Industry structure, as manifested in the strength of the five competitive forces, determines the industry’s long-run profit potential because it
determines how the economic value created by the industry is divided—how much is retained by companies in the industry versus bargained
away by customers and suppliers, limited by substitutes, or constrained by potential new entrants. By considering all five forces, a strategist
keeps overall structure in mind instead of gravitating to any one element. In addition, the strategist’s attention remains focused on structural
conditions rather than on fleeting factors.
It is especially important to avoid the common pitfall of mistaking certain visible attributes of an industry for its underlying structure. Consider
the following:
Industry structure, as manifested in the strength of the five competitive forces, determines the industry’s long-run profit potential because itdetermines how the economic value created by the industry is divided—how much is retained by companies in the industry versus bargainedaway by customers and suppliers, limited by substitutes, or constrained by potential new entrants. By considering all five forces, a strategistkeeps overall structure in mind instead of gravitating to any one element. In addition, the strategist’s attention remains focused on structuralconditions rather than on fleeting factors.It is especially important to avoid the common pitfall of mistaking certain visible attributes of an industry for its underlying structure. Considerthe following:
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