Competition and Positioning

Strategy and Performance Management

Andy Weeger

Neu-Ulm University of Applied Sciences

August 4, 2025

Learning objectives

After this section, you should have a solid understanding of

• the nature and purpose of an external audit in formulating strategies;
• major external forces that impact organizations;
• Porter’s Five-Forces Model and its relevance in formulating strategies;
• Porter’s three generic strategies and their application;
• Ansoff’s growth matrix and strategic alternatives;
• and the impact of megatrends on strategic management.

External perspective

External audit

Scanning the environment to identify key variables so that strategies can be formulated to take advantage of the opportunities and reduce the impacts of the threats.

The essence of strategy formulation is coping with competition. Competition is caused not only by other players, but also by the broader environment (Mintzberg 2014). The external strategic management audit focuses on identifying and evaluating environmental trends and events beyond the control of a single firm (David and David 2016).

The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm as well as threats that should be avoided. The external audit is aimed at identifying key variables that offer actionable responses, not developing an exhaustive list of every possible factor.

Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, design strategies to achieve long-term objectives, and develop policies to achieve annual objectives.

PESTEL framework

External forces can be systematically analyzed using the PESTEL framework (David and David 2016):

Political, economic, social, technological, environmental, and legal forces.

Political forces

• Political conditions in countries and regions
• Level of defense expenditures and government priorities
• Protectionist actions and trade policies
• Political stability and policy continuity
• Government involvement in the economy

Economic forces

• Shift to service economy, availability of credit, level of disposable income
• Interest rates, inflation rates, GDP trends, consumption patterns
• Unemployment trends, currency rates, import/export factors
• Stock market trends, tax rate variations, economic policies
• Income differences by region and consumer group

Social forces

• Population changes by race, age, and geographic area
• Regional changes in tastes and preferences, lifestyle changes
• Social media pervasiveness, attitudes toward product quality
• Education levels, cultural values, and demographic shifts
• Health consciousness and social responsibility issues

Technological forces

• AI, Internet of Things, 3D printing, biotech, robotics
• Innovation cycles and technology adoption rates
• Digital transformation and automation
• R&D activity and technology transfer rates
• Patent protection and intellectual property issues

Environmental forces

• Energy conservation and environmental regulations
• Climate change impacts and sustainability concerns
• Waste disposal and recycling requirements
• Attitudes toward “green” products and carbon footprint
• Environmental protection laws and initiatives

Legal forces

• Changes in patent laws, equal employment opportunity laws
• Antitrust legislation and regulatory compliance
• Local, state, and federal laws affecting business operations
• Import-export regulations and international trade laws
• Health and safety regulations, consumer protection laws

Characteristics of key factors

When identifying and prioritizing key external factors in an external audit, make sure the factors selected are (1) specific (i.e., quantified to the extent possible); (2) actionable (i.e., meaningful in terms of having strategic implications); and (3) stated as external trends, events, or facts rather than as strategies the firm could pursue (David and David 2016).

Visualization

Relationships between external forces and organizations based on David and David (2016, 220)

 

 

Figure 1: Relationships between external forces and organizations based on (David and David 2016, 220)

Porter’s Five-Forces Model

The essence of strategy is coping with competition.

Thus, in addition to the PESTEL forces, also competitive forces need to be analyzed.

Porter proposed a framework for competitive analysis of a specific industry based on five basic forces that determine the ultimate profit potential of that industry.

Porter’s Five-Forces Model of competitive analysis is a widely used approach for identifying key competetive forces and developing strategies in many industries (Michael E. Porter 1986).

According to Michael E. Porter (1986), the state of competition in an industry depends on five basic forces. The collective strength of these forces determines the ultimate profit potential of that industry. Knowledge/analysis of the underlying sources of competitive pressures provides the groundwork for effective strategic courses of action.

