Custom Academic Paper: Basis for Competitive Advantage
Basis for Competitive Advantage
According to Michael Porter, there are two aspects that form the basis for competitive advantage. These two are Industry structure and positioning within the industry. Using the “Five Forces” diagram, we are able to understand the main idea about competitive advantage as brought out by Porter’s theory. These Five Forces lay down the rules of competition that apply to every industry. The competitive strategy has got to develop in a manner which is in line with these rules of competition. It is these rules which in the end determine an industry’s attractiveness. According to Porter, “The ultimate aim of the competitive strategy is to cope with and, ideally, to change those rules in the firm’s behavior” (1985, p.4).
Thus, looking at his explanation, we can see that it is the five forces which in the end determine how the industry will perform. They determine how profitable the industry can get. Other industries may thus come out as being slightly more attractive than the rest. In determining profitability of an industry, it all comes down to the question of just how much value the industry in question can come up with for its clients, and how much of this value the industry will manage to compete away. The industry structure is what gives the direction of the person that will capture the value. However, a firm can never be a total hostage to the industry structure. Firms have also got the capability of influencing the five forces. They are able to do this using their own strategies.
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