4-2 Short Paper: Applying the Porter Diamond Model: An Organizational Assessment Based on Diamond Model FactorsInstructionsTo complete this assignment, review the prompt and grading rubric in the Module Four Short Paper Guidelines and Rubric document. When you have finished your work, submit the assignment here for grading and instructor feedback.
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MBA 520 Module Four Short Paper Guidelines and Rubric
Overview: For this task, you will assess your organization and how it is impacted by Porter’s diamond factors by researching key external, political, legal,
technical, and environmental factors.
Prompt: First, review the module resources, especially the Michael Porter article The Competitive Advantage of Nations, and then examine and answer the
following questions based on your chosen organization for the final project:
?
?
?
?
?
Factor Endowments: How is your organization impacted by factor endowments? In other words, does your organization have a competitive edge based
on such things as land, labor, capital, and entrepreneurship that can be exploited for production?
Demand Conditions: How is your organization impacted by demand conditions? In other words, how is your company developed compared to other
competitors?
Related and Supporting Industries: Are the related and supporting industries located close to your organization in order to create a competitive edge?
Strategy, Structure, and Rivalry: Is the organization’s strategy, structure, and rivalry providing the company with competitive advantage?
Government and Chance: How do government and chance support the competitive advantage of the organization?
Refer to the case study, your textbook, and other course materials to support your responses.
Rubric
Guidelines for Submission: This short paper should be 2–3 pages in length, double spaced, with 12-point Times New Roman font, one-inch margins, and
citations in APA style.
Critical Elements
Exemplary (100%)
Proficient (90%)
Needs Improvement (70%)
Not Evident (0%)
Value
Factor Endowments
Meets “Proficient” criteria
and demonstrates a nuanced
understanding of the
relationship between factor
endowments and competitive
advantage
Provides a complete, clear analysis
of how the chosen company is
impacted by factor endowments,
including whether factor
endowments provide the company
with a competitive advantage that
is well-supported by information
from course resources and
research
Provides an analysis of how the
chosen company is impacted by
factor endowments, including
whether factor endowments
provide the company with a
competitive advantage, but the
analysis is incomplete, unclear, or
not well-supported by information
from course resources and
research
Does not provide an analysis of
how the company is impacted
by factor endowments and
whether factor endowments
provide the company with a
competitive advantage
18
Critical Elements
Exemplary (100%)
Proficient (90%)
Needs Improvement (70%)
Not Evident (0%)
Value
Demand Conditions
Meets “Proficient” criteria
and demonstrates a nuanced
understanding of the
relationship between
demand conditions and
competitive advantage
Provides a complete, clear analysis
of how the chosen company is
impacted by demand conditions,
including how the company is
developed compared to other
companies and whether demand
conditions provide the chosen
company with a competitive
advantage, and analysis is wellsupported by information from
course resources and research
Provides an analysis of how the
chosen company is impacted by
demand conditions, including how
the company is developed
compared to other companies and
whether the demand conditions
provide the company with a
competitive advantage, but the
analysis is incomplete, unclear, or
not well-supported by information
from resources and research
Does not provided an analysis
of how the chosen company is
impacted by demand
conditions, including how the
company is developed
compared to other companies
and whether the demand
conditions provide the
company with a competitive
advantage
18
Related and
Supporting
Industries
Meets “Proficient” criteria
and demonstrates a nuanced
understanding of how related
and supporting industries can
provide a company with a
competitive advantage
Provides a clear, complete analysis
of whether related and supporting
industries are located close to the
chosen company in order to create
a competitive advantage, and
analysis is well-supported by
information from course resources
and research
Provides an analysis of whether
related and supporting industries
are located close to the chosen
company in order to create a
competitive advantage, but the
analysis is unclear, incomplete, or
not well-supported by information
from course resources and
