MGT Notes

Reference: Strategic Management (5e) – Frank T. Rothaermel (Pg 82)

Competition in the context of Porter’s five forces includes not only the intense rivalry among direct competitors, but also broadly includes the strength of other forces (suppliers, buyers, etc.). The function of strategic planning is to formulate how to deal with competition since each force is a potential competitor attempting to extract value from the industry. Thus, there exists a constant struggle among forces to maximize value.

If V is the perceived value created by an entity in an industry and C is the cost involved, then the Economic Value is defined as (V – C). It is not enough to only create economic value, but also to capture as much of the value as possible. This is done through proper strategic positioning.