How Competitive Forces Shape Strategy

28 01 2010

“The key to growth—even survival—is to stake out a position that is less vulnerable to attack from head-to-head opponents, whether established or new, and less vulnerable to erosion from the direction of buyers, suppliers, and substitute goods.”

            Competition plays an incredibly important role in the development of strategy. A company must look at the position of competitors and the power of buyers and suppliers when creating or modifying their strategy.

  • Both new and existing companies in the same industry create competition. When developing a strategy, companies must take this into consideration. They have to place themselves in a way that will allow them to succeed against current and potential competitors.
  • Customers promote competition and greatly affect a company’s strategy. When customers make a decision about a product, they are choosing one company over another. There are several factors that make a customer more powerful.
  • Suppliers can only produce so much of the goods they provide. This means that companies must sometimes compete for a certain supplier. When a company is creating or modifying their strategy, they must take this into consideration. They need to set themselves up in a way that makes them more appealing to suppliers.
  • Substitute products are often overlooked when looking at competition. Companies have to be prepared to fight against similar products that could take away sales.

These are just some of the areas that companies need to look at when they are developing their strategy. Competition is so important and controls so many aspects of a company’s strategy. “Competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry.”

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