research
Does not provide an analysis of
whether related and supporting
industries are located close to
the chosen company in order to
create a competitive advantage
18
Strategy, Structure,
and Rivalry
Meets “Proficient” criteria
and demonstrates a nuanced
understanding of the
relationship of a company’s
strategy, structure, and
rivalry to competitive
advantage
Provides a complete, clear analysis
of whether the chosen company’s
strategy, structure, and rivalry
create a competitive advantage,
and analysis is well-supported by
information from course resources
and research
Provides an analysis of whether
the chosen company’s strategy,
structure, and rivalry create a
competitive advantage, but the
analysis is unclear, incomplete, or
not well-supported by information
from course resources and
research
Does not provide an analysis of
whether the chosen company’s
strategy, structure, and rivalry
create a competitive advantage
18
Government and
Chance
Meets “Proficient” criteria
and demonstrates a nuanced
understanding of the
relationship between
government and chance and
competitive advantage
Provides a clear, complete analysis
of how government and chance
impact the chosen company’s
competitive advantage, and
analysis is well-supported by
course resources and research
Provides analysis of how
government and chance contribute
to the chosen company’s
competitive advantage, but the
analysis is unclear, incomplete, or
not well-supported by information
from course resources and
research
Does not provide an analysis of
how government and chance
support the chosen
organization’s competitive
advantage
18
Critical Elements
Articulation of
Response
Exemplary (100%)
Proficient (90%)
Submission is free of errors
Submission has no major errors
related to citations, grammar, related to citations, grammar,
spelling, syntax, and
spelling, syntax, or organization
organization and is presented
in a professional and easy-toread format
Needs Improvement (70%)
Submission has major errors
related to citations, grammar,
spelling, syntax, or organization
that negatively impact readability
and articulation of main ideas
Not Evident (0%)
Value
Submission has critical errors
related to citations, grammar,
spelling, syntax, or organization
that prevent understanding of
ideas
10
Total
100%
Awareness of the ?ve forces can help a company understand the structure of its
industry and stake out a position that is more pro?table and less vulnerable to attack.
78 Harvard Business Review
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THE FIVE
COMPETITIVE
FORCES THAT
SHAPE
STRATEGY
STRATEGY
Peter Crowther
by Michael E. Porter
Editor’s Note: In 1979, Harvard Business Review
published “How Competitive Forces Shape Strategy” by a young economist and associate professor,
Michael E. Porter. It was his ?rst HBR article, and it
started a revolution in the strategy ?eld. In subsequent
decades, Porter has brought his signature economic
rigor to the study of competitive strategy for corporations, regions, nations, and, more recently, health care
and philanthropy. “Porter’s ?ve forces” have shaped a
generation of academic research and business practice.
With prodding and assistance from Harvard Business
School Professor Jan Rivkin and longtime colleague
Joan Magretta, Porter here reaf?rms, updates, and
extends the classic work. He also addresses common
misunderstandings, provides practical guidance for
users of the framework, and offers a deeper view of
its implications for strategy today.
IN ESSENCE, the job of the strategist is to understand and cope with competition. Often, however,
managers de?ne competition too narrowly, as if
it occurred only among today’s direct competitors. Yet competition for pro?ts goes beyond established industry rivals to include four other
competitive forces as well: customers, suppliers,
potential entrants, and substitute products. The
extended rivalry that results from all ?ve forces
de?nes an industry’s structure and shapes the
nature of competitive interaction within an
industry.
As different from one another as industries
might appear on the surface, the underlying drivers of pro?tability are the same. The global auto
industry, for instance, appears to have nothing
in common with the worldwide market for art
masterpieces or the heavily regulated health-care
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LEADERSHIP AND STRATEGY
|
The Five Competitive Forces That Shape Strategy
delivery industry in Europe. But to understand industry competition and pro?tabilThe Five Forces That Shape Industry Competition
ity in each of those three cases, one must
analyze the industry’s underlying structure in terms of the ?ve forces. (See the exThreat
hibit “The Five Forces That Shape Industry
of New
Competition.”)
