Lezioni, Corporate Strategy

MICHAEL(PORTER(

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The! configuration! of! the! 5! forces!

differs! by! industry.! For! example! in!

the!movie!theater!the!proliferation!

of! substitute! forms! of!

entertainment! and! the! power! of!

the! movie! producers! and!

distributors!who!supply!movies!are!

important.!!

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Threat(of(entry(

New! entrants! to! an! industry! bring!

new! capacity! and! a! desire! to! gain!

mkt! share! that! puts! pressure! on!

prices,! costs,! and! the! rate! of!

investment!necessary!to!compete.!!

The! threat! of! entry! puts! a! cap! on!

the!profit!potential!of!an!industry.!!

When! threat! is! high,! incumbents!

must! hold! down! their! prices! or!

boost!investment!to!deter!new!competitors.!The!threat!of!entry!depends!on!the!height!(altezza)!of!entry!

barriers!that!are!present!and!on!the!reaction!entrants!can!expect!from!incumbents.!!

If!barriers!are!low!and!newcomers!expect!little!retaliation!from!the!entrenched!competitors,!the!threat!of!

entry!is!high!and!industry!profitability!is!moderated.!!

It’)s)the)threat)of)entry,)not)whether)the)entry)actually)occurs,)that)holds)down)profitability.))

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Barriers)to)entry:)

) 1. Supply!side!economies!of!scale:!these!economies!arise!when!firms!that!produce!at!larger!volumes!

enjoy! lower! costs! per! unit! bc! they! can! spread! fixed! costs! over! more! units,! eploy! more! efficient!

techno! or! command! better! terms! from! suppliers.! They! force! new! entrants! to! come! into! the!

industry!on!a!large!scale!or!with!a!cost!disadvantage.!!

! 2. Dd!side!benefits!of!scale:!(network!effects)!the!buyer’s!willingness!to!pay!for!a!company’s!product!

increases! with! the! number! of! other! buyers! who! also! patronize! the! company.! Nuyers! may! trust!

larger!companies!more!for!a!crucial!product.!

! 3. Customer!switching!costs:!these!costs!are!fixed!costs!that!buyers!face!when!they!change!suppliers.!

The!larger!the!switching!costs,!the!harder!it!will!be!for!an!entrant!to!gain!customers.!!

Enterprise!resource!planning!(ERP)!software!is!an!ex!of!a!product!with!very!high!switching!costs!bc!

of!new!training,!data!inside!and!so!on.!!

! 4. Capital! requirements:! the! need! to! invest! large! financial! resources! in! order! to! compete! can! deter!

new!entrants.!!

! 5. Incumbency! adv! independent! of! size:! no! matter! what! their! size,! incumbents! may! have! cost! or!

quality! adv! not! available! to! potential! rivals.! For! example:! preferential! access! to! the! best! raw!

material! sources! preemption! of! the! most! favorable! geographic! locations,! established! brand!

identities!etc.!

! 6. Unequal!access!to!distribution!channels:!the!new!entrats!must!secure!distribution!of!its!product!or!

service.! Sometimes! access! to! distribution! is! so! high! a! barrier! that! new! entrants! must! byvass!

distribution!channels!altogether!or!create!their!own.!!

! 7. Restrictive!government!policy:!gvnt!policies!can!hinder!or!aid!new!entry!directly,!as!well!as!amplify!

(or! nullify)! the! other! entry! barriers.! Gvnmt! directly! limits! or! even! forecloses! entry! into! industries!

though,!for!instance,!licensing!requirements!and!restrictions!on!foreign!investments.!!

Regulated!industries!like!liquor!retailing,!taxi!services!and!airlines!are!visible!examples.!!

Of!course,!gvm!policies!may!also!make!entry!easier!through!subsidies!for!example.!! !

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Expected)retaliation:)

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How!potential!entrants!believe!incumbents!may!react!will!also!influence!their!decision!to!enter!or!stay!out!

of!an!industry.!!

Newcomers!are!likely!to!fear!expected!retaliation!if!

