Porter Explained

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Submitted By rbansal12
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Michael Porter presented three generic strategies (above) that a firm can use to overcome the five forces and achieve competitive advantage. Firms that identify with one or more of the forms of competitive advantage that Porter identified outperform those that do not and firms that combing multiple forms outperform those that only use one.

Overall Cost Leadership
The first generic strategy is overall cost leadership. Cost leadership requires a tight set of interrelated efforts that include:
- Aggressive construction of efficient-scale facilities
- Vigorous pursuit of cost reductions from experience
- Tight cost and overhead control
- Avoidance of marginal customer accounts
- Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising

The value-chain concept can be used as an analytical tool to identify specific activities and the costs and assets associated with them. Two important concepts related to the overall cost leadership strategy are economies of scale (the decline in unit costs that usually come with larger production runs, larger facilities, and allocating fixed costs across more units produced) and the experience curve (how the business “learns” to lower costs as it gains experience with production processes; with experience, unit costs of production decline in most industries as output increases).

Overall Cost Leadership: Improving Competitive Position vis-à-vis the Five Forces
- Enables a firm to achieve above-average returns despite strong competition
- Protects a firm against rivalry from competitors because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry
- Protects a firm against powerful buyers (buyers can drive down prices only to the next most efficient producer)
- Provides more flexibility to cope with demands…...

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...Several commentators have questioned the use of generic strategies claiming they lack specificity, lack flexibility, and are limiting. Porter stressed the idea that only one strategy should be adopted by a firm and failure to do so will result in “stuck in the middle” scenario.[3] He discussed the idea that practising more than one strategy will lose the entire focus of the organisation hence clear direction of the future trajectory could not be established. The argument is based on the fundamental that differentiation will incur costs to the firm which clearly contradicts with the basis of low cost strategy and on the other hand relatively standardised products with features acceptable to many customers will not carry any differentiation[4] hence, cost leadership and differentiation strategy will be mutually exclusive.[3] Two focal objectives of low cost leadership and differentiation clash with each other resulting in no proper direction for a firm. In particular, Miller[5] questions the notion of being "caught in the middle". He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded. According to Baden-Fuller and Stopford (1992) the most successful companies are the ones that can resolve what they call "the dilemma of opposites". A popular post-Porter model was presented by W. Chan Kim and Renée Mauborgne in their 1999 Harvard Business Review article "Creating New Market......

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...Porters The Airline is one of the major industries in the world today and is majorly affected by Michael Porter's "Five Forces" model. The following write up conducts an analysis on how the model affects the airline industry today. The central force of Porter's model is Internal Rivalry within the Industry. In case of the Airline industry, this is the most important force today, especially since the market is completely saturated. There are more service providers than needed in both local as well as international markets. The various airlines are competing for the same customer, which also results in strengthening the buyer power, another of Porter's forces. Moreover, a lot of airlines such as Qatar Airways and Emirates have a brand name which they have to defend so they compete in doing so. The airlines are continually competing against each other in terms of prices, technology, in-flight entertainment, customer services and many more areas. The net result of this competition between companies is an overall slow market growth rate. One of the forces that Porter describes is Entry into the industry. In the world today, the airline industry is so saturated that there is hardly space for a newcomer even to squeeze its way in. The biggest for this is the cost of entry. The airline industry is one of the most expensive industries, due to the cost of buying and leasing aircrafts, safety and security measures, customer service and manpower. Another major barrier to entry is......

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...hiding in in the daze of the average American's prideful ignorance. Porter, thank you for inspiring me to learn about such important issues and to motivate me to be part of solution. I love the Black Label shows, and definitely think that our society is overly concerned about political correctness. I have also seen many examples of fundamentalist people that are bat-shit crazy and usually very hypocritical as well. In college I dated my good friend’s younger sister who came from a very Southern Baptist family. I hated the big lunches after church where each little clique would gather and talk shit about the current gossip amongst the congregation. She ended up getting pregnant, and wouldn’t you know it, her Southern Baptist parents convinced their 21 year old daughter to have an abortion after preaching against it her whole life. I think that basic moral corruption is correlated to why everything has to be so politically correct now days. Any controversial statement hits some group too close to home, and the attack on their house of cards makes them defensive. Unfortunately, the majority of Americans live under a veil of convenient morals and shameful ignorance that allow the widespread decay of this country to remain hiding in the shadows. Keep up the Porter rants; they make me contemplate issues that I normally wouldn’t give any thought to. I have a couple questions from some things that Porter has stated in the past that I needed more information to be......

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...Porter five forces analysis is a framework for industry analysis and business strategy development. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit. Three of Porter's five forces refer to competition from external sources. The remainder are internal threats. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to...

