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Size Up the Playing Field

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.

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