Entrants
If the forces are intense, as they are in
such industries as airlines, textiles, and hotels, almost no company earns attractive returns on investment. If the forces are benign,
Rivalry
as they are in industries such as software,
Among
Bargaining
Bargaining
soft drinks, and toiletries, many companies
Power of
Power of
Existing
Suppliers
are pro?table. Industry structure drives
Buyers
Competitors
competition and pro?tability, not whether
an industry produces a product or service, is
emerging or mature, high tech or low tech,
regulated or unregulated. While a myriad
of factors can affect industry pro?tability
Threat of
in the short run – including the weather
Substitute
Products or
and the business cycle – industry structure,
Services
manifested in the competitive forces, sets
industry pro?tability in the medium and
long run. (See the exhibit “Differences in
Industry Pro?tability.”)
Understanding the competitive forces, and their underThe strongest competitive force or forces determine the
lying causes, reveals the roots of an industry’s current pro?tpro?tability of an industry and become the most important
ability while providing a framework for anticipating and
to strategy formulation. The most salient force, however, is
in?uencing competition (and pro?tability) over time. A
not always obvious.
healthy industry structure should be as much a competitive
For example, even though rivalry is often ?erce in comconcern to strategists as their company’s own position. Unmodity industries, it may not be the factor limiting pro?tderstanding industry structure is also essential to effective
ability. Low returns in the photographic ?lm industry, for
strategic positioning. As we will see, defending against the
instance, are the result of a superior substitute product – as
competitive forces and shaping them in a company’s favor
Kodak and Fuji, the world’s leading producers of photoare crucial to strategy.
graphic ?lm, learned with the advent of digital photography.
In such a situation, coping with the substitute product becomes the number one strategic priority.
Forces That Shape Competition
Industry structure grows out of a set of economic and
The con?guration of the ?ve forces differs by industry. In
technical characteristics that determine the strength of
the market for commercial aircraft, ?erce rivalry between
each competitive force. We will examine these drivers in the
dominant producers Airbus and Boeing and the bargainpages that follow, taking the perspective of an incumbent,
ing power of the airlines that place huge orders for aircraft
or a company already present in the industry. The analysis
are strong, while the threat of entry, the threat of substican be readily extended to understand the challenges facing
tutes, and the power of suppliers are more benign. In the
a potential entrant.
movie theater industry, the proliferation of substitute forms
of entertainment and the power of the movie producers
THREAT OF ENTRY. New entrants to an industry bring
and distributors who supply movies, the critical input, are
new capacity and a desire to gain market share that puts
important.
pressure on prices, costs, and the rate of investment necessary to compete. Particularly when new entrants are
diversifying from other markets, they can leverage existMichael E. Porter is the Bishop William Lawrence University Proing
capabilities and cash ?ows to shake up competition, as
fessor at Harvard University, based at Harvard Business School in
Pepsi
did when it entered the bottled water industry, MicroBoston. He is a six-time McKinsey Award winner, including for his
soft
did
when it began to offer internet browsers, and Apple
most recent HBR article, “Strategy and Society,” coauthored with
did
when
it entered the music distribution business.
Mark R. Kramer (December 2006).
80 Harvard Business Review
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The threat of entry, therefore, puts a cap on the pro?t potential of an industry. When the threat is high, incumbents
must hold down their prices or boost investment to deter
new competitors. In specialty coffee retailing, for example,
relatively low entry barriers mean that Starbucks must invest aggressively in modernizing stores and menus.
The threat of entry in an industry depends on the height
of entry barriers that are present and on the reaction entrants can expect from incumbents. If entry barriers are low
and newcomers expect little retaliation from the entrenched
competitors, the threat of entry is high and industry pro?tability is moderated. It is the threat of entry, not whether
entry actually occurs, that holds down pro?tability.
entry by limiting the willingness of customers to buy from a
newcomer and by reducing the price the newcomer can command until it builds up a large base of customers.
3. Customer switching costs. Switching costs are ?xed costs
that buyers face when they change suppliers. Such costs may
arise because a buyer who switches vendors must, for example, alter product speci?cations, retrain employees to use
a new product, or modify processes or information systems.
