Highlight from Competitive Strategy - By Michael E. Porter
Now nearing its 60th printing in English and translated into nineteen languages, Michael E. Porter’s Competitive Strategy has transformed the theory, practice, and teaching of business strategy throughout the world. Electrifying in its simplicity — like all great breakthroughs…. More than a million managers in both large and small companies, investment analysts, consultants, students, and scholars throughout the world have internalized Porter’s ideas and applied them to assess industries, understand competitors,, and choose competitive positions.
Companies achieve a competitive advantage based cost leadership, differentiation, or focus:
- Cost Leadership: The cost leader is the firm that provides a product for the lowest cost.
- Differentiation: A differentiated product is a product is superior from the competitors’ products.
- Focus: A focused strategy is a niche strategy. Large companies can choose not to or overlook small niches, creating opportunities for others. A firm can focus on a narrow segment of a larger market, assuming they can better service the segment. The customers in the focused segments have tailored requirements.
A business strategy should be developed and executed upon based on an in-depth understanding of its owns environment and that of its industry. There are five underlying factors that affect an industry and firm’s profitability:
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitute products or services
- Rivalry among existing competitors
When conducting a competitive analysis, the following questions are important:
- What are the focus areas and goals of your competitors?
- What are your comparative strengths & weaknesses?
- Is the competitor complacent and content with its position in the industry?
- What will the competitor do if something threatens its position?
- What are the competitor’s weaknesses?
- What would spur the competitor to aggressive countermeasures?
- Annual Reports
- Competitor announcement of intent
- Competitor announcement of accomplishment
- Industry comments & gossip
- Competitor past patterns
- Competitor advertising
- Brand fighting
You need to learn how to anticipate what your competitors are likely to do. Sources of information include: