Competitive Strategy

How competitive forces shape strategy

Michael E. Porter

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BUsiness Review __ ~.. ~

i""'"'RAR'Y BOND UN\VERS\T'{ LIt;

No. 79208

41 .P67 1988 Supp.3

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How competitive forces shape strategy

Awareness of these forces can help a company stake out a position in its industry that is less vulnerable to attack

Michael E. Porter

The nature and degree of competition in an industry hinge on five forces: the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services (where applicable), and the jockeying among current contestants. To establish a strategic agenda for dealing with these contending currents and to grow despite them, a company must understand how they work in its industry and how they affect the company in its particular situation. The author details how these forces operate and suggests ways of adjusting to them, and, where possible, of taking advantage of them. Mr. Porter is a specialist in industrial economics and business strategy. An associate professor of business administration at the Harvard Business School, he has created a course there entitled "Industry and Competitive Analysis." He sits on the boards of three companies and

consults on strategy matters, and he has written many articles for economics journals and published two books. One of them, Interbrand Choice, Strategy and Bilateral Market Power (Harvard University Press) 1976) is an outgrowth of his doctoral thesis, for which he won the coveted Wells prize awarded by the Harvard economics department. He has recently completed two book manuscripts, one on competitive analysis in industry and the other (written with Michael Spence and Richard Caves) on competition in the open economy.

The essence of strategy formulation is coping with competition. Yet it is easy to view competition too narrowly and too pessimistically. While one sometimes...