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Q3-3 How Does Analysis of Industry Structure Determine Competitive Strategy?

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Five Forces at Falcon Security
The other forces are not as worrisome to Falcon Security. The bargaining power of drone sup-
pliers is weak because there are lots of drone manufacturers to choose from. And it always has
the option of 3D printing its own drones. The threat from rivals isn’t strong because Falcon Secu-
rity has developed a self-charging drone platform and an integrated video processing system that
wouldn’t be easy for rivals to replicate.
Like Falcon Security, organizations examine these five forces and determine how they intend
to respond to them. That examination leads to competitive strategy.

Q3-3 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.
122–123 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 can
2
company’s culture.
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 strategy 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.
As shown in the second column, a car rental company can seek to differentiate its products
from the competition. It can do so in various ways—for example, by providing a wide range of high-
quality cars, by providing the best reservation system, by having the cleanest cars or the fastest
check-in, or by some other means. The company can strive to provide product differentiation across
the industry or within particular segments of the industry, such as U.S. domestic business travelers.

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