Professional Documents
Culture Documents
Introduction
Porter Competitive Model
Value Chain
Bargaining
Power
of Suppliers
Intra-Industry
Rivalry
Strategic Business Unit
Substitute
Products
and Services
Source: Michael E. Porter
Forces Governing Competition in
Industry
Harvard Business Review, Mar.-Apr. 1979
Bargaining
Power
of Buyers
SUPPORT ACTIVITIES
INBOUND
LOGISTICS
OPERATIONS OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
PRIMARY ACTIVITIES
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright
1985 by Michael E. Porter.
Key Objective
Gain a competitive advantage!
Understand the forces that influence this.
Know how to use models to do an objective
evaluation.
Chapter 3
The Porter Competitive Model
for
Industry Structure Analysis
A Successful IS Professional
Understands both IT and the business in which
they work.
Has good communication skills.
Can sell their IT solution to someone elses
problem.
Is a self starter and can handle a large amount
of personal responsibility.
Manages their own career.
Has a high degree of personal confidence.
ATP Approach
1. Read Value Line articles for industry perspective and
company information.
2. Log onto the company web page and look at general
business information and most recent annual report.
A. Determine dominant business.
B. Identify business and IT leaders.
C. Define the industry the company is in.
D. Identify the major markets in which they
operate and determine the market that you will
analyze using the Porter Competition model.
E. Start to develop an understanding of the six
primary business strategies in this industry.
ATP Research
1. Value Line
2. Company web page and annual report.
3. Internet search engines:
Yahoo
Ask Jeeves
Google
4. Library reference documents
5. Jack Callon and his documents
The Plan
Address the Concepts of the Porter
Competitive Model.
Provide some industry examples using the
Competitive Model.
Address the Value Chain conceptually and
with industry examples.
Revisit each of these using the Airline
Industry as the example in Chapter 4.
Bargaining
Power
of Suppliers
Intra-Industry
Rivalry
Strategic Business Unit
Bargaining
Power
of Buyers
Substitute
Products
and Services
Source: Michael E. Porter
Forces Governing Competition in
Industry
Harvard Business Review, Mar.-Apr. 1979
Figure 3-1
Rivalry Likelihood
Profit margins.
Definitions
New Entrant: An existing company or a startup
that has not previously competed with the SBU
in its geographic market. It can also be an
existing company that through a shift in business
strategy begins to compete with the SBU.
Substitute Product or Service: An alternative
to doing business with the SBU. This depends
on the willingness of the buyers to substitute, the
relative price/performance of the substitute
and/or the level of the switching cost.
Substitute Threats
Buyer propensity to substitute.
Relative price/performance of substitutes.
Switching costs.
Competitive Strategy
What is driving competition in my current or
future industry?
What are my current or future competitors
likely to do and how will we respond?
How can we best posture ourselves to achieve
and sustain a competitive advantage?
Strategy Options
According to Michael Porter
Primary Strategies
1. Differentiation
2. Least Cost
Supporting Strategies
1. Innovation
2. Growth
3. Alliance
Bargaining
Power of
Suppliers
Automobiles
Public Transportation
Mopeds
Bicycles
Potential
New Entrant
Intra-Industry Rivalry
SBU: Harley-Davidson
Rivals: Honda, BMW,
Suzuki, Yamaha
Substitute
Product or
Service
Foreign Manufacturer
Established Company
Entering a New Market
Segment
New Startup
Bargaining
Power of
Buyers
Recreational Cyclist
Young Adults
Law Enforcement
Military Use
Racers
Entry Level
Law Enforcement
North American
Moderate
Market Strategy
Military
Premium
Recreational
Europe
Japan/Asia
Manufacturing Strategy
Vertically Integrated
Vendor Emphasis
Latin America
Outsource
Sales/Distribution Strategy
Distributors
Independent Dealers
Franchised Dealers
Company Structure
Independent
Alliances
Joint Ventures/Subsidiaries
Information Systems
Engineering Product Design Manufacturing Sales/Distribution Business
Suppliers
Intra-Industry
Rivalry
SBU: SF Giants
Buyers
Suppliers
Players Union
City of SF
Transportation Services
Food Service
Sovereigns
Police and Sanitation
Service
Utilities
Stadium Employees
Buyers
Potential
New Entrants
Intra-Industry Rivalry
Bargaining
Power
of Suppliers
Concentration in the
hands of a few institutions
Increasing sophistication
Better information
Substitute
Products
and Services
Bargaining
Power
of Buyers
Increasing sophistication
More options
Better information
Breakdown of
industry boundaries
VC Sponsored Companies
Digital Equipment
Apple Computer
Federal Express
Sun Microsystems
Compaq
Lotus Development
Staples
VC Strategies in 1960-1970
Foreign Universities
Distance Learning
Motorola U.
National Technical University
Intra-Industry Rivalry
Strategic Business Unit
Substitute
Products
and Services
Books and Videotapes
Computer-Based Training
Training Companies
Consulting Firms
Bargaining
Power of Buyers
Students
Parents
Business
Employers
Legislators
Computer Industry
Why is this industry more of a challenge to
evaluate using the Porter Competitive
Model?
