...Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Michael E. Porter was originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency). He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable. In his 1980 classic Competitive Strategy: Techniques for Analysing Industries and Competitors, Porter simplifies the scheme by reducing it down to the three best strategies. They are cost leadership, differentiation, and market segmentation (or focus). Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope. Empirical research on the profit impact of marketing strategy indicated...
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...ANALYSIS OF MICHAEL PORTER’S GENERIC STRATEGIES AND ITS USAGE IN A GLOBALIZED BUSINESS ENVIRONMENT THESIS - BACHELOR HONOURS IN BUSINESS ADMINISTRATION DIANA MARIA CAMACHO ARIAS TYPE OF DOCUMENT: DISERTATION TO OBTAIN THE DEGREE OF BACHELOR HONOURS IN BUSINESS ADMINISTRATION APPROVED BY UNIVERSIDAD DEL ROSARIO – FACULTAD DE ADMINISTRACION INSTITUTION: ÉCOLE INTERNATIONALE DE MONTPELLIER FRANCE, MONTPELLIER, MAY OF 2009 ANALYSIS OF MICHAEL PORTER’S GENERIC STRATEGIES AND ITS USAGE IN A GLOBALIZED BUSINESS ENVIRONMENT THESIS - BACHELOR HONOURS IN BUSINESS ADMINISTRATION DIANA MARIA CAMACHO ARIAS TYPE OF DOCUMENT: DISERTATION TO OBTAIN THE DEGREE OF BACHELOR HONOURS IN BUSINESS ADMINISTRATION APPROVED BY UNIVERSIDAD DEL ROSARIO – FACULTAD DE ADMINISTRACION TUTOR: TIDIANE AW INSTITUTION: ÉCOLE INTERNATIONALE DE MONTPELLIER FRANCE, MONTPELLIER, MAY OF 2009 DEDICATION I dedicate this dissertation to every person that has allowed it to be possible with the critics, to the teachers and tutors that have awaked in me the interest in this topic and also the passion for the businesses strategy, to my family that has always supported me to achieve my goals and to develop myself as a human being and also as a professional, and finally but not less important to Gabriel that has been a huge support to bring this dissertation to a satisafactory end. ACKNOWLEDGEMENTS This thesis would not have been possible without the generous assistance of the following...
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...Critically evaluate Porter’s Diamond of National Competitive Advantage as an aid to understanding national competitiveness. Table of Contents Table of Contents 2 1. The diamond model by Michael Porter 3 1.1 Introduction 3 1.2 Diamond model Theory 4 1.2.1 Factor Condition 4 1.2.2 Demand conditions 5 1.2.3 Firm strategy, structure and rivalry 5 1.2.4 Related and supported industries 6 1.2.5 The role of Government 6 1.3 Criticism of the framework 7 1.4 Practical Example 7 1.5 Conclusion 8 1 2 3 4 5 6 7 8 9 1. The diamond model by Michael Porter 1 1.1 Introduction According to Recklies (2001), increasingly corporate strategies have to be seen in global context and even if an organization does not plan to import or to export has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may influence the domestic market and information technology has been reinforcing this trend. The classical models and theories related to international trade before Michael Porter’s Diamond theory, mainly proposed that the comparative advantage resides in the factors endowments that a country may be fortunate enough to inherit and these factors mainly consisted of land, natural resources, labour and the size of the local population but Porter argued though his...
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...What is it? Framework/theory Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organisation. This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation’s current competitive position, and the strength of a position that an organisation may look to move into. Strategic analysts often use Porter’s five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes. Porter’s five forces of competitive position analysis: The five forces are: 1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another. 2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost...
