Competitive Strategy: Techniques for Analyzing Industries and Competitors

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 — Porter's analysis of industries captures the complexity of industry competition in five underlying forces. Porter introduces one of the most powerful competitive tools yet developed: his three generic strategies — lowest cost, differentiation, and focus — which bring structure to the task of strategic positioning. He shows how competitive advantage can be defined in terms of relative cost and relative prices, thus linking it directly to profitability, and presents a whole new perspective on how profit is created and divided. In the almost two decades since publication, Porter's framework for predicting competitor behavior has transformed the way in which companies look at their rivals and has given rise to the new discipline of competitor assessment.

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. The ideas in the book address the underlying fundamentals of competition in a way that is independent of the specifics of the ways companies go about competing.

Competitive Strategy has filled a void in management thinking. It provides an enduring foundation and grounding point on which all subsequent work can be built. By bringing a disciplined structure to the question of how firms achieve superior profitability, Porter's rich frameworks and deep insights comprise a sophisticated view of competition unsurpassed in the last quarter-century.

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 — Porter's analysis of industries captures the complexity of industry competition in five underlying forces. Porter introduces one of the most powerful competitive tools yet developed: his three generic strategies — lowest cost, differentiation, and focus — which bring structure to the task of strategic positioning. He shows how competitive advantage can be defined in terms of relative cost and relative prices, thus linking it directly to profitability, and presents a whole new perspective on how profit is created and divided. In the almost two decades since publication, Porter's framework for predicting competitor behavior has transformed the way in which companies look at their rivals and has given rise to the new discipline of competitor assessment.

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. The ideas in the book address the underlying fundamentals of competition in a way that is independent of the specifics of the ways companies go about competing.

Competitive Strategy has filled a void in management thinking. It provides an enduring foundation and grounding point on which all subsequent work can be built. By bringing a disciplined structure to the question of how firms achieve superior profitability, Porter's rich frameworks and deep insights comprise a sophisticated view of competition unsurpassed in the last quarter-century.

Michael E. Porter, one of the world's leading authorities on competitive strategy and international competitiveness, is the C. Roland Christensen Professor of Business Administration at the Harvard Business School. In 1983, Professor Porter was appointed to President Reagan's Commission on Industrial Competitiveness, the initiative that triggered the competitiveness debate in America. He serves as an advisor to heads of state, governors, mayors, and CEOs throughout the world. The recipient of the Wells Prize in Economics, the Adam Smith Award, three McKinsey Awards, and honorary doctorates from the Stockholm School of Economics and six other universities, Porter is the author of fourteen books, among them Competitive Strategy, The Competitive Advantage of Nations, and Cases in Competitive Strategy, all published by The Free Press. He lives in Brookline, Massachusetts.

Contents

Introduction

Preface

Introduction, 1980

PART I General Analytical Techniques

Chapter 1 The Structural Analysis of Industries

Structural Determinants of the Intensity of Competition

Structural Analysis and Competitive Strategy

Structural Analysis and Industry Definition

Chapter 2 Generic Competitive Strategies

Three Generic Strategies

Stuck in the Middle

Risks of the Generic Strategies

Chapter 3 A Framework for Competitor Analysis

The Components of Competitor Analysis

Putting the Four Components Together — The Competitor

Response Profile

Competitor Analysis and Industry Forecasting

The Need for a Competitor Intelligence System

Chapter 4 Market Signals

Types of Market Signals

The Use of History in Identifying Signals

Can Attention to Market Signals Be a Distraction?

Chapter 5 Competitive Moves

Industry Instability: The Likelihood of Competitive Warfare

Competitive Moves

Commitment

Focal Points

A Note on Information and Secrecy

Chapter 6 Strategy Toward Buyers and Suppliers

Buyer Selection

Purchasing Strategy

Chapter 7 Structural Analysis Within Industries

Dimensions of Competitive Strategy

Strategic Groups

Strategic Groups and a Firm's Profitability

Implications for Formulation of Strategy

The Strategic Group Map as an Analytical Tool

Chapter 8 Industry Evolution

Basic Concepts in Industry Evolution

Evolutionary Processes

Key Relationships in Industry Evolution

PART II Generic Industry Environments

Chapter 9 Competitive Strategy in Fragmented Industries

What Makes an Industry Fragmented?

Overcoming Fragmentation

Coping with Fragmentation

Potential Strategic Traps

Formulating Strategy

Chapter 10 Competitive Strategy in Emerging Industries

The Structural Environment

Problems Constraining Industry Development

Early and Late Markets

Strategic Choices

Techniques for Forecasting

Which Emerging Industries to Enter

Chapter 11 The Transition to Industry Maturity

Industry Change during Transition

Some Strategic Implications of Transition

Strategic Pitfalls in Transition

Organizational Implications of Maturity

Industry Transition and the General Manager

Chapter 12 Competitive Strategy in Declining Industries

Structural Determinants of Competition in Decline

Strategic Alternatives in Decline

Choosing a Strategy for Decline

Pitfalls in Decline

Preparing for Decline

Chapter 13 Competition in Global Industries

Sources and Impediments to Global Competition

Evolution to Global Industries

Competition in Global Industries

Strategic Alternatives in Global Industries

Trends Affecting Global Competition

PART III Strategic Decisions

Chapter 14 The Strategic Analysis of Vertical Integration

Strategic Benefits and Costs of Vertical Integration

Particular Strategic Issues in Forward Integration

Particular Strategic Issues in Backward Integration

Long-Term Contracts and the Economics of Information

Illusions in Vertical Integration Decisions

Chapter 15 Capacity Expansion

Elements of the Capacity Expansion Decision

Causes of Overbuilding Capacity

Preemptive Strategies

Chapter 16 Entry into New Businesses

Entry through Internal Development

Entry through Acquisition

Sequenced Entry

Appendix A Portfolio Techniques in Competitor Analysis

Appendix B How to Conduct an Industry Analysis

Bibliography

Index

About the Author