...diamond model by Michael Porter 3 1.1 Introduction 3 1.2 Diamond model Theory 4 1.2.1 Factor Condition 4 1.2.2 Demand conditions 5 1.2.3 Firm strategy, structure and rivalry 5 1.2.4 Related and supported industries 6 1.2.5 The role of Government 6 1.3 Criticism of the framework 7 1.4 Practical Example 7 1.5 Conclusion 8 1 2 3 4 5 6 7 8 9 1. The diamond model by Michael Porter 1 1.1 Introduction According to Recklies (2001), increasingly corporate strategies have to be seen in global context and even if an organization does not plan to import or to export has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may influence the domestic market and information technology has been reinforcing this trend. The classical models and theories related to international trade before Michael Porter’s Diamond theory, mainly proposed that the comparative advantage resides in the factors endowments that a country may be fortunate enough to inherit and these factors mainly consisted of land, natural resources, labour and the size of the local population but Porter argued though his diamond model that a nation can create new advanced factor endowments such as skilled labor, a strong technology and knowledge and knowledge base, government support and culture, in short Porter used a diamond shaped diagram...
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...THE FIVE FORCES INDUSTRY COMPETITORS. Rivalries naturally develop between companies competing in the same market. Competitors use means such as advertising, introducing new products, more attractive customer service and warranties, and price competition to enhance their standing and market share in a specific industry. To Porter, the intensity of this rivalry is the result of factors like equally balanced companies, slow growth within an industry, high fixed costs, lack of product differentiation, overcapacity and price-cutting, diverse competitors, high-stakes investment, and the high risk of industry exit. There are also market entry barriers. PRESSURE FROM SUBSTITUTE PRODUCTS. Substitute products are the natural result of industry competition, but they place a limit on profitability within the industry. A substitute product involves the search for a product that can do the same function as the product the industry already produces. Porter uses the example of security brokers, who increasingly face substitutes in the form of real estate, money-market funds, and insurance. Substitute products take on added importance as their availability increases. BARGAINING POWER OF SUPPLIERS. Suppliers have a great deal of influence over an industry as they affect price increases and product quality. A supplier group exerts even more power over an industry if it is dominated by a few companies, there are no substitute products, the industry is not an important consumer for the suppliers...
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..."The Diamond Model of Porter – Four Determinants of National Competitive Advantage Four attributes of a nation comprise Michael Porter's "Diamond" of national advantage. They are: 1. Factor conditions (i.e. the nation's position in factors of production, such as skilled labour and infrastructure), 2. Demand conditions (i.e. sophisticated customers in home market), 3. Related and supporting industries, and 4. Firm strategy, structure and rivalry (i.e. conditions for organization of companies, and the nature of domestic rivalry). Factor Conditions Factor conditions refers to inputs used as factors of production – such as labour, land, natural resources, capital and infrastructure. This sounds similar to standard economic theory, but Porter argues that the "key" factors of production (or specialized factors) are created, not inherited. Specialized factors of production are skilled labour, capital and infrastructure. "Non-key" factors or general use factors, such as unskilled labour and raw materials, can be obtained by any company and, hence, do not generate sustained competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable. Porter argues that a lack of resources often actually helps countries to become competitive (call it selected factor disadvantage). Abundance generates waste and scarcity...
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...Michael Porter’s article describes the difference between operational efficiency and strategy by providing detail examples throughout the article. Porter explains how operational efficiency is key to any business but should not be the driver for business success. He outlines how strategy is the key to any business by creating a unique and valuable position within a market even though there could be trade-offs. Porter refers to operational efficiency as performing industry wide actions better then your competitors. He provided an example of when Japanese’s electronic manufactures where able to lower cost and still provide top notch quality in the 1980’s. These manufactures quickly realized they were unable secure key market real estate within Japan. They need to change their strategic position. He simply showed how operational efficiency is not the way to sustain business as once these activities are known in the industry all similar companies will replicate them. Porter refers to strategic position as performing industry wide actions in a complete different way. Porter uses Southwest Airlines and IKEA as companies who have used their strategic position to their fullest. Southwest airlines deliberately chose a different way to perform existing activities by using a Needs-Based source. Porter argues there are 3 key sources of strategic positioning and the only way to gain advantages; Variety-Base Positioning, Needs-Based Positioning, and Access-Based Positioning. These positions...