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...Cuáles son las 5 fuerzas de PORTER? • Amenazas de los nuevos competidores • Rivalidad entre competidores • Poder de negociación de los clientes • Poder de negociación de los productos • Amenazas de productos y servicios sustitutos ¿Cómo interactúan unas con otras? Pienso que las 5 forman una liga que te va llevando una a la otra como consecuencia, formando una estructura de información que te lleva cada una ser complementada a la otra. ¿Porque las aerolíneas son una gran industria? Porque en realidad a pesar de que se menciona que está debajo de la lista de rentabilidad que se menciona, por ser menos rentables, pero las barrera de entrada son bajas por lo que incluso uno no tiene que comprar en si los aviones, los puede rentar, se puede comenzar con dos vuelos ya que no necesitas un comienzo rápido, y se menciona que es una tendencia de empresa, como algo moderno. ¿De qué manera puedes cuantificar esta evaluación? En base a variables que fundamenten cada fuerza y se les puede asignar porcentajes los cuales al sumarlos te dé un resultado porcentual donde puedas entenderlo numéricamente. ¿Qué variables utilizarías para cada una de las fuerzas de PORTER? • Amenazas de los nuevos competidores: variables referentes a barreras de entrada y acceso a canales de distribución. • Rivalidad entre competidores: todo lo referente a la industria en particular, como amenazas de proveedores, competidores, etc. • Poder de negociación de los clientes: se pueden utilizar......

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...of Oxford, Oxford OX1 5NY, UK c Solvay Business School, University of Brussels (V.U.B.), Brussels, Belgium Abstract Globalization is very important for small economies such as Korea and Singapore. The single diamond model (Porter, 1990, The competitive advantage of nations) suggests some important determinants for a nation’s global competitiveness. However, this model is incomplete, mainly because it does not incorporate multinational activities. A new approach, the generalized double diamond model (Moon et al., 1995, in Research in global strategic management: Volume 5: Beyond the diamond) offers some important extensions to Porter’s original model. To test the validity of these two models this paper evaluates relevant data for both domestic and international variables in the case of Korea and Singapore. The results generally support the generalized double diamond model © 1998 Elsevier Science Ltd. All rights reserved. Keywords: International competitiveness; Double diamond; Porter’s single diamond; Korea; Singapore; Small open economies 1. Introduction In his famous book, The competitive advantage of nations, Porter (1990) studied eight developed countries and two newly industrialized countries (NICs). The latter two are Korea and Singapore. Porter is quite optimistic about the future of the Korean * Corresponding author. Tel.: (82-2) 880-8518; fax: (82-2) 886-6303; e-mail: cmoon@gias.snu.ac.kr 0969-5931/98/$19.00 © 1998 Elsevier Science Ltd. All rights reserved.......

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...at a number of important opportunities for using Porter’s model in an even more practical way, including: mapping the competitive forces, which can vary significantly over market and competitive terrain and within the same industry; understanding its dynamics; prioritizing the forces; doing macro analysis of the sub-drivers of each of the five forces; exploring key interdependencies, both between and within each force. Copyright © 2006 John Wiley & Sons, Ltd. Introduction When Michael Porter conceived the five competitive forces model, it propelled strategic management to the very heart of the management agenda. The framework became a centrepiece of texts on business strategy and strategic management, and essential examination material on MBA and similar courses globally. But what has become of his original five competitive forces? It would appear to be the case that not a great deal has occurred to develop this thinking since the early 1980s (except, perhaps, for Hamel and Prahalad, 1994). Porter appears to have been more inter- ested in taking his concepts to an even more macro level, particularly to the competitive advantage of countries, rather than to micro economics. Porter’s model, whilst it has done extremely well in occupying textbook space, does not seem to have captured the imagination of other theorists. In contrast with the resource-based theory of competitive advantage, which has spawned a considerable literature, it seems to have become, as it were, frozen......

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...Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organization. This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organization’s current competitive position, and the strength of a position that an organization may look to move into. Strategic analysts often use Porter’s five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes. Porter’s five forces of competitive position analysis: The five forces are: 1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each essential input, uniqueness of their product or service, relative size and strength of the supplier, and cost of switching from one supplier to another. 2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the number of buyers in the market, importance of each individual buyer to the organization, and cost to the buyer of......

