Supplier power depends on the following six factors: The number of suppliers When there are more suppliers, an organization can switch to another supplier in case of threats. The number of substitutes that are available Substitutes provide alternatives in case the supplier makes threats. Because of these substitutes, an organization is less dependent on one supplier.
Concept[ edit ] Michael Porter's Three Generic Strategies Porter wrote in that strategy targets either cost leadershipdifferentiationor focus. Porter claimed that a company must only choose one of the three or risk that the business would waste precious resources.
Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies of porters. The breadth of its targeting refers to the competitive scope of the business. Porter defined two types of competitive advantage: Achieving competitive advantage results from a firm's ability to cope with the five forces better than its rivals.
The focus strategy has two variants, cost focus and differentiation focus. If a firm is targeting customers in most or all segments of an industry based on offering the lowest price, it is following a cost leadership strategy; If it targets customers in most or all segments based on attributes other than price e.
It is attempting to differentiate itself along these dimensions favorably relative to its competition. It seeks to minimize costs in areas that do not differentiate it, to remain cost competitive; or If it is focusing on one or a few segments, it is following a focus strategy.
A firm may be attempting to offer a lower cost in that scope cost focus or differentiate itself in that scope differentiation focus. Companies that pursued the highest market share position to achieve cost advantages fit under Porter's cost leadership generic strategy, but the concept of choice regarding differentiation and focus represented a new perspective.
The least profitable firms were those with moderate market share. This was sometimes referred to as the hole in the middle problem. Firms in the middle were less profitable because they did not have a viable generic strategy.
Porter suggested combining multiple strategies is successful in only one case. But combinations like cost leadership with product differentiation were seen as hard but not impossible to implement due to the potential for conflict between cost minimization and the additional cost of value-added differentiation.
Since that time, empirical research has indicated companies pursuing both differentiation and low-cost strategies may be more successful than companies pursuing only one strategy. They claim that a low cost strategy is rarely able to provide a sustainable competitive advantage.
In most cases firms end up in price wars. Instead, they claim a best cost strategy is preferred. This involves providing the best value for a relatively low price. Cost Leadership Strategy[ edit ] This strategy involves the firm winning market share by appealing to cost-conscious or price-sensitive customers.
This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio price compared to what customers receive. To succeed at offering the lowest price while still achieving profitability and a high return on investment, the firm must be able to operate at a lower cost than its rivals.
There are three main ways to achieve this. The first approach is achieving a high asset utilization. In service industries, this may mean for example a restaurant that turns tables around very quickly, or an airline that turns around flights very fast.
In manufacturing, it will involve production of high volumes of output. These approaches mean fixed costs are spread over a larger number of units of the product or service, resulting in a lower unit cost, i. For industrial firms, mass production becomes both a strategy and an end in itself.
Higher levels of output both require and result in high market share, and create an entry barrier to potential competitors, who may be unable to achieve the scale necessary to match the firms low costs and prices.
The second dimension is achieving low direct and indirect operating costs. This is achieved by offering high volumes of standardized productsoffering basic no-frills products and limiting customization and personalization of service.
Production costs are kept low by using fewer components, using standard components, and limiting the number of models produced to ensure larger production runs. Overheads are kept low by paying low wages, locating premises in low rent areas, establishing a cost-conscious culture, etc.
Maintaining this strategy requires a continuous search for cost reductions in all aspects of the business. The associated distribution strategy is to obtain the most extensive distribution possible.The Five Competitive Forces That Shape Strategy by Michael E.
Porter Included with this full-text Harvard Business Review article: The Idea in Brief— the core idea The Idea in Practice— putting the idea to work I got this list of best-selling HBR articles through our library.
I am planning read (and in some cases re-read) the articles and post a summary. Porter's Five Forces is a simple but powerful tool for understanding the competitiveness of your business environment, and for identifying your strategy's potential profitability. Michael Eugene Porter (born May 23, ) is an American academic known for his theories on economics, business strategy, and social causes.
He is the Bishop William Lawrence University Professor at Harvard Business School, and he was one of the founders of the consulting firm The Monitor Group (now part of Deloitte) and FSG, a social impact consultancy. Harvard Business Review (January-February , Special Double Issue) [Michael Porter, Mark Kramer, Paul Nunes, Tim Breen, Mark W.
Johnson, Matthew J. Eyring, Hari Nair, Rita Gunther McGrath, Chris Trimble, Joan E. Ricart] on plombier-nemours.com *FREE* shipping on qualifying offers. How to Fix Capitalism, Unleash a Wave of Growth, Placing Corporate Bets in a Post-Recession World, Are You a . In “What Is Strategy,” Porter argues against a bevy of alternate views, both old and then new, that were circulating in the intervening plombier-nemours.com particular he takes issue with the views that.