Name- Kishan Vishwakarma

STRATEGIC MANAGEMENT
Roll NO- 119, Div- B, PGDM 2016-
18,KBS.
Q. Spell out and discuss Michael Porters five force model of competitive advantage and also briefly discuss his Generic
strategy.

Porters Five force is an analysis scheme created by Harvard Business School, Professor Michael .E. Porter.
It allows business managers to gauge the level of competition within their companys industry, and thus assess current
and potential lines of business.
The ultimate goal of this analysis is to help managers set their profitability expectations, because profitability decreases
as competition increases.
Three of the five forces relate to industry participants, the other two relate to vertical participants the suppliers and
consumers.

Lets discuss each force :-

1. The first force analysis the ease of entry for new participants in the marketplace. If entry is easy, then this factor
indicates a high level of competition.
2. The second factor evaluates the number and activity of a companys rivals. Obviously the most established rival the
greater the competition. However, a manager also needs to assess the likelihood that anyone rival can dominate the
market to detriment of all the other participants.
3. The third is the possibility of a new goods or service coming onto the market and eroding sales of established
products.
4. The fourth factor is the bargaining power of the industry suppliers. If there are few suppliers who provide a scarce
resource competition may get heavy for that resource plus increase in cost and eroding profits.
5. The fifth and the final factor is the consumers bargaining power. If the consumer has strong bargaining position then
this would drive down price for the finished goods and erode profitability.

The power of Porters five forces varies from industry to industry. Whatever be the industry, these five forces influence
the profitability as they affect the prices, the costs, and the capital investment essential for survival and competition in industry.
This five forces model also help in making strategic decisions as it is used by the managers to determine industrys competitive
structure.
 Generic Strategy of Michael Porter :-
A firm's relative position within its industry determines whether a firm's profitability is above or below the
industry average. The fundamental basis of above average profitability in the long run is sustainable
competitive advantage.
There are two basic types of competitive advantage a firm can possess: low cost or differentiation.
The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to
achieve them, lead to three generic strategies for achieving above average performance in an industry: cost
leadership, differentiation, and focus.
The focus strategy has two variants, cost focus and differentiation focus.

Lets discuss generic strategies :-

Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost
advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of
scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer must
find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership, then it
will be an above average performer in its industry, provided it can command prices at or near the industry
average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely
valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and
uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.

3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser
selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion
of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in
(b) differentiation focus a firm seeks differentiation in its target segment.
Both variants of the focus strategy rest on differences between a focuser's target segment and other segments in
the industry. The target segments must either have buyers with unusual needs or else the production and
delivery system that best serves the target segment must differ from that of other industry segments. Cost focus
exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs
of buyers in certain segments.