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...within a short space of time. Changes in customer tastes and preferences require robust systems and strategies to maintain current market share profitably and ensure growth. It is within this spectrum that Michael Porter has become a well-known contributor in the field of strategic management as he shades light on which elements to consider in coming up with a strategy for both domestic and international markets. A good strategy will result in the creation of a unique and valuable position, involving a different set of activities. Strategic position emerges from three distinct sources which are serving few needs of many customers, serving broad needs of few customers and serving broad needs of many customers in a narrow market. After positioning itself, an organisation must ensure that its strategic efforts results in creating “fit” among a company’s activities. Fit has to do with the ways a company’s activities interact and reinforce one another. In his endeavour to build strategic intent within organisations, Michael Porter is well known for the following contributions in the field of corporate strategy: 1. Generic Strategies 2. Value Chain 3. Competitive Advantage 4. Porter’s Diamond 5. Five Forces Model 1. Porter’s Generic Strategies Porter’s generic strategies is a frameworks used to outline the three major strategic options open to organizations that wish to achieve a sustainable competitive advantage. Each of the three options need to be considered...
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...Competitive Advantage Creating and Sustaining Superior Performance Author: Michael E. Porter Michael E. Porter's Competitive Advantage explores the underpinnings of competitive advantage in the individual firm. Porter's groundbreaking concept of the value chain disaggregates a company into "activities," or the discrete functions or processes that represent the elemental building blocks of competitive advantage. Giving readers a comprehensive understanding of business strategy and how to create a sustainable competitive advantage for their organization, Porter explores how a firm can put the generic strategies of cost leadership, differentiation and focus into practice. This essay will explore Competitive Advantage and the underlining theory that to compete in any industry, companies must perform a wide array of discrete activities that are narrower than traditional functions. It will analyze the real core of the book which is to determine whether companies profit from creating value for customers, or whether that value is competed away. INTRODUCTION “Competitive Advantage is at the heart of a firm’s performance in competitive markets. After several decades of vigorous expansion and prosperity, however, many firms lost sight of competitive advantage in their scramble for growth and pursuit of diversification. Today the importance of competitive advantage could hardly be greater. Firms throughout the world face slower growth as well as domestic and...
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...Exam question : “Globalisation Your consultancy is considering the use of Porter’s Diamond model in its analyses of national competitive advantage. Write a briefing note, giving examples, detailing a) how and why you would use the diamond model b) what limitations if any there are in doing so. ” Classical economics insists that a national competitive advantage grows out of a country’s natural endowments, its labor pools, its interest rates, and its currency’s value. However, according to Michael Porter theory, national prosperity is created, not inherited. A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade through new technologies or new ways of doing things, as a result of technology push or market pull. It is important to upgrade your competitive advantage. What is considered as a competitive advantage at the national level = productivity of the nation, which leads to high and rising standard of living for its citizens. Classic theory: success of nations depends from factors of production (labor, lands, etc) but it has been overshadowed in advanced industries and economics by globalization of competition and power of technology. Porter’s theory brings a comparative advantage to the competitive advantage of a nation. Porter says that a new theory must explain why a national provides a favorable home base for companies that compete internationally. It succeeds in reflecting conception of competition that includes: -...
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...The Heckscher-Ohlin theory explains why countries trade goods and services with each other. One condition for trade between two countries is that the countries differ with respect to the availability of the factors of production. They differ if one country, for example, has many machines (capital) but few workers, while another country has a lot of workers but few machines. According to the Heckscher-Ohlin theory, a country specializes in the production of goods that it is particularly suited to produce. Countries in which capital is abundant and workers are few, therefore, specialize in production of goods that, in particular, require capital. Specialization in production and trade between countries generates, according to this theory, a higher standard-of-living for the countries involved. New notes The Heckscher Ohlin model Introduction The Heckscher Ohlin model Predicts that different factor endowments between countries is a key issue in the international trade flows but others such a WW Leontief, who in 1954 tried o test the theory empirically, found that this model failed to explain United States trading patterns. Read more: http://www.ukessays.co.uk/essays/economics/heckscher-ohlin-model.php#ixzz2DPfWNkhU The Heckscher Ohlin assumption The Heckscher Ohlin theory explains why countries trade good and services to each other. To apply this theory countries have to respect conditions; one of those is that the countries obviously differ with respect to the availability...
