The theories of both Michael Porter and Gary Hamel have changed that way organisations strive for competitive advantage. Their ideas on competitive strategy and management innovation are now seen as essential transformational tools for businesses looking to deliver profitable growth for its stakeholders.
Michael E. Porter is a leading authority on competitive strategy, the competitiveness and economic development of nations, states, and regions, and the application of competitive principles to social problems such as health care, the environment, and corporate responsibility. He is the Bishop William Lawrence University Professor, based at Harvard Business School. (Harvard Business School, 2011) Michael Eugene Porter was one of the most influential strategists of his decade introducing a number of effective strategic concepts including; 5 forces analysis, generic strategies, the value chain, strategic groups, and clusters. He was a design ‘design school’ strategy theorists, who considered strategy to be a part of a well formed, logical planning process. Michael Porter focused on the economic foundations of competition, principles of strategy, creating and growing a strategy, organising for strategy and strategy and social responsibility. One of the most important and widely used concepts was his 5 forces framework analysis. This identifies the forces that shape a firm’s strategic environment. Porter’s 5 forces framework helps companies identify the attractiveness of an industry in terms of 5 competitive forces, the threat of entry, the threat of substitutes, the power of buyers, the power of suppliers and the extent of rivalry between the competitors. (Exploring Corporate Strategy, 2012). His concept is similar to that of a SWOT analysis and it shows how a firm can use these forces to obtain a sustainable competitive advantage. All of these factors are measured as high, medium of low. The threat of entry measures how easy it is for a business to enter the industry. The higher the threat of entry the worse it is for the existing companies within that industry. An attractive industry is that where the barriers of entry are high which decreases the threat of new competitors. Some of these barriers to entry include economies of scale, brand identity, capital requirements and government policy. (Strategy Safari, 2008) Suppliers are essential for the success of an organisation. The power of supplier’s looks at the suppliers bargaining power within that industry, not only does it include raw materials but labor and sources of capital too. The supplier gains power if there is no other substitute for their product or there are high switching costs for an organisation. The power of the buyers looks at the companies immediate customers not the overall consumers. The more powerful the buyers are the more they can demand cheaper products, prices and service enhancements, all of which are likely to reduce profits for firms within that industry. The threat of substitutes are alternative products that customers can purchase over a company’s product that offer the same benefit for the same or less price. The extent of the threat depends on the extent to which the price and performance of the substitute can match the industry’s product and the willingness of customers to switch. The final force that Porters model looks at is the intensity of rivalry among competitors. If the intensity is fierce between competitors it will encourage businesses to engage in, Price wars (competitive price reductions), Investment in innovation & new products and Intensive promotion. Porter’s generic strategies stated that there are 2 basics types of completive advantage that a firm can possess a low cost or differentiation. These categories are combined with the scope of the market the business is within and looks at the size and composition of the market they intend to target, stating whether it is narrow or broad. There are 4 generic strategies that a...
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