DEC
HP
Fujitsu
NCR
Figure 3-3
Computer
Dealers
Layer 4
Applications
Layer 3
Operating
System
Software
Layer 1
Microprocessor
Mass
Clubs
Merchandisers
Lotus 1-2-3
Spreadsheets
Word Processors
Database
Layer 2
Computer
Platforms
Super
Stores
MS DOS
Novell Netware
IBM
Compaq
Intel X86
Mail
Order
Value-add
Resellers
Microsoft Excel
Windows
Direct
Sales
Force
Other
Quattro Pro
OS/2
Banyan
Unix
IBM
Motorola
Apple
Others
Apple Macs
RISC
Other
Power PC
Figure 3-4
Hardware
Mainframes
Software
Minicomputers
Services
Workstations
Telecom Networks?
Personal Computers
Peripheral Equipment
PC Industry Segment
1. Passed $100 billion in sales in the first ten years.
2. Growth and competition was based on industry standards
like never before.
3. This has spawned thousands of niche companies.
4. The PC has fundamentally restructured the Computer
Industry.
5. Industry pioneers believe the revolution is no more than
half over.
Computer Industry
Of the top fifteen companies in 1975, only
four remain:
IBM
NEC
HP
NCR
PC Industry Change
Atari
Compaq
Cromemco
Dell
Fortune Systems
Gateway
Wicat Systems
IBM
Kaypro
HP
Morrow Designs
NEC
Osborne Computer
Victor Technologies
Research
and
Development
Production
Engineering
and
Manufacturing
Sales
Marketing
and
Distribution
Service
Partnering
with
Vendor
Buying
Managing
Inventory
Marketing
Distributing Operating
and
Inventory
Stores
Selling
SUPPORT ACTIVITIES
INBOUND
LOGISTICS
OPERATIONS OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
PRIMARY ACTIVITIES
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright
1985 by Michael E. Porter.
Figure 3-6
-Financial Policy
HUMAN
RESOURCE
MANAGEMENT
-Regulatory Compliance
- Accounting
Agent
Training
Actuary
Training
Actuarial Methods
Investment
Practices
TECHNOLOGY
DEVELOPMENT
- Legal
Product
Development
Market Research
Claims
Training
Claims
Procedures
I/T
Communications
PROCUREMENT
Policy Rating
Underwriting
Investment
Independent
Agent Network
Billing and
Collections
Policy Sales
Policy Renewal
Agent Management
Advertising
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
Claims Settlement
Loss Control
SERVICE
Included with permission of Michael E. Porter based on ideas in Competitive Advantage: Creating and Sustaining
Superior Performance, copyright 1985 by Michael E. Porter.
Figure 3-7
FIRM
INFRASTRUCTURE
Training Technology
Motivation Research
Information Technology
HUMAN
RESOURCE
MANAGEMENT
Product Technology
Computer-Aided Design
Pilot Plant Technology
TECHNOLOGY
DEVELOPMENT
PROCUREMENT
Transportation
Technology
Material Handling
Technology
Storage and
Preservation
Technology
Communication
System Technology
Testing Technology
Information
Technology
INBOUND
LOGISTICS
Basic Process
Technology
Materials
Technology
Machine Tools
Technology
Materials Handling
Technology
Packaging
Technology
Testing Technology
I/nformation Tech.
OPERATIONS
Transportation
Technology
Material Handling
Technology
Packaging
Technology
Communications
Technology
Information
Technology
Multi-Media
Technology
Communication
Technology
Information
Technology
Diagnostic and
Testing Technology
Communications
Technology
Information
Technology
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright
1985 by Michael E. Porter., p. 167.
Figure 3-8
Summary of Chapter 3
The Porter Competitive Model
for
Industry Structure Analysis
By Sandra Chu
Chapter Objectives
1. To identify significant forces in addition to direct competitors
and customers that impact a companys position within an
industry.
2. To understand the importance of basic objectives that a
company has relative to the forces within the Competitive
Model.
3. To appreciate the power implications within the Porter
Competitive Model.
4. To understand the two basic strategies and three supporting
strategies used by intra-industry rivals.
5. To recognize industry characteristics that make the use of the
Porter Competitive Model most effective.
Bargaining
Power
of Suppliers
Intra-Industry
Rivalry
Strategic Business Unit
Bargaining
Power
of Buyers
Substitute
Products
and Services
Source: Michael E. Porter
Forces Governing Competition in
Industry
Harvard Business Review, Mar.-Apr. 1979
Figure 3-1
Value Chain
1. The ultimate objective is value to customer.
2. A focus needs to be on value-add activities and trying to
eliminate as many activities as possible that do not add value
to customer.
3. Make sure that specific business functions keep in mind the
ultimate objective and not become distracted by doing things
that seem to make them look good.
4. Remember that time has become a major competitive
consideration and that a relay team concept can contradict
this premise.
Conclusions
The Porter Competitive Model is key to
understanding business competitiveness.
It is important for a company to assess its position
within an industry and relative to customers and
suppliers.
The model can be used to understand if IT can
change the competitive environment of an
industry.