R Incumbents!have!previously!responded!vigorously!to!new!entrants!

R Incumbents!possess!substantial!resources!to!fight!back!

R Inc.!seem!likely!to!cut!p!bc!they!are!committed!to!retaining!mkt!share!at!all!costs!or!bc!the!industry!

has!high!fixed!costs!which!create!a!strong!motivation!to!drop!p!to!fill!excess!capacity!

R Industry!g!is!slow!so!newcomers!can!gain!volume!only!by!taking!it!from!incumbents.!!

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The(power(of(suppliers(

Powerful!suppliers!capture!more!of!the!value!for!themselves!by!charging!higher!prices,!limiting!quality!or!

services!or!shifting!costs!to!industry!participants.!!

Companies!depend!on!a!wide!range!of!different!supplier!groups!for!inputs.!

A!supplier!group!is!powerful!if:!

R It’s!more!concentrated!than!the!industry!it!sells!to!!

R The! supplier! group! does! not! depend! heavily! on! the! industry! for! its! revenues:! suppliers! serving!

many!industries!will!not!hesitate!to!extract!maximum!profits!from!each!one.!!

R Industry!participants!face!switching!costs!in!changing!suppliers!

R Suppliers!offer!products!that!are!differentiated!(ex!pharmaceutical!companies!vs!generic!products)!

R There!is!no!substitute!for!what!the!supplier!group!provides!!

R The!supplier!group!can!credibly!threaten!to!integrate!forward!into!the!industry!

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The(power(of(buyers(

Powerful!customers!can!capture!more!value!by!forcing!down!prices,!dd!better!quality!or!more!service.!!

A!customer!group!has!negotiating!leverage!if!

R There!are!few!buyers!who!purchase!large!volumes;!these!customers!have!power!especially!in!high!

fixed!costs!industries!

R The! industry’s! products! are! standardized! or! undifferentiated! :! if! they! customer! know! that! he! can!

find!the!equivalent!product,!he!can!change!

R Buyers!face!few!switching!costs!in!changing!vendors!

R Buyers! can! credibly! threaten! to! integrate! backward! and! produce! the! industry’s! product! theme!

selves!if!vendors!are!too!profitable.!

A!buyer!group!is!p!sensitive!if:!

R The!product!is!purchases!from!the!industry!represents!a!significant!fraction!of!its!cost!structure!or!

procurement!budget!

R The!buyer!group!earns!low!profits!or!it!otherwise!under!pressure!to!trim!its!purchasing!costs!

R The!quality!of!buyers’!products!or!services!is!little!affected!by!the!industry’s!product!

R The!industry’s!product!has!little!effect!on!the!buyer’s!other!costs.!Conversely,!where!an!industry’s!

product!or!service!can!pay!for!itself!many!times!over!by!improving!performance!or!reducing!labor,!

material!or!other!costs,!buyers!are!usually!more!interested!in!quality!than!in!p.!!!

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The(Threat(of(substitutes(

A!substitute!performs!the!same!or!similar!function!as!an!industry’s!product!by!a!different!means.!!

When!this!threat!is!high,!industry!profitability!suffers.!

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The!threat!of!a!substitute!is!high!if:!

R It!offers!an!attractive!price!performance!trade!off!to!the!!product!

R The!buyer’s!cost!of!switching!to!the!substitute!is!low!

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Rivalry(among(existing(competitors(

The!degree!of!rivalry!depends!on!the!intensity!with!which!companies!compete!and!on!the!basis!on!which!

they!compete.!!

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The!intensity!is!greater!if:!

R Competitors!are!numerous!or!are!roughly!equal!in!size!and!power!

R Industry!g!is!slow!

R Exit!barriers!are!high!

R Rivals! are! higly! committed! to! the! business! and! have! aspirations! for! leadership,! expecially! if! they!

have!goals!that!go!beyond!economic!performance!in!the!particular!industry.!!

R Firms! cannot! read! each! other’s! signals! well! bc! of! lack! of! familiarity! with! one! another! diverse!

approaches!to!competing!or!differing!goals.!!!

