There are a number of
frameworks to help understand and define industry attractiveness.
Fahey and Narayanan,
1986 Social Technical Economic Political (STEP Analysis),
Defining competitive advantage,
Kay, Prahalad & Hamel,
Fit vs. Stretch and leverage,
Sources of cost advantage
Types of Differentiation.
Grants, Defining competitive advantage 1995
When two firms compete (i.e., when they locate within the same market and are capable of supplying the same customers), one firm possesses a competitive advantage over the other when it earns a higher rate of profit or has the potential to earn a higher rate of profit.
Hendersons Competitive Advantage 1989
Your most dangerous competitors are those that are most like you. The differences between you and your competitors are the basis of your advantage.
Kay, Prahalad & Hamel, Fit vs. Stretch and leverage
Business success is based on an effective match between the external relationships of a firm and its own distinctive capabilities.
Hamel and Prahalad, 1993
1. Creating a chasm between an organisation’s resources and capabilities, and its ambitions.
2. Bridging the chasm through leveraging resources and capabilities.
Mintzberg et.al., 1995 Types of Differentiation
· Support (or Product Complementary)
· Non-Differentiated (or Imitation)
The most applied model to defining competitive forces within an industry is
Michael Porters1980, five forces. The model defines rivalry amongst existing firms but its strength lies in adding competitive forces that influence the attractiveness and profitability of the industry.
Bargaining power of suppliers (a corner shop cannot negotiate the same terms as a supermarket)
Threat of substitute products or services (fast food purchase pizza substituted for a burger purchase)
Bargaining power of buyers (purchases can choose where, what, when and how much to spend)
Threat of new entrants (how easy is it to setup a competing business or exit the industry)
The forces represent attractiveness of the industry. A point to consider with any analysis you undertake it’s a snap shot in time. The macro environment can be disrupted for example by a new entrant, changes in national or regional economy; environment or political change may lead to new legislation.