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...Supermarket Industry Porters 5 Force’s Porter (1980) illustrates in this analytical tool 5 variables that determine the attractiveness of an industry for organisations in terms of profitability in their immediate environment. Using the forces in this model we can analyse how attractive the UK Supermarket industry is to enter, the 5 forces are as follows. The threat of potential new entrants Barriers to entry in the UK supermarket industry relies on the entrants capability of matching capital requirements of existing firms, the UK supermarket industry is dominated by firms known as Tesco, Asda, Sainsbury’s and Morrison’s (Big 4) owing up to 69% of market share in the UK. Looking at the experience curve (1960: Boston Consultancy Group) A new entrant would have to achieve the economies of scale needed to achieve cost parity with the big 4 and compete on cost advantage. In the supermarket industry achieving economies of scale is not on production but other factors such as efficiency, pricing, range of goods and value of products. Tesco for example have very low cost margins in comparison to the scale of their operations and distribution channels but they are able to achieve high sales because the convenience, range of products and different services they offer. Product differentiation is another barrier to entry, a new entrant would need to achieve and individual level of differentiation and attain an identity through promotions and costly advertising, total advertising...
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...analysis and business strategy development. (Porter, M.E. 2008) Using Porter's five forces analysis is a way to figure out the different firms competition levels and force of said "attractiveness" of a market. "Attractiveness" being used in the context of the end all, be all of a industry's profitability. On the other hand, an unattractive industry refers to the combination of all five of the forces acting to drive down the overall profitability. (Porter, M.E. 2008) Three of the five forces of Porters refer to the competition derived from external sources, the remaining two are both internal threats. Porter looked at the forces as the micro environment, that way it would highly contrast against the more commonly known term "macro environment". These forces are close the company and greatly affect the company's ability to serves its customers and make a profit also. If a change were to occur it will normally result in a business having to re-evaluate and re-asses the marketplace to see what overall changes in the company would have to be made to keep up with the market. This however, does not go to say that every firm or company will have the same amount of profit. A company with clear objectives is more likely to achieve a profit over a company with less clear objectives. It comes down to the company's core competences and how the company comes together to work together to achieve their goals. When looking at Porters five forces, there are three forces know as horizontal...
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...Porter Airlines Critique Assignment 1. A comfortable and safe passenger jet is the basement of excellent customer service. If Porter raises the bar of customer service, Bombardier will have to react (i.e. modify or upgrade aircrafts) to meet Porter’s demand. But airline industry is highly competitive and has relatively low margin, while the cost to improve customer service can be rather high. Even if Bombardier can react fast enough to meet the ever-changing demand from airlines, how does it negotiate the high cost associated with R&D with airlines? Bombardier must consider the cost and benefit before accepting airlines’ offer. Another issue become more salient as Bombardier is losing its supplier power. Its performance on stock market is unsatisfying, and it desperately needs more support and orders from airlines (Van Praet, 2015). Therefore Bombardier’s reliance on Porter grows bigger, undermining its bargaining power when making offers with airlines. On the other hand, to compete with Air Canada and Westjet, Porter is considering to expand its destinations, that is, to include in more long-haul routes to attract customers (Owram, 2015). Although Bombardier C-series has the capacity to meet Porter’s expansion plan for now, it’s hard to say whether Bombardier has the capability to meet Porter’s expansion in the long run. By then Porter can turn to Boeing or Airbus for more advanced long-haul airplanes. Consequently, Bombardier’s poor performance and Porter’s growing...
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...ABSTRACT 4 Key Words 4 INTRODUCTION 5 COST LEADERSHIP STRATEGY 5 Major Reliance on Modern Capital Equipment 7 Relying on the Experience Curve to Underprice Competition Risky 7 A Cost Leader Cannot Ignore Differentiation 8 No Such Thing as a "Commodity": Everything Can Be Differentiated 9 High Market Share a Prior Condition for Cost Leadership? 10 Porter Identifies High Market Share with Cost Leadership Strategy 10 Differentiation--Not Cost Leadership Alone--Behind GM’s and Whirlpool’s Success 11 “Low-Cost” or “Low-Price” Strategy? 12 Thompson and Strickland’s Low-cost Provider Strategy 14 Internal Orientation of Cost Leadership Strategy 14 DIFFERENTIATION STRATEGY 15 Superiority of Differentiation over Cost Leadership Strategy 16 Porter: Differentiation and High Market Share Incompatible 17 Differentiation Compatible with High Market Share--and Low Cost 18 Even higher quality may lead to lower cost 18 High Market Share Contributes to Long-term Competitive Advantage 20 Market Share Leadership Enhances Differentiation 20 “PURE” COST LEADERSHIP STRATEGY VS. COST LEADERSHIP AS A RESULT OF DIFFERENTIATION STRATEGY 20 Porter: “Pure” Cost Leadership Strategy Incompatible with Differentiation Strategy 21 The Importance of Organizational...
