Industry attractiveness and structure has a strong influence on company performance. To determine the attractiveness, one needs to conduct an analysis to identify the threats and opportunities and to focus resources on developing unique capabilities that could lead to competitive advantage.
The essence of competitive strategy for a company is to find a position in its industry where it can best cope with Porters Five Forces or can influence them in its favour. Once the forces (suppliers, buyers, substitutes, potential entrants and rivalry), and their underlying drivers have been diagnosed, a company is in a position to identify its strengths and weaknesses relative to the industry norms (Grant, 2013). This helps a company’s positioning so that its capabilities provide the best defense against the existing array of competitive forces, influence the balance of the forces or anticipate and respond to shifts in competitive balance before rivals recognise it. Not all industries have equal potential. They differ fundamentally in their ultimate profit potential as the collective strength of the forces of competition differs. High growth industries tend to present better growth opportunities. Successful fast-growth businesses scan the environment to identify new threats as they emerge, taking a broad view of internal and external risk issues. Slow growth industries lead to an intense competition for market share, price competition, advertising battles, and hence reduced profitability.
The basic premise that underlies industry analysis is that the level of profitability is neither random nor the result of entirely industry-specific influences: it is determined by the systematic influences in the structure. When examining industry attractiv...
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...e the online gambling website of choice attracting younger tech savvy consumers. Resulting from a merger with a competitor, Betfair reduced the number of online rivals and went on to dominate the space overcoming up to 40 rival start ups.
Honda took the approach of moving into the US market and created a transformational change, where it was not a direct rival to the incumbent industry since Honda were not interested the larger ‘hogs’. Instead, they created a new market within the overall motorcycle industry with their small motorcycle. Thereby, they were able to gain share in an industry that had not existed previously.
In a world of more open competition and relentless change, it is more important than ever to reflect on industry structure and how to influence it. Influencing the structure helps create competitive advantage and increases industry attractiveness.
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
When testing if a corporate strategy is leading the company to success, there are techniques that can be used to project data collected from the company. Long term attractiveness, competitive strength, and the nine cell industry attractiveness/business strength matrix are used to highlight strategic positions of each business in a diversified company. The industry attractiveness gages the prospects for long-term performance. Competitive strength measures how strong the units are positioned in a business in their industry. Lastly, the nine cell industry attractiveness/business strength matrix merges information on attractiveness and competitiveness to show where in the industry does a unit fit when it comes to long-term success. Walt Disney
The industry environment has a more significant effect on the firm’s strategic actions. By five forces analysis including threat of entry, the power of suppliers, the power of buyers, product substitutes and the intensity of rivalry among competitors, AT&T is to find its position in the industry. Mentioned before the company acts as the first mover in lots of segments of the industry environment it is competing in. Having an intensive rivalry because of the speedly developing high tech requirements of the environment and the R&D forces of the leader companies, new entrants are discouraged. Late movers have commonly less chance to be able to compete and gain advantage over to companies such as AT&T and its competitors.
There are two reasons why a firm may perform well in an industry, either 1) the industry is attractive to any firm 2) the firm is better and outperforms it’s rivals. Porter’s theory therefore can be used to discover the markets that are attractive to firms or, in those which aren’t breaking down the five forces so a strategy for success can be developed. In general the firm with be more profitable if each of the forces is low, that is to say there is a low threat of new firms entering, if buyers and suppliers have little power over the firm, if there is a low threat from substitute products and if competitive rivalry is low.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.
Because the subject matter of strategic management is so inherently complex and because each one of us brings his own personal biases to the analysis, it was suggested early on that virtually all case material in the field be analyzed from the perspective of more than one methodology. Profit theory and industrial chains were selected as the first of a number of viable approaches to the analytical process. It would have been equally correct to select the Five Competitive Forces analysis refined by Michael Porter, one of the major figures in the field of strategic management. This methodology addresses the same issues but differs only in the language that they use to describe corporate behavior. The five forces are:
Harley Davidson is known as one of the main motorcycle manufacturers and sellers in the United States. The company had good business and great market share in the early 1960s when it commanded a total of about 70% 0f the motorcycle market, before the invasion or the intrusion of a small Japanese firm that manufactured lighter motorcycles, known as the Honda. The case study as identifies that Harley Davidson assumed the invasion by the Japanese firm and instead of tackling the competition, it waited for a long time which resulted in the company losing its command in the motorcycle market in the United States. Lack of action by the management of Harley Davidson resulted in the failure of the company which saw it being sold to AMF, an American company although it was later bought by Beals.
The Porter five forces model (see Appendix 1) as an external analysis tool was established by Michael E. Porter and firstly announced in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980 . The main idea of the Porter five forces concept is that the attractiveness of a market depends on the characteristic of the five competitive forces that have an impact on a company (see Appendix 2).
“An industrial organization is a field of economics dealing with the strategic behavior of firms, regulatory policy, antitrust policy and market competition” (Industrial, 2012). The I/O model helps a business understand it has outside forces or external environment such as opportunities in the market and also any threats that are important to be aware of. The Model includes: The External Environment, An Attractive Industry, Strategy Formulation, Assets and Skills, Strategy Implementation, and Superior Returns (Hitts, Ireland, & Hoskisson, 2003, p. 15). The I/O model follows Michael Porters Five Forces but adds the additional
3. Analyze BP using the five forces of competition model to determine the industries current attractiveness in terms of profits potential
of a firm to attain new forms of competitive advantage (Müller, 2011). It is due to these
Ensign PC 2004, ‘A resource based view of interrelationships among organizational groups in the diversified firms’, Strategic Change, Vol. 13. pp. 125-137.
Porter’s five forces is a framework for analyzing an industry and business strategy development. It looks at forces that determine the competitive intensity of an industry and hence the overall attractiveness of that industry. The configuration of the five forces differs by industry. Understanding the competitive forces and their underlying causes reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition over time.
In order for a firm to compete within its industry, it must plan and relate to the industry