As you analyse companies and develop strategies you need to
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As you analyse companies and develop strategies you need to answers to :1. where do we compete?2. what unique value do we bring?3. what resources and capabilities do we utilize?4. how do we sustain our value?strategy is a firm’s answer to two fundamental questions: Where should we compete, and howshould we compete?The purpose of strategy is to create a competitive advantage that generates superior, sustainablefinancial returns. There are two requirements for doing this successfully. The first is anunderstanding of the business landscape: the forces that shape competition, the dynamics amongplayers, and the drivers of industry evolution. This informs where the firm chooses to engage with itscompetition. The second is the choice of a position on this landscape. The second is the choice of aposition on this landscape. The firm’s positioning shapes the choice of a business model and theunderlying set of activities that sustains it.The Five Forces Framework developed by Michael Porter, an economist at Harvard Business School,remains one of the most widely used tools for industry analysis. Porter’s introduction of theframework in 1979 marked a critical evolution in the use of economic theory to inform businessstrategy.7 Classical economics had posited supply and demand curves in which many suppliers soldundifferentiated goods to many buyers, thus achieving an equilibrium of price and quantity for themarket. In this theoretical construct, no single firm had any influence over pricing. For the purposesof strategy, the trouble with this supply-anddemand analysis was its limited application to industriesin which participants could influence price. For example, some industries had very few suppliers orvery few buyers, thus changing the relative balance of power. A company with a superior productcould command a higher price from customers, and an enforceable patent could help it maintainthat advantage. Studies conducted by economists in the 1950s suggested that structural factors suchas those helped explain why one industry was more or less profitable than another. Porter’sframework systematically evaluates those structural factors, focusing on how they influence industryprofitability. Its power lies in its incorporation of the real-world, commonsense variables, or forces,that can make a particular industry an easy or difficult environment. Interactive Illustration 1illustrates each of the forces.use this link to access the interactive illustration: bit.ly/hbsp2pHKWuJThere are two fundamental considerations in any business model: the value proposition and thetarget marketPositioning on the Business Landscape: Achieving External ConsistencyNow suppose the firm surveys the business landscape and weighs a number of different strategicoptions: a different target market, a different business model, different positioning and a differenttarget market, and a different business landscape.