I have been reading the book for a few months now, albeit at a rather lethargic pace. In my defense, a lot has been going on at professional, academic and personal fronts. Here is a compilation of highlights from the book organized by topics. This is just the beginning, more posts will follow covering the later chapters.

Structural Analysis of Industries

Structural Determinants

“Competition in an industry continually works to drive down the rate of return on invested capital toward the competitive floor rate of return.”

“The focus of structural analysis is on identifying the basic, underlying characteristics of an industry rooted in its economics and technology that shape the arena in which competitive strategy can be set.”

Threat of entry

“Acquisition into an industry with intent to build market position should probably be viewed as entry even though new entirely new entity is created.”

Barriers to entry

“Economics of scale refer to declines in unit costs of a product as the absolute volume per period increases.”

“A type of economies of scale entry barrier occurs when there are economies to vertical integration, i.e., operating in successive stages of production or distribution. Here the entrant must enter integrated or face a cost disadvantage.”

“Economies of scale are dependent on volume per period, and not on cumulative volume, and are very different analytically from experience.”

Expected retaliation

“Conditions that signal the strong likelihood of retaliation to entry and hence deter it are excess cash and unused borrowing capacity.”

Intensive rivalry among existing competitors

“Firms viewing a market as an outlet for excess capacity will adopt policies contrary to those of firms viewing the market as a primary one.”

“When exit barriers are high, excess capacity does not leave the industry, and companies that lose the competitive battle do not give up.”

Pressure from substitute products

“Substitute products that deserve the most attention are those that are subject to trends improving their price-performance trade-off with the industry’s product, or are produced by industries earning high profits.”

Bargaining power

“Buyers sometimes engage in the practice of tapered integration, producing some of their needs for a given component in-house and purchasing the rest from outside suppliers.”

“We usually think of suppliers as other firms, but labor is a supplier as well, and one that exerts great power in many industries.”

Generic Competitive Strategies

Overall cost leadership

“A low-cost position protects the firm against all five competitive forces because bargaining can only continue to erode profits until those of the next most efficient competitor are eliminated, and because the less efficient competitors will suffer first in the face of competitive pressures.”

Differentiation

“is creating something that is perceived industry-wide as being unique.”

“provides insulation against competitive rivalry because of brand loyalty by customers and resulting lower sensitivity to price.”

Focus

“The entire focus strategy is built around serving a particular target industry very well, and each functional policy is developed with this in mind.”

“A firm’s focus means that the firm either has a low cost position with its strategic target, high differentiation, or both. Focus may also be used to select targets least vulnerable to substitutes or where competitors are the weakest.”

“Focus necessarily involves a trade-off between profitability and sales volume.”

Stuck in the middle

” The firm failing to develop its strategy in at least one of the three directions is a firm that is stuck in the middle. This is an extremely poor strategic situation.”

“it must take the steps necessary to achieve cost leadership or at least cost parity, or it must orient itself to a particular target (focus) or achieve some uniqueness (differentiation).”

“the U-shaped relationship between profitability and market share does not hold for every industry.  In some there is often an inverse relationship between market share and profitability. ”

“There is no single relationship between profitability and market share..”