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Q3 How Does Analysis of Industry Structure Determine Competitive Strategy? 85

Force AllRoad Parts Example Force Strength AllRoad Parts' Response

Bargaining power of “I’ll make it myself.” Strong, if 3D Do its own 3D
customers printing is real printing
Threat of “I’ll buy a dierent part.” Very weak; in most Maintain a large
substitutions cases, there are no inventory
substitute parts
Bargaining power of “We won’t sell you our Medium Sell other vendors’
suppliers 3D design files.” designs
Threat of new “A local company has Possibly strong 3D printing?
entrants started 3D printing of
parts I used to buy
from you.”
Rivalry “With local 3D Weak Evolve with rivals, if
manufacturers, I can buy necessary
Figure 3-4 right here in town.”
Five Forces at AllRoad Parts

likely to sell 3D designs for repair parts . . . to protect the sales of their gear. Jason doesn’t think
the threat of 3D printing from rivals is as strong because, like AllRoad Parts, they, too, don’t have
manufacturing systems, processes, or expertise.
Like AllRoad Parts, organizations examine these five forces and determine how they intend
to respond to them. That examination leads to competitive strategy.

Q3 How Does Analysis of Industry Structure

Determine Competitive Strategy?

See the Ethics Guide on pages An organization responds to the structure of its industry by choosing a competitive strategy.
86-87 to learn how a change Porter followed his five forces model with the model of four competitive strategies, shown in
in strategy can greatly affect a Figure 3-5. According to Porter, firms engage in one of these four strategies. An organization
2
company’s culture.
can focus on being the cost leader, or it can focus on differentiating its products or services from
those of the competition. Further, the organization can employ the cost or differentiation strat-
egy across an industry, or it can focus its strategy on a particular industry segment.
Consider the car rental industry, for example. According to the first column of Figure 3-5, a car
rental company can strive to provide the lowest-cost car rentals across the industry, or it can seek to
provide the lowest-cost car rentals to an industry segment—say, U.S. domestic business travelers.

Cost Dierentiation

Better
Lowest cost
Industry-wide across the product/service
industry across the
industry

Better
Lowest cost product/service
Figure 3-5 Focus within an within an
Porter’s Four Competitive industry segment industry segment
Strategies

2 Based on Michael Porter, Competitive Strategy (New York: Free Press, 1985).