Chapters 3 & 5
Driving Forces,
Porter’s 5 Forces,
Generic Competitive
Strategy, and Market
Positioning Maps
McGraw-Hill/Irwin
Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved.
External Environmental Factors
Shaping A Company’s Choice of
Strategy
3-2
The Concept of Driving Forces
Driving Forces are
powerful external
influences acting to
reshape the industry
landscape and alter
competitive conditions.
3-3
Common Driving Forces
 Changes in long-term industry growth
rate
 Increasing globalization
of the industry
 Changes in who buys the
product and how they use it
 Product innovation
 Technological change
 Entry or exit of major firms
3-4
Analyzing Driving Forces
1.
Identify forces
likely to reshape
industry competitive
conditions

Changes likely to take place within
next 1 – 3 years

Usually no more than 3 - 4
factors qualify as real drivers of
change
3-5
Analyzing Driving Forces
2.
3.
Assess impact of driving forces on
industry attractiveness

Are the driving forces causing demand for
product to increase or decrease?

Are the driving forces acting to make
competition more or less intense?

Will the driving forces lead to higher or lower
industry profitability?
Determine what strategy changes
are needed to prepare for impact of
driving forces
3-6
Driving Forces – Case Analysis
Tool
Force
Comments
3-7
Porter’s Five Forces
One of the most common
frameworks for assessing
the structure of an
industry.
3-8
The Five Forces
 Buyer Power
 Supplier Power
 Threat of New Entrants
 Threat of Substitutes
 Rivalry
3-9
Porter’s Five Forces Model of
Competition
3-10
Porter’s Five Forces – Case
Analysis Tool
Force
High/
Moderate/
Low
Comments
Buyer Power
Supplier Power
Threat of New
Entrants
Threat of
Substitutes
Rivalry
3-11
Generic Competitive Strategy – Low
Cost
 Option 1: Use
lower-cost edge
to under-price competitors
and increase market share
 Option 2: Maintain present price, be
content with present market share,
and use lower-cost edge to earn a
higher profit margin on each unit sold
3-12
Generic Competitive Strategy –
Differentiation
 Powerful competitive approach
whenever buyers’ needs and
preferences are too diverse to be
fully satisfied by a standardized
product or service
3-13
Generic Competitive Strategy –
Differentiation
 Incorporate differentiating features that
cause buyers to prefer firm’s
product or service over brands of
rivals
 Not spending more to achieve
differentiation than the price
premium that customers are
willing to pay for all
the differentiating extras
3-14
The Five Generic Competitive
Strategies
3-15
Generic Competitive Strategy –
Case Analysis Tool
Competitor
Generic
Comments
Competitive
Strategy
3-16
Market Positioning Maps
One of the most common
ways of comparing
competitors in an industry.
Important to have
DIFFERENTIABLE X & Y
Axes.
3-17
Common X/Y Axis Criteria
 Price
 Product selection / product features
 Distribution network
 Resource bases
 Business model
3-18
Market Positioning Maps – Case
Analysis Example
3-19