In the article, The Five Competitive Forces that Shape Strategy by Michael Porter, it was an attribution to Porter's original “How Competitive Forces Shape Strategy” article for its 30th anniversary. Porter's five forces have shaped the business view of many renowned business executives as well as academic researches. However, in this updated article by Porter, two Harvard Business School Professor Jan Rivkin and Joan Magretta assist him. The article reaffirms the earlier concepts and at the same time updates and extends his classic findings. Additionally, Porter addresses some common misunderstanding of the five forces by strengthening it with practical guidance and real-world examples.
The author is essentially trying to convey one main idea to the audience; Porter strongly believes that with competition ad value, they are the two main factors that drive industry competition; Porter also centralizes his views on the return on investments or profitability. At the same time, “understanding industry structure is equally important for investors as for managers. The five competitive forces reveal whether an industry is truly attractive, and they help investors anticipate positive or negative shifts in industry structure before they are obvious”(Porter, p. 93). With this said, Porter is emphasizing his perspective by teaching us that for an industry structure to strive in the current business era, the business must place the concept of the five forces to managers, the same way it is valued to the investors as the five forces can help “distinguish short-term blips from structural changes and allow investors to take advantage of undue pessimism or optimism. Those companies whose strategies have industry-transforming potential become far clearer” (Porter, p. 93).
Porter uses his five forces that shape the industry competition as a strong argument throughout this article. For instance, Porter explains how “the strongest competitive force or forces (in threat of new entrants, the threat of substitute products or services, bargaining power of suppliers and bargaining power of buyers) determine the profitability of an industry and become the most important to strategy formulation” (Porter, p. 80). He uses all four of these concepts to create rivalry among existing competitors. Moreover, the author believes that new entrants to an industry, it can bring desires that include prices, costs, and competition in the overall market. However, the threat of entry can be changed and manipulated through the height of entry barriers that are presented. Additionally, the power of suppliers can capture the value for the manufacturing firms by charging higher prices and limiting quality or services. When the suppliers are in control it can be difficult for the consumers to find other options, this way, it forces the buyers to only buy or use this specific supplier. On the contrast, the power of buyers is the flip side of the powerful manufactures. Consumers in this situation have more of the upper hand by forcing down prices and ultimately demanding better quality and creating rivalry against participants against each other. Next, the threat of substitutes is just as impactful to a business. “Substitutes are always present, but they are easy to overlook because they may appear to be very different from the industry's product”(Porter, p. 84). Lastly, Porter believes that rivalry among existing competitors is beneficial to the marketplace as it introduces the new product, discounts prices and uses advertising campaigns to improve their company product or services.
Some can argue one weakness to Porter's five forces model is when this model first came out, most of U.S. suppliers and businesses were mainly all domesticated. As a result, Porter was not able to take in the idea and power of globalization into account. In the past centuries, the transformation and advancements of technology, transportation, and logistics have brought the whole world closer than ever before. Now, competition is not only through domestic businesses, but instead, competition is all around the world. Businesses are searching for a more economical, faster and efficient way to bring things to the consumers. Do not get me wrong; globalization has benefited the U.S. by opening markets all around the world and has freed Americans from government and tax regulations. However, globalization also opens the door to more competition for the business market.
After reading and analyzing Porter's Harvard Business Review article, I took away some very important strategies and guides that can benefit me as a business student. For instance, since this class mainly focuses on competitive and strategic analysis, I am able to take away the typical steps from Porter in industry analysis. In the steps, the author laid out the specifics. Beginning with, how to define the industry, such as what products are in it and what is the geographic scope of competition. After we do that, we as business leaders need to be able to identify the participants and segment them into groups (if appropriate). Additionally, when assessing the underlying drivers of each competition in the five-force model, we must determine which factor(s) are strong and which are weak, then do an explanation to explain why. And another way to analyze all these factors is to predict for future changes in each force, both the positive and negative. Lastly, we must identify aspects of industry structure that might be influenced by competitors, by new entrants, or by your company. These easy to follow steps are very easily explained and we'd be able to expand the profit pool for businesses.
In my future marketing career, I would be able to use Porter's five forces to analysis the market for the product or service I am introducing to the consumers. The five forces would be able to help my company increase profits by reducing costs while charging industry standard prices. It would be able to make product differentiation for my company's sales and marketing teams. The focus would be to understand the focus groups of the marketplace and not just one group of consumers. At the same time, one of the model's pitfall is it teaches me to use alternatives and addendums. In other words, the model fails to explain strategic alliances.
In conclusion, Porter's article does a successful job at teaching the audience about the specifics of this model without lecturing and only focusing on statistics or facts. Porter gives practical examples that have happened in the present and the past to back up his discovers and claims. Not only that but there is a reason why Porter's five force model was republished again after its 1979's version; the model is widely used in all businesses schools across the country and it is still a topic for discussion in small to large corporate firms.
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