Visualization

The Five-forces model of competition (Michael E. Porter 1986)

 

 

 

Figure 2: The Five-forces model of competition (Michael E. Porter 1986)

Threat of entry

New entrants bring new capacity, substantial resources and desire to gain market share. The seriousness depends on barriers of entry:

Six major sources of barriers to entry are:

1. Economies of scale: Cost advantages from large-scale operations
2. Product differentiation: Brand loyalty and switching costs
   
3. Capital requirements: Financial resources needed to compete
4. Cost disadvantages independent of size: Access to raw materials, technology
5. Access to distribution channels: Established distributor relationships
6. Government policy: Regulations limiting or preventing entry

Deterrent factors:

• Previous attacks on new entrants by incumbents
• Substantial resources to fight back (cash, borrowing power, capacity)
• Ability to cut prices to maintain market share
• Industry-wide excess capacity and slow growth

Powerful suppliers and buyers

Suppliers are powerful when:

• Dominated by few companies, more concentrated than buying industry
• Products are unique, differentiated, or have high switching costs
• Not obliged to contend with substitute products
• Pose credible threat of forward integration
• Industry is not important customer

Buyers are powerful when:

• Concentrated or purchase in large volumes
• Products purchased are standard/undifferentiated
• Purchases represent significant fraction of buyer’s costs
• Earn low profits, creating incentive to lower costs
• Industry’s product unimportant to buyer’s quality
• Pose credible threat of backward integration

Substitute products

Substitute products limit industry potential by placing ceiling on prices. More attractive price-performance trade-off = greater impact on profitability.

Key substitutes are those subject to trends improving price-performance and produced by industries earning high profits.

Intensity of rivalry

Rivalry intensifies when:

• Competitors numerous or roughly equal in size and power
• Industry growth slow, precipitating market share fights
• Products lack differentiation or switching costs
• Fixed costs high or products perishable
• Capacity augmented in large increments
• Exit barriers high
• Rivals diverse in strategies, origins, and ‘personalities’

Megatrends

Long-term, global trends
that bring about fundamental changes and transformations
in various domains
and at multiple levels.

The concept of megatrends refers to long-term, global, and transformative trends that significantly impact various aspects of society, economy, industries, and organizations. These trends are characterized by their sustained and pervasive influence over many years, often spanning decades.

Key characteristics:

• Long-term perspective: unfold over 10-20+ years
• Global impact: transcend geographical boundaries
  
• Transformational effects: bring fundamental changes in demographics, technology, environment, politics, culture
• Cross-industry relevance: impact multiple industries and sectors
• Strategic implications: must be considered in strategic planning processes

Examples

The Zukunftsinstitut identifies 12 long-term, transformative forces that impact all aspects of society, economy, and individual lives:

Globalisation, urbanization, silver society, health
new work, knowledge culture, connectivity,
mobility, neo-ecology, individualization, gender-shift,
and security.

1. Globalization: increasing interconnectedness through trade, communication, cultural exchange
2. Urbanization: growth of cities and rural-to-urban population shift
   
3. Silver Society: aging population and associated societal changes
4. Health: growing focus on health, well-being, medical technology advances
5. New Work: remote work, flexible hours, gig economy changes
6. Knowledge Culture: importance of knowledge and education in modern world
7. Connectivity: rise of digital connectivity and Internet of Things
8. Mobility: innovations in transportation and movement of people/goods
9. Neo-Ecology: shift towards sustainable and environmentally friendly practices
10. Individualization: trend towards personalized and individualized lifestyles
11. Gender Shift: changes in gender roles and move towards equality
12. Security: increasing focus on safety and security in various life aspects

Positioning

Porter’s generic strategies

To gain competitive advantage, organizations
can pursue three generic strategies:

Cost Leadership: becoming lowest-cost producer
Differentiation: unique products with distinct value
Focus: targeting specific market segment or niche

M. E. Porter (1980) proposed three generic strategies that organizations can pursue to gain competitive advantage in their respective industries. These strategies are based on the scope of the target market and the competitive advantage sought.

Ansoff’s Growth Matrix

The Ansoff matrix provides four growth strategies based on existing or new products and markets:

Market penetration: existing products, existing markets  Market development: existing products, new markets
Product development: new products, existing markets
Diversification: new products, new markets

The Ansoff-matrix (Ansoff 1965) is a strategic planning framework that helps businesses determine growth strategies by examining their current and potential markets and products. The matrix groups growth strategies based on two main factors: products (what they offer) and markets (who they serve).

