Mapping competitive forces: horizontally and vertically
Porter’s Competitive Strategy (1980) focused principally on analysis at the industry level. However, this could be inappropriate, partic- ularly as the competitive landscape for a busi- ness might be of highly variable attractiveness. For example, consider the fees for a one-day strategy course, comparing rates from inde- pendent consultants to that of a business school, with daily rates ranging from £1000 to over £10,000 per day. When Porter posed the question ‘Why are some industries more attractive than others?’, it is necessary to answer with ‘It depends on which product/ market/sector you are talking about’. Industry structures are like a landscape and highly vari- able in their attractiveness, meaning that Porter’s model must be used in a more dis- criminating and localized way to describe them. This ‘attractiveness’ can be represented in two-dimensional space, horizontally across sectors and vertically, in terms of the extent to which it is focused on differentiation versus cost leadership. Simple matrices like Figure 16 might help managers in their thinking. Three ticks means ‘favourable’, whilst two ticks are ‘neutral’and one tick is ‘unfavourable’. Figure 16 illustrates this with the different sectors of the funerals industry.
Figure 17 now examines the competitive forces map within the carpet cleaning market
Copyright © 2006 John Wiley & Sons, Ltd. Strategic Change, August 2006 DOI: 10.1002/jsc
Favourable
TIME – Transaction cycle
Bargaining power
Figure 15. Micro-level competitive dynamics.
in the UK, 1995–2004. Previously, apart from one or two deluxe models like the ‘Kirby’, the vast majority of models were of similar per- ceived use value and price. Following Dyson’s entry with a bagless, cyclonic, modern- looking and premium-priced model, the com- petitive map of the industry was altered.
The majority of purchases became cyclonic and premium-priced, but they left a void at the bottom of the market, whereby 2003–4, new entrants emerged and Hoover began to capture share with light, cyclonic, cheap machines priced at £30–£50 each. Here the overall com- petitive shape of the market has moved from a more pyramid shape to an eclipse. Pictures like Figure 17 can help managers to explore and create competitive changes.
A final application of Porter’s five forces is at a micro level to departments, projects and to individual roles, for each one of Porter’s five forces may be very relevant to each one of these situations. For example, an individual may face rivals, might be substituted or have to try to fend off new entrants to his/her value- adding role.
In conclusion it is necessary to break down the analysis of Porter’s five forces on a segment-by-segment or on a mini strategy basis. This helps to make Porter’s framework far more context-specific and applicable at the firm level. Indeed, Porter’s model can be applied right down to the project level and to the level of an individual’s role where there may be variable rivalry, substitutes, bargaining power, etc. Indeed, in teaching Porter’s five forces these less obvious applications are often found to be perceived of higher value by managers.
The above has explored more advanced ways of applying Porter’s five forces at a more general level. This can now be applied more specifically using the health club industry in the UK as an example.
Competitive pressure in the health club industry 1995–2004 (a case study)
In 1995 the UK health club industry was at a turning point.The recession of the early 1990s
Porter’s five forces model 225
Copyright © 2006 John Wiley & Sons, Ltd. Strategic Change, August 2006 DOI: 10.1002/jsc
Substitutes
Rivalry
Entry barriers
Buyer Power
Basic funerals
Deluxe funerals
Pre-need market
Overall attractiveness
Supplier Power
13 1114
Figure 16. Porter’s five forces: segmentation.
Kirby
Dyson Dyson Look- alikes
Residual bagged machines
New, light machines
Premium Bagged
Differentiation
Vertical
Cost Leadership
HorizontalSegments Segments