1. Frameworks Porter’s Five Forces Value Disciplines
Buyer; Supplier; Substitutes; Entry Barriers; Competitive Rivalry
Value Disciplines
Operational Excellence; Product Leadership; Customer Intimacy
“What you seek is seeking you.”
~Rumi
Salman Azhar & Friends in 2018

2. Porter’s Five Forces Who is Michael Porter?
Patron saint of business students & consultants
Excellent tool for framing market entry questions
Focuses on profitability
Applicable across multiple industries & markets
The importance of each force varies based on the situation
Rivalry among Existing Competitors
Entry Barriers
Buyer Power
Substitute Power
Supplier Power
Salman Azhar & Friends in 2018

3. Porter’s Five Forces: Buyer Power
Buyers/seller ratio
Number
Frequency
Substitute products or services
Loyalty
Switching costs
Differentiation
Price sensitivity (relative price)
Consequences
Examples?
iPhone
Android phones
Angiomax
Rivalry among Existing Competitors
Entry Barriers
Buyer Power
* Buyers/seller ratio
* Substitute products or services
Substitute Power
Supplier Power
What factors impact Buyer Power?
Can use iPhone and Angiomax if they don’t come up with anything else
Salman Azhar & Friends in 2018

4. Porter’s Five Forces: Supplier Power
Concentration & size relative to the industry
Fragmented vs. consolidated
% of purchases from a supplier
Alternative suppliers
Contracts
Switching costs
Differentiation
Price sensitivity (relative price)
Consequences
Examples
Labor: doctors & pilots
Raw materials
iPhone parts
Rivalry among Existing Competitors
Entry Barriers
Buyer Power
* Buyers/seller ratio
* Substitute products or services
Substitute Power
Supplier Power
* Concentration & size relative to the industry
* Alternative suppliers
What factors impact Supplier Power?
About 6!
How many parts in an iPhone?
~1000
Salman Azhar & Friends in 2018

5. Porter’s Five Forces: Substitute Power
Decision factors:
Relative price
Relative quality of substitute
Switching costs
High switching costs reduce substitutes’ power
Key features
Meet same need/want in a same/different way
Hard to anticipate
Examples:
Mac vs. Windows?
iPhone vs. Android?
Rivalry among Existing Competitors
Entry Barriers
Buyer Power
* Buyers/seller ratio
* Substitute products or services
Substitute Power
* Relative price
* Switching costs
* Quality
* Features
Supplier Power
* Concentration & size relative to the industry
* Alternative suppliers
Why?
How can substitutes be a threat?
Corporate culture of self-congratulatory delusion!
Salman Azhar & Friends in 2018

6. Porter’s Five Forces: Entry Barriers
Product differentiation
Access to distribution channels
Economies of scale
Spread fixed costs
Lower supplier power
Network effects
Value to users increases as the number of users grows
E.g., Facebook, Google
Capital requirements
Threat of retaliation
Legal barriers
Regulatory barriers
IP protection (workarounds?)
Rivalry among Existing Competitors
Entry Barriers
* Product differentiation
* Distribution channels
* Economies of scale
* Network effects
* Threat of retaliation
* Capital/Legal
Buyer Power
* Buyers/seller ratio
* Substitute products or services
Substitute Power
* Relative price
* Switching costs
* Quality
* Features
Supplier Power
* Concentration & size relative to the industry
* Alternative suppliers
What prevents new entrants into the market
Salman Azhar & Friends in 2018

7. Porter’s Five Forces: Rivalry
Competitors
Number
Relative size
Intensity of competition
Sustainable competitive advantage through innovation
Industry growth rate
Degree of transparency
Rivalry
* Competitors
* Innovation
* Industry growth rate
* Transparency
Entry Barriers
* Product differentiation
* Distribution channels
* Economies of scale
* Network effects
* Threat of retaliation
* Capital/Legal
Buyer Power
* Buyers/seller ratio
* Substitute products or services
Substitute Power
* Relative price
* Switching costs
* Quality
* Features
Supplier Power
* Concentration & size relative to the industry
* Alternative suppliers
What types of rivalries exist between competitors?
Salman Azhar & Friends in 2018

8. Porter’s Five Forces: Summary
Excellent for deciding which markets to enter
Focus on forces applicable to your business
Ignore others
Rivalry
* Competitors
* Innovation
* Industry growth rate
* Transparency
Entry Barriers
* Product differentiation
* Distribution channels
* Economies of scale
* Network effects
* Threat of retaliation
* Capital/Legal
Buyer Power
* Buyers/seller ratio
* Substitute products or services
Substitute Power
* Relative price
* Switching costs
* Quality
* Features
Supplier Power
* Concentration & size relative to the industry
* Alternative suppliers
Salman Azhar & Friends in 2018

9. Salman Azhar & Friends in 2018
Value Chain
You’re part of a value chain
Value creating activities need to be:
Identified
Tracked
Improved
Benchmarked against competitors
Success depends on how well each department:
Works to deliver value
Coordinates within and outside the company
Or food chain 
Salman Azhar & Friends in 2018

10. Value Creation: Core Business Processes
Gather and act on market information
Market-sensing:
R&D and launch within budget
New-offering realization:
Identify target markets & gain customers
Customer acquisition:
Build deeper understanding of & relationship with customers
CRM:
Processing & shipping goods, collecting money
Fulfillment Management:
Salman Azhar & Friends in 2018

11. Value Disciplines Operational Excellence: Operational Excellence:
Running an extremely efficient operation
Walmart, McDonald’s, FedEx, …
Product Leadership:
Being the Lead Innovator Company
Apple, Nike, Google, ..
Customer Intimacy:
Being close to the customer; Excellent customer service
E.g., Nordstrom, Zappos, …
Operational Excellence:
Product Leadership:
Customer Intimacy:
Salman Azhar & Friends in 2018

12. Building & Eroding of Competitive Advantage
Buildup Period
Benefit Period
Erosion Period
Re-alignment of
strategies in
line with the
changing basis of
competition
Size of Competitive Advantage
Examples?
Strategic
moves are
successful in
building a
competitive
advantage
Size of
competitive
advantage
Forces
eroding
competitive
advantage
Time
Source: Adapted from Thompson Jr., A.A. and Strickland III, A.J. (2003) Strategic Management: Concepts and Cases, McGraw-Hill.
Salman Azhar & Friends in 2018

13. Frameworks Recap: Porter’s Five Forces
Rivalry
* Competitors
* Innovation
* Industry growth rate
* Transparency
Entry Barriers
* Product differentiation
* Distribution channels
* Economies of scale
* Network effects
* Threat of retaliation
* Capital/Legal
Buyer Power
* Buyers/seller ratio
* Substitute products or services
Substitute Power
* Relative price
* Switching costs
* Quality
* Features
Supplier Power
* Concentration & size relative to the industry
* Alternative suppliers
Salman Azhar & Friends in 2018

14. Salman Azhar & Friends in 2018
Frameworks Recap: Value Disciplines
Value creating activities need to be:
Identified
Tracked
Improved
Benchmarked against competitors
Value Disciplines
Operational Excellence:
Running an extremely efficient operation
Product Leadership:
Being the Lead Innovator Company
Customer Intimacy:
Being close to the customer; Excellent customer service
Salman Azhar & Friends in 2018