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  • Most people think of business competition

  • as a tug of war between rivals, with each competing

  • for more sales or market share.

  • But, according to Harvard Business School professor

  • Michael Porter, competition is more complex than that.

  • It's not about who's the biggest,

  • it's about who is the most profitable.

  • And profitability is defined by five competitive forces.

  • Let's start with your buyers, or customers,

  • who would always be happier to pay less and get more.

  • In the airline industry, price competition

  • is fierce, because so many travelers just

  • want the cheapest flight.

  • Then, there are your suppliers, who'd

  • ideally like to be paid more and deliver less.

  • Powerful suppliers will use their clout

  • to raise prices or insist on other more favorable terms.

  • A third source of competition comes

  • from substitute products or services

  • that meet the same basic need you do.

  • These aren't always obvious rivals.

  • The toughest competitors may come from different industries.

  • New entrants can also create tension.

  • For instance, Southwest Airlines challenged the industry

  • by flying just one kind of airplane,

  • reducing costs and allowing it to offer better ticket deals.

  • This pushed other carriers to spend more

  • to retain their customers.

  • Finally, you still have to fight your existing rivals,

  • and intense competition reduces everyone's profitability.

  • The major airlines have been in this position

  • for years, forcing them to defend increasingly

  • narrow profit margins with fees for exit row upgrades,

  • checked bags, even snacks.

  • These five forces define every industry structure

  • and shape your company's future.

  • Once you understand them, you can make better predictions

  • create more competitive strategies,

  • and increase your profits.

Most people think of business competition

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