customer switching costs, capital requirements, restrictive govt policy, unequal access to distribution channels]

4. Power of suppliers:
{Bargaining power prices, shifting costs downstream, limiting quality of goods/services, supplier offers differentiated products, and buyer is dependent on supplier

5. Power of Customers : (corporate customers and consumers)

6. Threat of substitutes: A substitute performs the same or similar functions as an industry’s product =- but by a different means. [Substitutes limit profits and constrain the size of an industry. Some are subject to trends improving price/performance. Substitutes drive fierce competition.

7.
8. Rivalry from competitors: [Price discounting, new product introductions, advertising campaigns, service escalation – different value proposition}
 Intensity of competitive rivalry can undermine an industry’s profit potential. The degree to which this can happen depends first on the bases on which the companies compete and on the intensity with which they do so.
Price is typically the most destructive basis of competition for industry profitability. Price reduction transfers profits from an industry to customer savings in the hands of customers. Price wars are common in cases where there’s not much differentiation, switching costs are similar for all competitors, buyers can shift to different vendors or products, fixed costs are high and marginal cost are low.
Intensity of competition is great where there are numerous competitors, industry growth is slow, exit barriers are high, and rivals are committed to the business
9. What are complements and how do they affect industries?
Note: Effective strategist look for opportunities to alter conditions in complementary industries in their favor, by boosting demand, improving overall structure or advancing a firms standing within its industries.
10. What are the implications of Industry Structure – for strategists
 Industry structure provides a baseline for sizing up a company’s strengths and weaknesses. It guides managers toward possibilities for strategic action – including1. Positioning the company vis-à-vis the current competitive forces, 2, anticipating shifts in the forces and exploiting them, 3., shaping the balance of forces to create a new, more favorable structure or on that favors the company
Industry structure thinking reveals differences in customers, suppliers, substitutes, potential entrants and rivals that demark distinct competitive arenas in which distinct strategies are needed. It’s important to thing structurally about competition.