Know-How Exchange : Strategy

Hi resork:

Harvard Business School Professor Michael Porter is the undisputed guru of competitive strategy. In his book of the same name Porter identifies five forces that drive competition within an industry:

The threat of entry by new competitors.
The intensity of rivalry among existing competitors.
Pressure from substitute products.
The bargaining power of buyers.
The bargaining power of suppliers.

One obvious application of all this is to would-be entrants and the problem of entering new markets.

Another is to the current competitors and the ongoing task of staying competitive in markets where they already operate.

Perhaps the most important thing to keep in mind is the inverse relationship between profit margins or returns and the intensity of competition: as the intensity of competition goes up, margins and returns are driven down. This can require changes in competitive strategy to remain in an industry and, under some circumstances, it can occasion the decision to exit a business or an industry.

There is so much information available on Porter and his
work on competitive strategy that if you Google this you will be kept busy for a long time, so I will leave that to you.

Recognition of the classic nature of Competitive Strategy is not tantamount to saying that it is the only book one need ever read in order to understand developments in business strategy. Indeed, it would be foolish to ignore the innovative ideas and research that have been developed in the field since the publication of the book - but it is safe to say that one's education in management thinking and business strategy would be sadly incomplete without having read it.

I hope that helps!