Size Up the Playing Field

Published on July 5, 2017 |

Businesses can build a strategy based on the competition. Strategy is not a reaction, but a planned response and keen understanding of competitive pressures.

First, consider the sources of competition in your industry. Michael E. Porter, a Harvard Business School economist and researcher who focuses on strategy, pinpoints four key pressure points:

• Threat of new entrants
• Bargaining power of customers
• Threat of substitute products or services
• Bargaining power of suppliers

Within these areas, companies jockey for position among competitors, according to Porter. Therefore, a strategy is born when closely analyzing each source of competition. So, what determines bargaining power for suppliers? A solid understanding of each of these components helps build a strong strategy, recognize the biggest areas for growth or differentiation, and understand a company’s biggest strengths and weaknesses.