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...4/9/13 Porter’s Five Forces Model | TNMG: The Next Marketing Guru Porter’s Five Forces Model is one of the most popular frameworks in management. This framework is widely used across management disciplines specially so in case of Strategy and Marketing. . This is one model that has brought strategic management in the heart of management agenda. Porter’s Five Forces Model helps analyze competitive scenario in an industry. This framework helps determine industry profitability and can be used as one of the inputs while deciding to enter an industry. This famous framework was contributed by Michael E. Porter. The basic framework is as shown in the diagram below. So, the five forces that determine the industry profitability as per this framework are: Threat of New Entry, Buyer Power, Supplier Power, Threat of Substitution and Competitive Rivalry. There are various parameters which can be used to determine the nature of these forces. Each of the force is classified as low, medium or high depending on the nature of those parameters. The parameters used to measure nature of the forces are described in below diagram. tnmg4u.com/porter’s-five-forces-model-2/ 1/2 4/9/13 Porter’s Five Forces Model | TNMG: The Next Marketing Guru Ideal scenario to enter an industry is: Entry Barrier=High, Buyer Power=Low, Supplier Power=Low, Threat of Substitution=Low and Competitive Rivalry=Low to medium. Current players try to build high entry barriers to prohibit new comers from...
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...company’s strategies. A strategy can be defined in many ways and has many different viewpoints. This article aims to explain and critically evaluate the approaches of Jay Barney and Michael E. Porter, two leading strategy theorists, in-turn explaining the basis leading to the difference. What is Strategy & Competitive Advantage? Strategy is the creation of unique and valuable position involving a different set of activities.1 A firm is said to have competitive advantage when it is implementing a strategy which is not is being implemented by it’s current or potential competitors and also sustains profits that exceed the average for it’s industry. " Is Competitive Advantage enough? The goal of much of business strategy is to achieve a sustainable competitive advantage which is the same as competitive advantage but the advantages of the strategy cannot be duplicated by the competitors. (Barney, 1989). Different authors have different viewpoint in regard to sustainable competitive advantage. A sustained competitive advantage is simply a competitive advantage that lasts for a longer period of calendar time (Porter, 1985). A competitive advantage is sustained only after the efforts to duplicate the advantages of the strategy have been ceased (Lippman and Rumelt,1982). " Michael Porter’s Viewpoint Sustainable competitive advantage is when a strategy is implemented and the same strategy is not being implemented by the current or potential competitor and that advantage...
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...A means of providing corporations with an analysis of their competition and determining strategy, Porter's five-forces model looks at the strength of five distinct competitive forces, which, when taken together, determine long-term profitability and competition. Porter's work has had a greater influence on business strategy than any other theory in the last half of the twentieth century, and his more recent work may have a similar impact on global competition. Michigan native Michael Porter was born in 1947, was educated at Princeton, and earned an MBA (1971) and Ph.D. (1973) from Harvard. He was promoted to full professor at Harvard at age 34 and is currently C. Roland Christensen Professor of Business Administration at the Harvard Business School. He has published numerous books and articles, the first Interbrand Choice, Strategy and Bilateral Market Power, appearing in 1976. His best known and most widely used and referenced books are Competitive Strategy (1980) and Competitive Advantage (1985). Competitive Strategy revolutionized contemporary approaches to business strategy through application of the five-forces model. In Competitive Advantage, Porter further developed his strategy concepts to include the creation of a sustainable advantage. His other model, the value chain model, centers on product added value. Porter's work is widely read by business strategists around the world as well as business students. Any MBA student recognizes his name as one of the icons of business...
