The Five Competitive Forces That Shape Strategy

What the five competitive forces are?
well tom sab the basic idea the competitive forces starts with the notion that competition is often looked at to narrowly by managers and the five forces say that yes you’re competing with your direct competitors but you’re also in a fight for profits with broader extended set of competitors customers who have bargaining power suppliers who can a bargaining power new entrants who might come in and try to grab a piece of the action and subsidy products or services that essentially play second straight or a cap on your profitability and growth so if i forces this kind of holistic way of looking at any industry and understanding the structural underlining drivers of profitability and competent so i use these to think about my rival makes it difficult for me the threat of substitutes means i can’t over tries to thread of u_n_ troops means i can’t over tired right and uh… and the same thing the same thing with the bottler barbosa plus an end to end it bears underlined drivers of each of those forces that the that the that the model really by sort unveils and then you can actually apply this every industries different every industry will have a different set of economic fundamentals but five courses help you home and on first of all what’s really causing profitability industry what are the trends of the most likely to be significant in changing the begin the gaming industry aren’t you know where are the constraints which www with which if you can relax and michael are you finding a
really strong competitive so how would you apply this analysis to
an industry their lives airlines is a great industry it’s
actually appeal you’ll see in the article you’ve seen in the article that
that there’s a chart that compares profitability industries and airlines i
think is been on the bottom of that list ford decades it’s per month that month least
profitable industries known to man and and five course is really good allows
you very quickly to understand why i mean let’s just let’s just go around the
go round the chart that nature of rivalry is incredibly intense and its
almost exclusively on price and it’s been very hard to differentiated get the customer to wait even an extra
two or three minutes for another flight if they can
get on the flight it cheaper price of his there’s been a very intense price
competition loaders gentry constant stream of new and airlines coming into
the industry despite the fact of the probability is low it it’s always pulls
me and i’m a very happy because you can rent a plane in the driveway either
elevating lisa gate you know it’s all generic technology obvi can’t you can start with one flight
between two city pairs you don’t have to you know there’s no real need to have a
whole networking beginning ob india people keep coming and i think
it’s just wear the sexy industry it’s a great example of how sexiness or coolness or hotness or sheet
miss has nothing to do with industry profitability it’s in the underlying
structure is what drives profitability argument the customer is very fickle and
price-sensitive suppliers of aircraft an aircraft engines and and even aircraft
dates set at airports that have a lot of clout they can bargain away and mart most of the profits of eunji
ian rolls-royce and and an airbus and boeing make a lot more
money than airlines they get most of the profit and then of course there’s always a
substitute of getting on the trainer driving your car or or rationing your goods by uh… by brian
are intend that so it’s kind of kept the content of
powerful supplier of labor two that are powered exactly here there’s a great
case where you had where you have unionized labor and and and in unlike other industries
in this it in this industry particularly the pilots the labor can literally shut
down and there’s no way around so it’s an industry where there are
spurts of of what you michael mediocre profitability of punctuated by long periods of
terrible profitability so every one of the five forces is very strong and that
indicate you could take another industry where the five forces are are relatively
benign almost like soft drinks i mean soft drinks has been a j license to to
make money and again it’s the opposite kind of analysis without when i talk with students we we
we kind of joke around their sears five-star industries were all the forces
are attractive like soft drinks zero star industries
where all the forces are in federal like airlines and and we’re always trying to understand
okay what’s the configuration of underlying economic drivers that’s going
to really shaped a proper financial of this industry and that armed with that insight uh… what do i do about and hackworth how do i try to relax the
constraint that’s holding back industry profitability how can i position myself the kind of
insulate some of the whether the gables gil winds
of those forces and those implications of the five
forces or something that this new article has developed in much more
detail you conceive this framework nearly three decades ago and has been
the most extensively used both in management scholarship in management
practice of any use of any strategy framework and it really is chief change
the definition of strategy in a lot of ways in these three decades one of hitler what have you learned
about the application of these ideas in in in the real world well uh… that that the wonderful thing
of course we learned is that that these these kinds of can be applied to literally any any street product a service
high-tech low-tech emerging economies developed economies sir indeed what what one of the powers of
the framework is it helps you get avoid getting tractor tricked by dot the latest render the latest
technological uh… sensation and really get allows you to focus on the
underlying fundamentals here it’s a good example we got very very confused by the
internet because people saw the internet as air force as
opposed to really enabling technology that would
that might might or might not impact the underlying structure the industry so so that right one thing i’ve learned is
is is the framework is is very very robust but i’ve also learned that there’s a lot of
uh… confusion and complexity actually applying the framework in in actual
practice in we tried to clear as many of those areas
up as we could in this new article are present i think about rivalry what
what’s the really how we understand when rivalry is really
positive sum which allows companies to they’d mio many comes to do well and
when this rivalry become really zero software where where everybody’s kind of