The larger the switching costs, the harder it will be for an entrant to gain customers. Enterprise resource planning (ERP)
software is an example of a product with very high switching
costs. Once a company has installed SAP’s ERP system, for example, the costs of moving to a new vendor are astronomical
Industry structure drives competition and pro?tability,
not whether an industry is emerging or mature, high tech or
low tech, regulated or unregulated.
Barriers to entry. Entry barriers are advantages that incumbents have relative to new entrants. There are seven major
sources:
1. Supply-side economies of scale. These economies arise
when ?rms that produce at larger volumes enjoy lower costs
per unit because they can spread ?xed costs over more units,
employ more ef?cient technology, or command better terms
from suppliers. Supply-side scale economies deter entry by
forcing the aspiring entrant either to come into the industry
on a large scale, which requires dislodging entrenched competitors, or to accept a cost disadvantage.
Scale economies can be found in virtually every activity
in the value chain; which ones are most important varies
by industry.1 In microprocessors, incumbents such as Intel
are protected by scale economies in research, chip fabrication, and consumer marketing. For lawn care companies like
Scotts Miracle-Gro, the most important scale economies are
found in the supply chain and media advertising. In smallpackage delivery, economies of scale arise in national logistical systems and information technology.
2. Demand-side bene?ts of scale. These bene?ts, also known
as network effects, arise in industries where a buyer’s willingness to pay for a company’s product increases with the number of other buyers who also patronize the company. Buyers
may trust larger companies more for a crucial product: Recall the old adage that no one ever got ?red for buying from
IBM (when it was the dominant computer maker). Buyers
may also value being in a “network” with a larger number of
fellow customers. For instance, online auction participants
are attracted to eBay because it offers the most potential
trading partners. Demand-side bene?ts of scale discourage
because of embedded data, the fact that internal processes
have been adapted to SAP, major retraining needs, and the
mission-critical nature of the applications.
4. Capital requirements. The need to invest large ?nancial resources in order to compete can deter new entrants.
Capital may be necessary not only for ?xed facilities but also
to extend customer credit, build inventories, and fund startup losses. The barrier is particularly great if the capital is
required for unrecoverable and therefore harder-to-?nance
expenditures, such as up-front advertising or research and
development. While major corporations have the ?nancial
resources to invade almost any industry, the huge capital
requirements in certain ?elds limit the pool of likely entrants. Conversely, in such ?elds as tax preparation services
or short-haul trucking, capital requirements are minimal
and potential entrants plentiful.
It is important not to overstate the degree to which capital
requirements alone deter entry. If industry returns are attractive and are expected to remain so, and if capital markets
are ef?cient, investors will provide entrants with the funds
they need. For aspiring air carriers, for instance, ?nancing
is available to purchase expensive aircraft because of their
high resale value, one reason why there have been numerous new airlines in almost every region.
5. Incumbency advantages independent of size. No matter
what their size, incumbents may have cost or quality advantages not available to potential rivals. These advantages can
stem from such sources as proprietary technology, preferential access to the best raw material sources, preemption of
the most favorable geographic locations, established brand
identities, or cumulative experience that has allowed incum-
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LEADERSHIP AND STRATEGY
|
The Five Competitive Forces That Shape Strategy
bents to learn how to produce more ef?ciently. Entrants try
to bypass such advantages. Upstart discounters such as Target and Wal-Mart, for example, have located stores in freestanding sites rather than regional shopping centers where
established department stores were well entrenched.
6. Unequal access to distribution channels. The new entrant must, of course, secure distribution of its product or
service. A new food item, for example, must displace others
from the supermarket shelf via price breaks, promotions,
intense selling efforts, or some other means. The more limited the wholesale or retail channels are and the more that
existing competitors have tied them up, the tougher entry
into an industry will be. Sometimes access to distribution
is so high a barrier that new entrants must bypass distribution channels altogether or create their own. Thus, upstart
low-cost airlines have avoided distribution through travel
agents (who tend to favor established higher-fare carriers)
and have encouraged passengers to book their own ?ights
on the internet.
7. Restrictive government policy. Government policy can
hinder or aid new entry directly, as well as amplify (or nullify) the other entry barrie …
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