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...that today in most companies be it diminutive or immense, competitive advantage runs through their daily operations. Simply by wanting to achieve higher profit than the average competitor in the product market (Porter,1980).Companies seek to use their understanding to outline their market offers to deliver more value to the customers. They do so by applying competitive strategy; which according to Porter (1980) is the search to find a favorable competitive position in an industry. It aims is to establish profitable and sustainable position against the forces that determine industry competition. Therefore competitive strategy is about beating the competition. To achieve such goals Michael Porter and other advocates such as Mintzberg, McGee and Bowman suggested few market positioning approaches and models. The three main approaches are Porter Generic Competitive Strategies, Mintzberg market positioning and customer matrix. To add up, models such as product life cycle, Porter Five forces model, Strategic Grouping and Scenario planning also help to formulate the competitive strategy of a business. Porters Five forces model is the key influence to other models. This model determines industry profitability because it influences the price, cost and return on investment. Porter believes that the five forces is more than just competing with direct competitors but also fighting for profits. In any industry no matter what it produces whether product or service of any type, there are five...
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...Business Strategy 4 External Environment Prof. Dr. Bernd Venohr Berlin, April 2007 © 2007 Prof. Dr. Bernd Venohr Agenda Introduction to Strategy 1 2 3 4 5 6 7 8 9 Course Overview and Strategy Concept Economics of Strategy Shareholder Value External Environment Internal Environment Competitive Positioning Diversification Mergers & Acquisitions Global Strategy Business Strategy Corporate Strategy Strategy Process 10 Organizational Structure and Control 11 Strategic Leadership © 2007 Prof. Dr. Bernd Venohr 2 Agenda Introduction to Strategy 4 External Environment - General environment analysis - Industry analysis - Summary and Outlook next Session © 2007 Prof. Dr. Bernd Venohr 3 Where are we today? Introduction to Strategy 1 Course Overview Strategy Concept 2 Economics of Strategy 3 Business Strategy 4 External Environment Shareholder Value Corporate Strategy 7 8 Diversification Global Strategy 5 Internal Environment 6 Competitive Positioning Mergers & Acquisitions 9 Strategy Process 10 Organizational Structure and Control 11 Leadership © 2007 Prof. Dr. Bernd Venohr Strategic 4 General purpose of external analysis Identify Opportunities: conditions that may help firm achieve strategic competitiveness Threats: hinders or constrains firm’s pursuit of strategic competitiveness Two types of environment Macro environment Micro environment (industry) Source: Robert M. Grant...
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...ABSTRACT 4 Key Words 4 INTRODUCTION 5 COST LEADERSHIP STRATEGY 5 Major Reliance on Modern Capital Equipment 7 Relying on the Experience Curve to Underprice Competition Risky 7 A Cost Leader Cannot Ignore Differentiation 8 No Such Thing as a "Commodity": Everything Can Be Differentiated 9 High Market Share a Prior Condition for Cost Leadership? 10 Porter Identifies High Market Share with Cost Leadership Strategy 10 Differentiation--Not Cost Leadership Alone--Behind GM’s and Whirlpool’s Success 11 “Low-Cost” or “Low-Price” Strategy? 12 Thompson and Strickland’s Low-cost Provider Strategy 14 Internal Orientation of Cost Leadership Strategy 14 DIFFERENTIATION STRATEGY 15 Superiority of Differentiation over Cost Leadership Strategy 16 Porter: Differentiation and High Market Share Incompatible 17 Differentiation Compatible with High Market Share--and Low Cost 18 Even higher quality may lead to lower cost 18 High Market Share Contributes to Long-term Competitive Advantage 20 Market Share Leadership Enhances Differentiation 20 “PURE” COST LEADERSHIP STRATEGY VS. COST LEADERSHIP AS A RESULT OF DIFFERENTIATION STRATEGY 20 Porter: “Pure” Cost Leadership Strategy Incompatible with Differentiation Strategy 21 The Importance of Organizational Culture...