Blue ocean strategy

Create and capture value without intense competition by identifying uncontested market spaces through value innovation.

Blue ocean strategy is a business strategy framework that encourages organizations to seek new and uncontested market spaces, where they can create and capture value without intense competition (Kim and Mauborgne 2005).

Key concepts:

• Blue ocean: Uncharted waters free from competition
• Red ocean: Saturated and highly competitive markets
• Value innovation: Simultaneous pursuit of differentiation and low cost

The strategy focuses on creating new demand rather than fighting over existing demand, making competition irrelevant by opening up new and uncontested market space.

Four actions framework

Organizations should consider four key questions:

Eliminate factors well below industry standard
Reduce factors well below industry standard
Raise factors well above industry standard
Create factors industry never offered

The four actions framework helps organizations break the value-cost trade-off and create blue ocean:

1. Eliminate: What factors that the industry takes for granted should be eliminated?
2. Reduce: What factors should be reduced well below the industry’s standard?
3. Raise: What factors should be raised well above the industry’s standard?
   
4. Create: What factors should be created that the industry has never offered?

This framework forces companies to examine every factor of competition, guiding them to pursue both differentiation and low cost simultaneously.

Identifying blue oceans

Organizations can explore six paths to identify new market spaces and convert three tiers of noncustomers.

Six paths to blue oceans: look across industries, strategic groups, buyer groups, complementary offerings, functional/emotional appeal, and time.

Three tiers of noncustomers: soon-to-be noncustomers, refusing noncustomers, and unexplored noncustomers.

Six paths to blue oceans:

1. Look across industries: Identify alternatives serving similar functions
2. Look across strategic groups: Analyze different strategic groups within industries
   
3. Look across buyer groups: Examine chain of buyers influencing purchasing
4. Look across complementary offerings: Consider complementary products and services
5. Look across functional/emotional appeal: Balance rational and emotional buyer appeals
6. Look across time: Identify and leverage trends shaping the future

Three tiers of noncustomers:

1. Soon-to-be noncustomers: Currently dissatisfied, likely to leave if needs not addressed
2. Refusing noncustomers: Consciously choose not to engage despite having alternatives
   
3. Unexplored noncustomers: Never considered as potential customers, fall outside traditional boundaries

By understanding and converting these noncustomers, organizations can unlock new sources of demand and create blue ocean opportunities.

Trade-offs

Trade-offs are necessary to secure strategic position against activities that are incompatible.

The essence of strategy is choosing what not to do as much as choosing what to do.

For instance, positioning trade-offs arise for three reasons (M. Porter 1996):

1. Inconsistencies in image or reputation: Different positions require different branding
2. Different configurations required: Different positions need different product configurations, equipment, skills, management systems
3. Limits on coordination and control: Internal limitations on managing multiple approaches

Positioning trade-offs are essential to strategy because they:

• Create the need for choice and purposefully limit what company offers
• Deter ‘straddling’ and ‘repositioning’ by competitors
• Force organizations to make clear strategic commitments
• Enable focus and resource concentration

Two-way door decisions

Some decisions are consequential and irreversible or nearly irreversible —one-way doors— and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that —they are changeable, reversible— they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups. Jeff Bezos, 2015 Letter to the shareholders

A two-way door decision is a concept popularized by Jeff Bezos, referring to decisions that are easily reversible. If you make a two-way door decision and it turns out to be wrong, you can simply “walk back through the door” and return to your previous state without significant consequences.

