Implications for Strategy PDF

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Implications for Strategy: Every company should already know what the average profitability of its industry is and how it has been changing over time. The 5 forces reveal why industry profitability is what it is – then can incorporate their strategy. Can identify - Where does the company stand versus buyers, supplier, entrants, rivals and substitutes? - Firms can position themselves to better cope with competitive forces, anticipating shifts in forces and look to exploit them - Analyse entry and exit – exit is indicated when industry structure is poor or declining and the company has no prospect of a superior positioning. - Exploit industry change e.g. the evolution of the music industry – with internet boom and digital distribution of music, some analysts predicted the birth of thousands of music labels and stop the domination of 6 big large record companies, reducing barriers to entry and unleash flood of new player to the music industry. Careful analysis could have meant that large existing firms could have made arrangements with radio stations and record stores access to well-known artists in exchange for promotion of new artists Differences in the 5 competitive forces also reveal the geographical scope of competition. If an industry has a similar structure in every country (rivals, buyers, etc.), the presumption is that competition is global and the 5 five forces analysed from a global perspective will set average profitability. If an industry has quite different structures in geographic regions, each region may be a distinct industry.

The extent of differences in the 5 forces for related products or across geographic areas is a matter of degree, making industry definition often a matter of judgement. Careful 5 forces analyses should reveal important competitive threats. The strategists gaol is to reduce the share of profits that leak to suppliers, buyers. And substitutes or are sacrificed to deter entrants! E.g. to neutralize supplier power a firm can standardize specifications for parts to make it easier to switch among suppliers. To counter customer power, firms may expand services that raise buyers’ switching costs. To reduce rivalry could invest more heavily in unique products or expand support services to customers. To scare of entrant’s firms can elevate fixed costs of competing e.g. increase R&D or marketing expenditures. To limit threat of substitutes, firms can offer better value through new features. Expanding the overall profit pool – when overall demand grows, the industry’s quality level rises, costs are reduced and waste is eliminated. The total pool of value available to competitors, suppliers, and buyers grows = creates win-win opportunities for multiple industry participates....