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The! basis! of! competition! considers! the! dimensions! on! which! competition! takes! place,! and! whether! rivals!

converge!to!compete!on!the!same!dimensions,!have!a!major!influence!on!profitability.!

Rivalry! is! especially! destructive! to! profitability! if! it! concerns! p! bc! p! competition! transfers! profits! directly!

from!an!industry!to!its!customers.!!

Price!competition!is!most!liable!to!occur!if!!

R Products!or!services!of!rivals!are!nearly!identical!and!there!are!few!switching!costst!for!buyers!

R Fixed!costs!are!high!and!marginal!costs!are!low!

R Capacity!must!be!expanded!in!large!increments!to!be!efficient!

R The!product!is!perishable:!perishability!crates!a!strong!temptation!to!cut!p!and!sell!a!product!while!

it!still!has!value!

Competition!on!dimensions!other!than!p!(product!features,!support!services,!delivery!time,!brand!image)!is!

less!likely!to!erode!profitability!bc!it!improves!customer!value!and!can!support!higher!p.!!

As!important!as!the!dimensions!of!rivalry!is!whether!rivals!compete!on!the!same!dimensions.!!

When! competitors! meet! the! same! needs! or! compete! on! the! same! attributes! the! result! is! zero! sum!

competition.!!

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Rivalry! can! be! positive! sum! or! actually! increase! the! average! profitability! of! an! industry! when! each!

competitor!aims!to!serve!the!needs!of!different!customer!segments,!with!diff!mixes!of!p,!products,!services,!

features,!brand!identities.!

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Factors&not&forces&

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Industry(growth(rate.(A!common!mistake!is!to!assume!that!fast!growing!industries!are!always!attractive.!A!

high!g!rate!will!not!guarantee!profitability!if!customers!are!powerful!or!substitutes!are!attractive.!!

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Technology( and( innovation.( Advanced! techno! or! innovations! are! not! by! themselves! enough! to! make! an!

industry!structurally!attractive/unattractive.!

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Government.(We!have!to!analyze!how!specific!gvnm!policies!affects!forces.!!

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Complementary( products( and( services.( Complements! are! products! or! services! used! together! with! an!

industry’s! products.! Complements! arise! when! the! customer! benefit! of! two! products! combines! is! greater!

than!the!sum!of!each!product’s!value!in!isolation!(ex.!Computer!and!hardware).!!

Complements!affect!profitability!through!the!way!they!influence!the!5!forces.!

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Changes( in( industry( structure.( Industry! structure,! even! if! is! usually! constant,! is! constantly! undergoing!

modest!adjustment!and!occasionally!it!can!change!abruptly.!

One!change!can!be!given!by!changes!to!any!of!the!seven!barriers!(for!example!there!is!no!more!a!barrier).!

Changing!supplier!or!buyer!power!is!another!change.(As!the!factors!underlying!the!power!of!suppliers!and!

buyers! change! with! time,! their! clout! (colpo)! rises! or! declines.! For! example! selling! directly! airlines! tickets!

diminish!the!agents!power.!

Shifting!threat!of!substitution!is!given!by!the!fact!that!advances!in!techno!create!new!substitutes!or!shift!

priceRperformance!comparisons!in!one!direction!or!the!other.!!

Moreover! rivalry! often! intensifies! and! obtains! new! bases! naturally! over! time.! As! an! industry! matures,! g!

slows.!

The!nature!of!rivalry!in!an!industry!is!altered!by!mergers!and!acquisitions!that!introduce!new!capabilities!

and!ways!of!competing.!In!some!industries,!companies!turn!to!mergers!and!consolidation!not!to!improve!

cost!and!quality!but!to!attempt!to!stop!intense!competition.!!

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Implications(for(strategy(

Understanding!the!forces!is!the!starting!point!for!developing!strategy.!Every!company!should!already!know!

what!the!average!profitability!of!its!industry!is!and!how!that!has!been!changing!over!time.!The!five!forces!

reveal!why!industry!profitability!is!what!it!is.!!

The!und