Strategic Management

Strategic management

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Eduardo de Nubila

Summary

After explaining its framework about the industry underlying five forces that shape competition and determine profitability, Porter highlights the factors that may influence industry dynamics as well. There are several factors that must no be confused with the industry underlying structural forces, such as the government, technology or complementary products or services.

Complementary products are ones that enhance the overall value of a final product when combined with one that eases an ideal union. Complements are deemed as an important factor because they have the potential to affect the demand for a product in and industry. They are not to be confused with a force, just like government or technology, because the presence or absence of complementary products is neither good nor bad.

Complements can either raise the barriers to entry or lower them. In the software developer business, Microsoft provided a set of tools from which almost anyone could draw from and write applications. Instead, the video game industry needed specific producers of complements thereby raising barriers.

Likewise, complements can influence the extent to which substitutes may or may not influence competition. When cars use alternative energy, its difficult to use complementary products such as gas and conventional fuel stations thereby raising the force of substitutes. On the online music industry, the ease of electronic devices and online music purchases is a healthy complementary bond that makes the presence of substitutes such as CDs negligible.

The five forces framework constitutes a mental scheme that provides a lenses through which the nature and structure of an industry can be better understood. However, the industry might change and can undertake modest adjustments, or may change abruptly. Shifts in industry structure may be caused by internal forces or by external events that can either raise or limit the segment’s profitability.

Strategists must be aware of changes in the seven types of barriers that configure the barriers to entry of an industry. Patents in the pharmaceutical segment or licenses are an example of industry barriers. Likewise, decisions of industry leaders tend to affect the rivalry and entry. For instance, decisions undertaken by WalMart to ease supply chain and invest in inventory control and procurement made it difficult for retailers to enter the industry.

Supplier and consumer bargaining power may change as well. For instance, the appliance industry has witnessed