Video instructions and help with filling out and completing What Form 5495 Strategies

Instructions and Help about What Form 5495 Strategies

I'm Tom Stewart editor and managing director of the Harvard Business Review our guest today is Michael Porter professor at Harvard University and head of the Institute for strategy and competitiveness he is the author of the forthcoming HBR article the five competitive forces that shape strategy a reaffirmation update and extension of his groundbreaking 1979 article how competitive forces shape strategy Mike thanks for joining the program to start let's remind our viewers of what the five competitive forces are well Tom the basic idea of the competitive forces starts with the notion that competition is often looked at too narrowly by managers and the Five Forces say that yes you're competing with your direct competitors but you're also in a fight for profits with a broader extended set of competitors customers who have bargaining power suppliers who can have bargaining power new entrants who might come in and kind of grab a piece of the action and and substitute products or services that essentially place a constraint or a cap on your profitability and growth so the Five Forces is kind of a holistic way of looking at any industry understanding the structural underlying drivers of profitability and competition so I use these to think about my rival makes it difficult for me the threat of substitutes means I can't overcharge the threat of new entrants means I can't overcharge right and and the same thing the same thing with the bottle advisors class and and the end there's underlying drivers of each of those forces that that the model really sort of unveils and then you can actually apply this every industry is different every industry will have a different set of economic fundamentals but the Five Forces help you home in on first of all what's really causing profitability your industry what are the trends of the most likely to be significant and changing them to get the game in the industry you know where are the constraints which which if you can relax them might allow you to find a really strong competitive position so how would you apply this analysis to an mystery Airlines for example Airlines is a great industry it's actually you'll see in the article you've seen in the article that that there's a chart that compares profitability of industries and Airlines I think has been on the bottom of that list for decades it's a month one the least profitable industries known to man and and and the Five Forces really allows you very quickly to understand why I mean let's just let's just go around the go around the chart that nature of rivalry is incredibly intense and it's almost exclusively on price it's been very hard to differentiate to get the customer to wait even an extra two or three minutes for another flight if they can get on the fly to the cheaper price so there's there's been a very intense price competition low barriers to entry a constant stream of new airlines coming into the industry despite the fact that the probability is low it's always puzzling the low barriers to entry because you can rent a plane you know the kind of pain you can Lisa gate you know it's all generic technology you can you can start with one flight between two city pairs you don't have to you know there's no real need to have a whole network in the beginning and yet people keep coming in I think it's just one of those sexy industry it's a great example of how sexiness or coolness or hotness or sheepish has nothing to do with industry profitability it's the underlying structure is what drives profitability you know the the customer is very fickle and price sensitive suppliers of aircraft and aircraft engines and and even aircraft gates at airports now have a lot of clout they can bargain away mark most of the profits you know GE and rolls-royce and and and Airbus and Boeing make a lot more money than Airlines they get most of the profit and then of course there's always a substitute of getting on the train or driving your car or or shipping your goods by by by air and and that that's kind of kept to continue have powerful suppliers of labor to that's another powerful all right exactly here there's a great case where you have where you have unionized labor and and and and in unlike other industries and this in this industry particularly with the pilots the labor can literally shut you down and there's no way around them so it's an industry where there are spurts of what you might call mediocre profitability punctuated by long pier areas of terrible profitability so every one of the five forces is very strong in that industry and you could take another industry where the Five Forces are relatively benign like soft drinks I mean soft drinks has been a license to commit money and again it's the opposite kind of analysis when I talk with students we kind of joke around there's five star industries where all the forces are attractive like soft drinks there's zero star industries where all the forces are unfavorable like Airlines and and we're always trying to understand okay what's the configuration of underlying economic drivers that's going to really shape the proper potential of this industry and then armed with that insight what do I do about it you know how do I try to relax the constraint that's holding back industry profitability how can I position myself to kind of insulate from some of the the gales gale winds of those forces and those implications of the Five Forces are something that this new article has developed in much more detail you conceived this framework nearly three decades ago and it has been the most extensively used both in management scholarship and management practice of any of any