Implications for strategic management:

• Flexibility and agility: Two-way door decisions allow organizations to be more flexible and agile. Since these decisions can be reversed, they encourage experimentation and innovation without the fear of long-term negative impacts.
• Speed of decision-making: These decisions can be made quickly, enabling faster responses to market changes and opportunities. This can be a significant competitive advantage in dynamic industries.
• Risk management: By distinguishing between one-way (irreversible) and two-way (reversible) decisions, companies can allocate resources and attention more effectively. Critical, irreversible decisions can be given the thorough analysis they require, while reversible decisions can be made swiftly.
• Empowerment: employees can be empowered to make two-way door decisions on their own, fostering a culture of trust and autonomy. This can lead to higher job satisfaction and innovation.

Excursus: Climate Change

Group exercise

Neo-ecology: climate change requires sustainable and environmental practices.

Form groups of three to four students, discuss the reading material provided by Hallegatte (2009), and create a summary of the key findings concerning the importance of climate change for contemporary firms, the difficulties encountered when dealing with it, and strategies for robust decision-making. Additionally, reflect on the implications these findings have for strategic management.

Each group should be prepared to present their findings in a five-minute presentation. Please prepare slides for this within the next 25 minutes.

Climate change represents a critical megatrend requiring strategic attention (Hallegatte 2009):

Strategic importance:

• Requires sustainable and environmental practices
• Creates new business opportunities and risks
• Influences regulatory environment and stakeholder expectations
• Demands robust decision-making under high uncertainty

Robust decision-making strategies:

1. No-regret measures: Beneficial regardless of climate scenario
2. Low-regret measures: Low cost with potentially large benefits
   
3. Flexible/adaptive measures: Can be adjusted as conditions change
4. Synergistic measures: Address multiple objectives simultaneously
5. Precautionary measures: Minimize worst-case scenario impacts

Two-way door decisions: Climate strategies should often be reversible to allow adaptation as understanding improves

Key takeaways

• External audit provides systematic approach to identifying opportunities and threats in the environment
• Five external forces (economic, SCDE, political/legal, technological, competitive) must be analyzed for strategic relevance
• Megatrends shape long-term strategic context and create both opportunities and threats over 10-20+ year periods
• Porter’s Five Forces help understand industry structure and competitive dynamics affecting profit potential
• Generic strategies offer frameworks for finding effective positions in the marketg and achieving competitive advantage (e.g., Porter’s generic strategies, Ansoff matrix, blue ocean strategy)
• Trade-offs are essential — strategy is as much about choosing what not to do as choosing what to do
• Climate change represents critical strategic factor requiring robust decision-making under uncertainty

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

• Describe the nature and purpose of an external assessment in formulating strategies.
• What is Porter’s Five-Forces Model and what is its relevance in formulating strategies?
• What are (legal) key sources of information for identifying opportunities and threats?
• Why is [a megatrend] considered as a megatrend? Justify your answer.
• How have external factors resulted in a major overhaul to the traditional retail industry as we once knew it?
• Describe how political elections can be an important external factor for companies to consider. Select an industry and reveal some key political factors impacting firms.
• Explain how Facebook, Twitter, and Instagram can represent a major threat or opportunity for a company in different industries.
• Discuss the following statement: Major opportunities and threats usually result from an interaction among key environmental trends rather than from a single external event or factor.
• Do you agree with Porter’s view that competitive positioning within an industry is a key determinant of competitive advantage(s)?
• Explain the effects of [a generic strategy] on the value stick framework.
• Why do anual reports often state external risk information in really vague terms; why should strategists avoid including such vagueness in external assessments (e.g., in developing an EFE Matrix)?

Q&A

Literature

Ansoff, H. I. 1965. Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion. McGraw-Hill.

David, F. R., and F. R. David. 2016. Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Global Edition. Psychology Express. Pearson Education.

Hallegatte, Stéphane. 2009. “Strategies to Adapt to an Uncertain Climate Change.” Global Environmental Change 19 (2): 240–47.

Kim, W. C., and R. Mauborgne. 2005. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. BusinessPro Collection. Harvard Business School Press.

Mintzberg, Henry. 2014. The Strategy Process: Concepts, Contexts, Cases. Pearson education.

Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.

Porter, ME. 1996. “What Is Strategy?” Harvard Business Review 74: 61–78.

Porter, Michael E. 1986. Competition in Global Industries. Harvard Business Press.