Competitive Forces


Competitive strategy has become an area of specialty among management researchers and consultants. These specialists find that the competition within an industry is constrained by an underlying structure consisting of five powerful driving forces:

a)    Rivalry among existing firms in the industry

b)   The threat of new firms entering the industry

c)    The bargaining power of suppliers to the industry

d)   The bargaining power of the buyers from the industry

e)    The threat of substitute products or services

The underlying forces determine the profit margins that are characteristic of the industry. They limit the prospects for greater than normal profit margins. They influence the intensity of the competition and the long-term probable outcome of the competition. To entrepreneurs who are not familiar with these forces represent fate.

We often attribute the success of an entrepreneurial venture to its entrepreneur. We shouldn’t detract from the importance of the leader in a new venture, but it is very important to recognize that there are other forces that contribute to the success. A super individual with a good product entering an industry with an adverse underlying structure may have little success. A lessor individual entering an industry with a more favorable structure may succeed despite mistakes and misjudgments.

There may be many factors that influence a business firm’s performance in the short term. These factors are transient such as economic conditions, material shortages or strikes. In the long term, however, the five underlying structural forces determine the potential returns achievable by the industry. The various firms competing within an industry are thereby limited in their potential profit margins and returns on investment.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

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Impact of Time-based Competition on Employees


The level of financial performance improvements achieved by companies as they become time-based competitors is difficult to match with conventional cost-cutting techniques. For example, the improvements are completely out of the range of what is achievable by the following methods:

  • Cutting direct labor wages through renegotiation or going offshore.
  • Reducing overheads by de-layering management structures and/or narrowing the line of products and services offered
  • Automation short of the
  • ‘people-less’ factory
  • Obtaining superior economies of scale.

The only way to achieve this degree of performance improvement is by transforming the company into a time-based competitor. Furthermore, the transformation must be made before a competitor makes it.

 

Probably as important, and maybe even more important than the profit improvements, though, are the intangible rewards to the organization of being a time-based competitor. People like to believe they are winners. Growth and improvements in financial indicators clearly tell an organization and the world that that they are winners.

 

Competitors of time-based competitors are often frustrated by their inability to match the growth and returns of their rivals. But they may misjudge the competitive factors contributing to their difficulties. Many complain that their industry is one where no one can make money because of cut-throat competition by companies that do not know how to make money. On two points they are correct: the competition is cut-throat and it is their throats that are being cut. This is the classic case of the retreating competition not understanding the strategy and capability of the advancing competitor.

 

Management should look to time-based competition not only as a source of above-average returns but also as opportunity to make their people feel like winners.

 

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight