How to Strategically Compete

Theory, Practice, and a Lesson from History

Theory

One of the guiding theories behind Competetive Strategy is was developed by Harvard Professor Michael E. Porter. For him, understanding the structure of an industry is primary, regardless of time or technology, so the design of a company is worthy of great attention and the design should evolve and adapt over time.

Industry structure drives competition and profitability, not whether an industry is emerging or mature, high tech or low tech, regulated or unregulated.

— Michael E. Porter, Professor at Harvard University

5 Competitive Force Model

by Michael E Porter

1. Competitive Rivalry
   (competition within a company’s industry)
2. Supplier Power
   (bargaining power of suppliers)
3. Buyer Power
   (bargaining power of buyers)
4. Threat of Substitution
   (thread of substitute products in the industry)
5. Threat of New Entry
   (threat of new entrants in a company’s industry)

In Practice

Let’s explore how we can apply this model to analyze a company like Tesla, which competes in the electric vehicle industry:

1. Competitive Rivalry
   Tesla is competing against other companies by having a Supercharging network so owners of their cars can charge their cars when traveling both locally and beyond. Tesla competes in other areas, such as developing a proprietary Autopilot AI system for all of its vehicle lines.
2. Supplier Power
   Tesla is strategically secretive about its suppliers, which contributes to building a stronger barrier of entry for its competitors. We do know a few verified suppliers who the company relies on, however:
   - AGC Automotive for windshields
   - Brembo for brakes
   - Fisher Dynamics for power seats
   - Modine Manufacturing Co. for battery chiller
3. Buyer Power
   Tesla has consistently developed new models with each being less expensive than the last, allowing more buyers to enter the market. Pioneering into lower price brackets enables Tesla to reach more people, which increases product visibility in the world; therefore increasing its brand recognition and popularity.
4. Threat of Substitution
   As of 2021, there are very few electric vehicles in the marketplace since it is a relatively new industry and combustion engine vehicle companies require a substantial investment to enter into the industry which has caused them to adapt to the marketplace much slower. Tesla entered the marketplace as an electric car manufacturer, so there are no costs for eliminating previous combustion engine vehicle production factories; only iterating on the electric vehicles, helping the company focus more on product design and less on adapting to a changing market demand like its competition.
5. Threat of New Entry
   Tesla’s business is difficult to compete with, particularly due to the high cost of brand development related to electric vehicles and being a pioneer in the industry. The popularity of Tesla’s CEO Elon Musk also contributes to another company entering the industry. Other factors, such as the company’s extension to continents outside the United States contributes.

S.W.O.T. Analysis

To understand companies in competition with another in an industry, a S.W.O.T. analysis is an effective means of evaluating and analyzing companies within or merging into the same industry. It’s essentially a table that communicates a competition’s:

1. Strengths
2. Weaknesses
3. Opportunities
4. Threats

In Practice

Below is an example of a S.W.O.T. Analysis I developed for an app to help voters in the United States. I added app icons since this is an important part of branding and design. Adding industry-specific parts like this to the analysis has great benefits for the design, communication, and vision of a company. I also defined Strengths, Weaknesses, Opportunities, and Threats to ensure a clear and unified understanding of these terms among individuals and teams.

www.joshuahoering.com

Lessons from History

The S.W.O.T. Analysis should be updated as the industry changes, technology evolves, and over time. If competition isn’t analyzed regularly, you may not fully understand innovation within your industry and fall behind. A prime example of this is Blockbuster’s decline due to Netflix’s mail service and later being obliterated by its digital streaming service.

Blockbuster could’ve easily been the #1 streaming service in the world, but it didn’t recognize its competition followed by adapting to the changing industry and then innovating. The branding of blockbuster and customer loyalty could’ve contributed toward conquering Netflix, but it failed.

Don’t be like Blockbuster. Analyze your competition, including those entering the industry. Then, compete.

Citations

1. Blake, Martin; Wijetilaka, Shehan 2015. “5 tips to grow your start-up using SWOT analysis”. Sydney. Retrieved 10 August 2015.
2. Hoering, Joshua. 2020. S.W.O.T. Analysis of Voting Apps. www.joshuahoering.com. Retrieved January 17, 2021.
3. Porter, Michael. 2008. The Five Competitive Forces That Shape Strategy, Harvard Business Review.
4. Porter, Michael; Argyres, Nicholas; McGahan, Anita M. 2002. “An Interview with Michael Porter”. The Academy of Management Executive (1993–2005). 16 (2): 43–52. JSTOR 4165839.