Key Messages
Understand Industry Competition And Achieve Superior Profitability With The Principles Of Competitive Strategy
Do you want your company to soar? Do you want it to be successful and profitable? If so, then a competitive strategy is what you need.
As Michael E Porter explains in his book Competitive Strategy, having a thorough understanding of industry competition is essential if you hope to position your firm strategically and ensure its success in the long run.
Thanks to the strategic approach taken by Apple and Mercedes, we know that applying a competitive strategy can work wonders for your business.
You’ll also learn when certain business announcements are potentially bluffs and how vertical integration within a company can come with both benefits and costs.
In conclusion, with the help of this book you’ll gain all the knowledge necessary to craft up an effective competitive strategy that will make your company soar like never before!
Understanding The 5 Forces Of Industry Competition To Formulate The Best Competitive Strategy
The state of competition in an industry is determined by the five fundamental forces which impact competition.
These include the threat of entry, intensity of rivalry among existing competitors, pressure from substitute products, bargaining power of buyers, and bargaining power of suppliers.
The threat of entry is when new entrants attempt to gain a market share within an industry, thus increasing competition.
This can be challenging for newcomers if existing firms already have brand recognition and loyal customers due to their history of advertising.
next up is the intensity of rivalry amongst existing competitors.
This includes things like price competition, advertising battles, product launches and quality of customer service and warranties.
Whenever one company makes a move in any one of these areas it’s likely that other companies will follow suit quickly to counteract them.
Companies Can Use Cost Leadership, Differentiation, Or Focus Strategies To Secure Their Place Within The Market
When it comes to competitive strategies, they can be broken down into three different approaches.
The first approach is the pursuit of overall cost leadership, where companies strive to have the lowest operational costs in their industry.
This can involve reducing expenses in areas such as research and development, service, sales and advertising.
An example of this is Ford Motor Company limiting the number of models produced in the 1920s so that their underlying expenses would decrease.
The second approach is differentiation, which requires creating a product or service that stands out from the competition.
Differentiation can take many forms such as design or brand image, technology, features and customer service.
Mercedes’ brand image as a producer of luxury cars serves as an example while Apple considers itself unique when it comes to computer design.
A big advantage of this approach is that buyer power lessens since there are no comparable alternatives in the market; however exclusivity might require costly investments.
The last approach is focus where companies target specific buyer groups, products or geographic markets.
Howard Paper focused on a narrow range of industrial-grade papers and avoided marketing wars with their competitors.
The Key To Outsmarting Your Competitors: A Comprehensive Competitor Analysis
When you’re doing a competitor analysis, there are four diagnostic components to consider.
These components will help you understand the strategies of your opponents and evaluate the industry trends they may be responding to.
The first component is understanding a competitors future goals- what objectives do they have and how sure should we take them? It’s critical to know their goals in order to figure out whether your competitor is content with its current position or if it plans on changing up their strategy soon.
The second component involves figuring out each competitor’s assumptions about their company, their rivals and the industry itself.
For example, Innocent Juice Co may view themselves as a socially conscious business, while Ikea might see themselves as a low-cost furniture leader.
Becoming aware of both firms’ views can provide insight into how those companies respond to various events.
Interpreting Market Signals: Understanding Your Competitors’ Intentions And Motives
If you’re serious about competing in the market, it’s important to pay attention to what your competitors are saying and doing.
Their announcements and industry commentary can provide valuable information that can help you build a competitive strategy.
Their prior announcements will give you an indication of their intentions and goals – whether they plan to build a plant, change prices or pursue a new course of action.
These signals may even be attempts at pre-empting their competitors by committing themselves to a cause or action.
It’s also important to pay attention to their expansions, sales figures and other results after the fact, in order to gain an idea of their data and analyze it so that you can make better decisions within your own company.
Understanding The Challenges And Opportunities Of Emerging Industries
Emerging industries are characterized by structural factors which make them distinct from existing industries.
This includes a wide array of competitive strategies, high initial costs and limited information about competitors, customers and general conditions.
In addition, companies in emerging industries must often wrestle with questions regarding the technology they implement while attempting to entice first-time buyers.
These factors result in smaller production volume and novelty leading to higher costs relative to industry potential, as well as new employees being less productive until job familiarity increases.
Furthermore, companies have to continually inform consumers about their product’s functions and convince them that it can ultimately improve their lives in order for it to be successful.
How Companies Can Survive Declining Industries Through Strategic Alternatives
When an industry is in decline, it can be difficult for companies to jump ship due to exit barriers.
These barriers can come from a number of sources, including specialized assets that would be sold at a loss or fixed costs of exit that prevent firms from breaking long-term contracts.
Additionally, interrelatedness between the declining industry and a larger strategy can lead companies to stay put even while they know an industry is declining.
Fortunately, there are strategic alternatives that can help firms survive the decline of an industry.
Companies can gain leadership by becoming the sole company or one of few companies remaining in the industry, or they can find a niche segment that will remain stable and invest in developing their position within it.
Another option is quick divestment – selling before things get too bad – which has been known to maximize value for firms.
How Companies Can Adapt To Compete In The Global Market
Competition in global industries presents some unique strategic issues that don’t exist in domestic or local markets.
Companies have to contend with a much bigger selection of competitors and understand the institutional considerations that might be at work – like labor practices or managerial structures.
It’s also important to consider the relationships between foreign firms and their home countries, as government policies can help finance sales or reduce import/export duties.
In order to successfully compete on a global scale, companies need to consider a variety of strategies tailored for global markets.
They can offer their full product line globally, hone in on particular industry segments with low barriers to entry, or seek out regional markets with government restrictions that may exclude global competitors.
Each strategy has its own merits and pitfalls, so it’s important for companies to evaluate which one is the best fit for them given its unique circumstances.
The Benefits And Pitfalls Of Vertical Integration: Streamlined Production, But Stranded By Outdated Suppliers
Vertical integration has both important benefits and costs.
Companies often choose to go the vertical integration route when they need to increase efficiency and cut costs, as it brings all the unique and technologically distinct aspects of production, distribution, sales and other processes into a single firm.
For example, oil companies don’t just own oil derricks; they also own the ground that the oil is found in, refineries, tankers and so on.
This can result in higher efficiency from fewer steps in production which eliminates handling costs and reduces coordination between operations.
However, there are strategic risks associated with vertical integration as well.
Technology advances could render an enterprise’s supplier obsolete or inadequate.
That would cause headaches for the company if their supplier was not able to meet their demands for a better product or service due to being part of an integrated system.
As we saw with Imasco’s troubles, this posed quite a challenge that required divestment before the desired outcome could be achieved!
Wrap Up
At the end of this book on competitive strategy, the message is clear: If you want to be the top provider in your industry, you need to study and analyze your competitors.
This means paying attention to all their actions and statements, so that you can predict their next moves and have the edge over them.
In other words, keeping one step ahead of the competition is essential if you want to remain at the top.
Ultimately, being able to identify weaknesses in your rivals’ strategies can help give you an invaluable advantage over them.