dragged down into kind of a destructive battle that you can’t win that’s ten
zero sum i mean if we get a price war the only one one who wins is the
consumer which a nice if you’re a consumer ya buck let’s play me but
positive some competition you know the trouble with the zero some competition
is then pick the coup because i think it’s a low price but they they’d be
really get no choice and and and a pos is some competitions were
companies can compete on different attributes a services teachers uh… customer support it’s actually relevant to particular
groups of customers and and the most really positive some competition is
where companies are really competing on different things in order to meet the
needs of different time there’s a piece for richard as business in fact one of
the things we talk about in the new article or anything didn’t article that that re really
probably didn’t have the experience to do so so many years ago was really talk
a lot about the implications if this is the way competition works what you do about it and one of them is might be in some
industries rather go for market share against your rivals you might be much better off just really
expanding the pie it spanning the whole profit pull the industry that may be the
best way for a market leader to actually improve their circumstances rather than
to trigger a destructive battle out you know with the head to head rival house
for the company news get would get started using the
five courses from marker working your strategy i think u_-boat decide this really works we have
to have you had begin well i think industry analysis in
looking at the competitive garment is of course probably be starting basic discipline
that any strategy formulation process we don’t know v lay out what your industry looks like
you know how it’s changing if you don’t know what the drivers competition are
inaez what do you know strategy’s going to be piano marginally useful if it’s not destructive so so we
got to start with industry analysis ibf figuring out what your industry it’s and
drawing the right down trees and that’s not always not always easy we’ve added a
a a box in this new article which really addresses that question because i i’d heard so many companies that
struggled with industry definition bob you know identifying really what the
industry structure is in in in your particular industry and then there’s another thing that that
a lot of energies debate they kind of go through the industry analysis and they
say okay this is dis is bad this is good this is bad so this is a attractive industry or an attractive
industry but of course the real proportion is housing industry changing dont summer believe taken the five forces has
really a static snapshot but of course the five forces give you
the tools for understanding the dynamics in wears an industry structure changing
power buyers and suppliers and substance and potential entry evolving and then what implications as a whole
for you or strategy how do you position
yourself that find that spot within the industry that
you’re at where you can command a really good profit given the five forces how can you may be reshaped the nature of the industry structure
we’ve got some great new examples that are very very contemporary in this
article that i i think will help the and manager community where in the in
the investor committee really understand application of this sometimes when
people think about strategy they think about a group of people may be from management
consulting firm or maybe on the thirty third floor of the building whatever is
but but the sort of and the strategy priesthood that goes in
and then does this end they’re almost divorced from the from from from the rest of the management of of of of
the come in the ninety nine percent of the other people working in the company how can how can a strategy become part of the
day-to-day life of a hover about about working stiff management company how do
you apply this framework this thinking i_b_m_’s well weekly but we think that this way
of looking at an industry needs to be very very broadly understood me
organization mean and the thing about it is is that the
debt managers even rank-and-file employees it’s intuitive people
understand that we have these customers really suppliers we’re struggling with an everyday trying
to they’re trying to get a better deal we’re trying to get a better deal so intuitively i think this is a way of
helping people sort of step from all the excruciating little details
that that that characterize any business and say what’s really important here and then and then of course we’ve
learned that strategy is completely useless again unless the results of the
strategy process the position that you choose to occupy the way you’re going to
drive your company is well understood quite broadly because
that the number one open purpose of strategy is aligned it’s
really to get all the people in the organization making good choices reinforcing each other’s toys is because
everybody’s pursuing a common value proposition a prom drum a book on the
way of gaining competitive image so uh… you know if hire a member when i
wrote this article uh… there are many people who believe that strategy
document should be locked in the safe at night and uh… i should not be made available
to the rank-and-file it it was a concern that some competitor would find some
secret well we’ve actually learn now that it’s the opposite you’ve got your your complains that i
know your strategy here channel septa your strategy or suppliers
have to know your strategy and your competitors avenue it already well it
and frankly if they had that you know again there’s been their competition is
not zero-sum if every company finds unique need that they can set out to
meet if it it is it’s tries to do for student deliver something different than
its rivals multiple rivals can be successful and and if your cub competitors kinda
understand what you stand for what you’re committed to maybe they’ll make a
difference release rather than get dragged into these kind
of mindless price wars that we see in some industries the five forces that
shape strategy have been around for thirty years they’re going to be around
for well they’ve been around they’ve been
around for what they were around long before you wrote about i’d say they’ve
been around as long as business has been around are going to be a long around as
long as business is around as view articles disciples and thank you
so much it well i’m not looking for do kinda getting another surge of feedback from the
practitioners and and and and what will will keep going