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...organizational efficiency and effectiveness by increasing the organization’s capacity to deploy and redeploy its resources intelligently.’ Professor Les Worrall, Wolverhampton Business School Definition of strategic analysis often differ, but the following attributes are commonly associated with it: 1. Identification and evaluation of data relevant to strategy formulation. 2. Definition of the external and internal environment to be analyzed. 3. A range of analytical methods (strategic analysis tools) that can be employed in the analysis. Example of analytical methods used in strategic analysis which will be discussed in this paper includes but not limited to the following: 1. SWOT analysis 2. PEST analysis 3. Porter’s five forces analysis 4. Four corner’s analysis 5. Value chain analysis 6. Early warning scans 7. War gaming An overview of these strategic analysis tools will be provided. Strategic Analysis Tools Definition Analytical methods and tools are key to ensuring that consistency and an appropriate level of rigour is applied to the analysis. There are a number of important...
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...Michael Porter Michael Eugene Porter who was born on May 23 in 1947. He comes from Michigan. He is the Professor of Bishop William Lawrence University at The Institute for Strategy and Competitiveness, based inside Harvard Business School. He is a leading authority on competitive strategy and the competitiveness. Michael Porter's work is recognized in many governments, corporations and academic circles globally. Michael Porter's core field is competition and company strategy. He is mainly recognized as one of the intellectual leaders in his modern strategy field and his ideologies and theories are taught in practically every business school throughout the world. His work has also re-defined thinking about concepts such as competitiveness, economic development, economically distressed urban communities, environmental policy, and the role of corporations in society. His main academic objectives focus on how a firm or a region can build a competitive advantage and develop competitive strategy; the competitiveness of nations, regions and cities; and solutions to social problems. Porter has his 3 Generic strategies, which describe how a company pursues competitive advantage across a chosen market scope. These three generic strategies are, either lower cost, differentiated, or focus. Cost leadership, product differentiation, and focus are based on choices regarding competitive scope and competitive advantage. Firms position themselves by leveraging their strengths. Michael...
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...QUIZ: WHY THE CONCEPT OF COMPETITIVE ADVANTAGE IS CENTRAL TO THE STUDY OF STRATEGIC MANAGEMENT, AND EXAMINE THE USE OF PORTER’S GENERIC STRATEGEIS BY COMPANIES TO COMPETE. KEY TERMS Competitive advantage. This is the favourable position an organization seeks in order to be more profitable than its competitors. Strategic management. It is the systematic analysis of the factors associated with customers and competitors (the external environment) and the organization itself (the internal environment) to provide the basis for maintaining optimum management practices. The objective of strategic management is to achieve better alignment of corporate policies and strategic priorities. Porter’s generic strategies. These are three general types of strategies developed by Michael Porter that are commonly used by businesses to achieve and maintain competitive advantage. Company. It is a voluntary association formed and organized to carry on a business. Types of companies include sole proprietorship, partnership, limited liability, corporation, and public limited company. INTRODUCTION The concept of competitive advantage is central to the study of strategic management, since a company or an organization must follow an aligned strategy to outperform their rivals in the industry. Michael Porter introduces three generic strategies that a firm may apply in order to do so they include; overall cost leadership, Differentiation and Focus. In order to create and sustain competitive advantage...
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...THE FIVE FORCES INDUSTRY COMPETITORS. Rivalries naturally develop between companies competing in the same market. Competitors use means such as advertising, introducing new products, more attractive customer service and warranties, and price competition to enhance their standing and market share in a specific industry. To Porter, the intensity of this rivalry is the result of factors like equally balanced companies, slow growth within an industry, high fixed costs, lack of product differentiation, overcapacity and price-cutting, diverse competitors, high-stakes investment, and the high risk of industry exit. There are also market entry barriers. PRESSURE FROM SUBSTITUTE PRODUCTS. Substitute products are the natural result of industry competition, but they place a limit on profitability within the industry. A substitute product involves the search for a product that can do the same function as the product the industry already produces. Porter uses the example of security brokers, who increasingly face substitutes in the form of real estate, money-market funds, and insurance. Substitute products take on added importance as their availability increases. BARGAINING POWER OF SUPPLIERS. Suppliers have a great deal of influence over an industry as they affect price increases and product quality. A supplier group exerts even more power over an industry if it is dominated by a few companies, there are no substitute products, the industry is not an important consumer for the suppliers...
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