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...Universidad Católica Santiago de Guayaquil Integrantes: * Kimberly Pérez * Nairobi Rosero * Vanessa Álvarez * Mónica Plúas Las fuerzas de Porter 1. Amenaza de entrada de nuevos competidores Holcim es una empresa muy beneficiada en el mercado ecuatoriano ya que es una de las pocas empresas en dicho país, por tal motivo se ve afectada por la entrada de nuevas empresas para aprovechar las oportunidades que ofrece el mismo y así aumentará la competencia y bajará la rentabilidad, lo que no es muy conveniente para una cementera como esta, pero en el mercado también existen las barreras de entrada lo que ayuda a la protección de empresas que ya han salido al mercado a. Economías a escala Se hace referencia al costo unitario de la cementera, Holcim produce a gran escala, esto impide que nuevas empresas ingresen con facilidad al sector ya que si entra con lotes de producción pequeños su costo unitario será demasiado alto y no podrá competir. b. Curva de experiencia Esta es una gran ventaja para Holcim ya que lleva mucho tiempo en el mercado y conoce perfectamente los procesos, controles, gestiones, etc. Nuestra experiencia no ayuda a manejar la empresa y ser la diferencia de futuros competidores. c. Ventajas absolutas en costo En una fortaleza para Holcim ya que tiene experiencia y lleva la delantera en costos de materia prima, transportes, etc. d. Diferenciación del producto Es decir el cemento que ofrecemos debe de ser......

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...than others… …but how do you tell them apart? @strategywrap strategywrap.com Leave it to gut feel? @strategywrap strategywrap.com Leave it to gut feel? @strategywrap strategywrap.com 1 27 990 91 7.50 13,450 89 Get stuck in to some analysis? @strategywrap strategywrap.com 1 27 990 91 7.50 13,450 89 Get stuck in to some analysis? @strategywrap strategywrap.com Whether you are…  Working on a plan for a new business  Contemplating the launch of a new product  Reviewing the strength of your own marketplace @strategywrap strategywrap.com …Porter’s Five Forces model can help you understand your situation. This model was developed more than 30 years ago by Michael Porter, a Harvard academic. However, it remains as relevant today as it was when it was developed. @strategywrap strategywrap.com Porter’s Five Forces model Threat of new entrant Supplier power Competitive rivalry Buyer power Threat of substitutes @strategywrap strategywrap.com Let’s take each of the five elements… buyer power @strategywrap How much power is held by the customer?  How many customers are there and how many customers does a typical player have?  How much market share do the largest customers account for?  What alternatives do customers have? strategywrap.com Let’s take each of the five elements… supplier power @strategywrap How much power do suppliers......

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...competition. One way to answer those questions is by using Porter's Five Forces model. Originally developed by Harvard Business School's Michael E. Porter in 1979, the five forces model looks at five specific factors that help determine whether or not a business can be profitable, based on other businesses in the 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 (and profitability) over time," Porter wrote in a Harvard Business Review article. "A healthy industry structure should be as much a competitive concern to strategists as their company’s own position." According to Porter, the origin of profitability is identical regardless of industry. In that light, industry structure is what ultimately drives competition and profitability —not whether an industry produces a product or service, is emerging or mature, high-tech or low-tech, regulated or unregulated. "If the forces are intense, as they are in such industries as airlines, textiles, and hotels, almost no company earns attractive returns on investment," Porter wrote. "If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies are profitable." Understanding the Five Forces Porter regarded understanding both the competitive forces and the overall industry structure as crucial for effective strategic......

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...of Nations Michael E. Porter Harvard Business Review 90211 HBR MARCH±APRIL 1990 The Competitive Advantage of Nations Michael E. Porter National prosperity is created, not inherited. It does not grow out of a country's natural endowments, its labor pool, its interest rates, or its currency's value, as classical economics insists. A nation's competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world's best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers. In a world of increasingly global competition, nations have become more, not less, important. As the basis of competition has shifted more and more to the creation and assimilation of knowledge, the role of the nation has grown. Competitive advantage is created and sustained through a highly localized process. Differences in national values, culture, economic structures, institutions, and histories all contribute to competitive success. There are striking differences in the patterns of competitiveness in every country; no nation can or will be competitive in every or even most industries. Ultimately, nations succeed in particular industries because their home environment is the most forward-looking, dynamic, and challenging. These conclusions, the product of a four-year study Harvard Business School professor Michael E. Porter is the author of......

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...PORTER’S FIVE FORCES MODEL Porter identified five competitive forces that shape every single industry and market. These forces help us to analyze everything from the intensity of competition to the profitability and attractiveness of an industry. It has become a frequently used tool for analyzing a company's industry structure and its corporate strategy. Factors associated with industry structure have been found to play a dominant role in the performance of many companies, with the exception of those that are its notable leaders or failures. As such, one needs to understand these factors at the outset before delving into the characteristics of a specific firm. Michael Porter, a leading authority on industry analysis, proposed a systematic means of analyzing the potential profitability of firms in an industry known as Porter’s “five forces” model. According to Porter, an industry’s overall profitability, which is the combined profits of all competitors, depends on five basic competitive forces. • Intensity of rivalry among incumbent firms • Threat of new competitors entering the industry • Threat of substitute products or services • Bargaining power of buyers • Bargaining power of suppliers Figure here shows the relationship between the different competitive forces. THREAT OF NEW ENTRANTS The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new......

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