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...Edwin S. Porter Edwin S. Porter was born April 21, 1870, in Connellsville, Pennsylvania. In 1897, he invented the Beadnell film projector. As the Edison Company's director-cameraman, Porter filmed The Great Train Robbery. He later invested in his own film equipment company, but the 1929 stock market crash put him out of business. In the 1930s he worked on home-movie cameras. He died on April 3, 1941, in New York City. (Biography.com) 'Life of an American Fireman' combined stock actuality footage of fires, firemen and fire engines with dramatised scenes which Porter shot, this juxtaposition added tension and release to the film making it truly dramatic in contemporary setting, unlike Méliès whose filmatic drama was derived from his films’...
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...including references ) Essay Topic: 1. D.W Griffith, who is often referred to as the father of film, was influenced by the works of Edwin S. Porter. Porter’s two film’s Life of and American Fireman (1903) and The Great Train Robbery (1903) display some of the early innovations in filmmaking that were instrumental in the development of film language. By examining the films of Porter and Griffith ( Birth of the Nation (1915)) , discuss in detail the manner in which Griffith was influenced by the works of Edwin S. Porter in establishing the basic vocabulary of filmmaking and editing . The film industry in contemporary society has proven itself to be one of the most popular forms of entertainment and information. Films produced these days have made way for a thriving industry. It is important to understand how these films are made and in particular how the cinema culture has evolved. D.W Griffith was a prominent figure in creating films during the early 1900s. His work was based on the basic narrative ideas for film that were formally introduced by Edwin S Porter, another critical figure in cinematic history. This essay will discuss how the works of Porter influenced D.W Griffith in developing the basic vocabulary of filmmaking and editing with reference to the early films of both these filmmakers. During the silent film era, Porter introduced the use of continuity editing and different styles of scene-cutting, (Cook, 2004:18). Porter’s first experiment with films was one-shot...
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...Michael Porter is associated with the positioning school (Mintzberg 2002:23), who‟s analytical approach sees strategy making mainly based on a process to identify drivers(forces) of intra-industry competition and its corresponding barriers. His reasoning is based on the assumption that a company who deliberately choose a position within an industry and at the same time is able to combine activities in a different fashion, can create sustainable competitive advantages that will lead to profitability and with it sustain competition. Aside this more general position of Porter, in an article from 1996, he asks “What is Strategy” and discussed operational efficiency in connection with strategy making and he advised that those two things should not (can not) be used interchangeably. Below their is a summary of Porter‟s main arguments from his article and what he sees as main components on strategy and how to distinguish between operational efficiency and strategy. SUMMARY The ability the make an informed decision about how, when and where to target a customer group, facilitate resources and set objectives(limits) makes the difference between a manager who thinks from a strategic perspective in light of what might emerge in future. Anticipating those movements into current decision-making helps to set a stage to create sustainable advantages. Porter argues that positioning is still a notable way to shape advantages within a company and sees hypercompetition as rather...
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...proceeding to any movement. The analysis must be conducted in a fair manner and give to meaningful results that will take the right decision for the future. Many schools give a lot of methods of market analysis. In addition to the well-known SWAT and PEST analysis, there are many other approaches such as Value Chain Analysis, Porters Five forces, Core Competencies and Stakeholder Mapping that may be useful. This work will present two approaches of strategic analysis process such as Value Chain Management and Potters Five Forces. Those two methods seem to be the most authoritative and covering the largest range methods. The information and conclusions drawn from them give a clear view of the situation in which the company is located and whether the plans for the future have any chance of entry into force and to bring relevant results. The first section presents the method of analysis of the value chain, its advantages and disadvantages, and presented examples of its application in practice, as typified by several companies. In the next part in a similar manner presented the advantages and disadvantages of the Potters five forces, also supported by examples of application. Finally, a brief summary is presented. 2. Value Chain Analysis Value Chain Analysis is one of the methods of analysis of the strategic potential of the company, which is a "resource approach", which sources of success the company is looking for in the company. Value chain on the one hand refers to the...
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