How Competitive Forces Shape Strategy

Competitive environments are defined by the identity, track record, financial strength and market share of key competitors. Harvard Professor Michael Porter 's Five Forces model can be used to evaluate a company 's competitive position. These five forces are barriers to entry (the ability of new players to enter the market), buyer power (the ability of customers to influence price),

This article has started revolutionary thinking about what are the different forces in addition to direct competitors that affect competitive strategy of an organization and how better understanding of industry structure and these forces, also known as " Porter 's Five Forces", derive organization 's strategy to achieve sustainability and higher profitability. Author has explained the other factors that contribute for industry structure like industry growth rate, technology and innovation, external factors, government & regulations and complementary products and services. Industry structure changes while responding to changes in competitive forces. Author also discussed the framework to perform industry analysis and avoid common pitfall while conducting analysis. In this review I will summarize five competitive forces explained by Micheal E. Porter and their implication on organization 's strategy. Further, I will discuss the relevancy of Porter 's five forces framework in current scenario.

As we begin to strategically plan for our business, it is important for us to take a deep dive into our competitive environment to understand where we are strong competitively and where we are weak competitively. An analysis of the forces driving industry competition using M.E. Porter’s Five Forces Model will assist us in determining where the power lies in a business situation as we begin to plan. We must understand how they work in our industry and how they affect our particular situation. Whatever the collective strength of these forces is, our job as the strategists of the organization is to

In the article, “The Five Competitive Forces that Shape Strategy,” Michael Porter argues that the five forces are an important element for managers and investors in the business industry. Porter stated that it is important to “understand the competitive forces, and their underlying causes” which many companies will use to determine if they will gain profit or not (Porter 80). Companies determine their profitability of the industry through the level of the force that they face. For instance, when the forces are favorable, most companies will be profitable. Porter gives a detail description of the five forces and explains the importance of each force. The five forces are the threats of new entrants, the power of the buyers, the power of the suppliers, the threats of substitute for products or services, and the rivalry among existing competitors. Porter believes that “a company strategist who understands the competition extends well beyond existing rivals will detect wider competitive threats and be better equipped to address them” (Porter 93). In other words, when strategists understand the different forces it will benefit them to make better decisions and to be ready to face the different challenges between competitors. In the article, Porter’s main goal is to present the importance of the five forces to the audience.

Porter’s Five Competitive Forces Analysis is a framework developed by Michael E. Porter of Harvard Business School for study of industry analysis by analyzing five competitive forces which define industry and its business strategy. These five competitive forces determine the competitive advantages, disadvantages and attractiveness or profitability of industry.

In his article “The five competitive forces that shape strategy“, Michael Porter (2008) updates and extends his “five forces” framework he first introduced in 1979 and which has influenced the academic and business research for decades. He reaffirms that “THREAT OF ENTRY”, “THE POWER OF SUPPLIERS”, “THE POWER OF BUYERS”, THE THREAT OF SUBSTITUTES”, and “RIVALRY AMONG EXISTING COMPETITORS” are the forces that shape every single industry, and a thorough understanding of such forces help analyze everything from the intensity of competition to the profitability and attractiveness of any industry. The framework has two dimensions; the vertical dimension that connects

“Porter’s five forces”: Introduction. “Porter’s five forces” is widely applied in today’s business world. Harvard Professor Michael E. Porter’s first HBR article “How competitive forces shape strategy” was published in 1979. It became revolutionary in the field of strategy. Porter’s subsequent work has brought big changes to the study of competitive strategy for corporations, regions, and nations. With assistance from his colleagues from Harvard Business School, Porter continues to update and extend his classic work, providing practical guidance for

In order for a company to be able to compare itself with its rivals in terms of competition intensity and profitability, the five forces model can be used. This model is consisted of three ‘horizontal ' sources of competition these are the threat of substitutes, the threat of new entries and the competition among rivals. The other two ‘vertical ' sources of competition are the power of suppliers

Porter (1980) created a model which considers five important forces (Porters five forces) which aims to establish a profitable and sustainable position against the forces that determine industry competition, therefore position themselves within it and differentiating themselves where necessary in order to strategically gain a competitive advantage - this model gives vision of: Threat of new entrants, Threat of substitute products or services, Bargaining power of customers , Bargaining power of suppliers and Intensity of competitive rivalry (Porter 1980). Using models and academic theory like this allows strategy to be formed through a rational and an analytical process. Chandlers (1962) cited in (Lomash 2003) suggests the analytical process is about the determination of long-term clear goals, adopting actions to achieve these goals and then building the resources within the organization around this strategy in order to ensure it succeeds. Johnson (2005), likewise, simply suggested a three step approach to strategy - analysis, choice and implementation which goes hand-in-hand with intended strategy.

 In general, manager’s look at competition has been too narrow. There is a broad set of competitors that need to be looked at, which are described in “The Five Competitive Forces That Shape Strategy” by Michael E. Porter. The model explains that there are several other forces in the competition for profits that the strategist should be aware of when forming a stagey. Those forces determine the profitability of the industry and are the most important to look at when you are forming a strategy. These five forces are are the “industry structure” model which contain: New Entrants, Suppliers, Buyers, Substitutes, and Existing Competitors.

Strategy can be defined as being different from one’s competitors, finding the race to operate and accomplished it. According to Michael Porter (1996), while becoming better at what you do is desirable, it will not benefit you in the long run because it is something other competitors can also do. Strategies for organizations are originally developed by Michael E. Porter in 1979 by introducing the five forces model. A company can identify the industry profitability and attractiveness by analyzing the five forces of Porter (Johnson et al., 2008). And then a reasonable strategy can be set up in line with the strengths and the weakness of an organization is able to create a plan for a stronger position for the organization within its

Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry. This

Porter's Five Forces can be applied to particular companies, market segments and industries with the step-by-step analysis of market structure and competitive situation. First of all, when implementing this module in organizations, it is necessary to determine the scope of the market to be analyzed. Following, all relevant forces for this market analyzed and key forces are identified (Gerry and Kevan, P.117). Actually some organizational strategy and the longer-term goals are mainly based on or consistent with the key forces. Hence, it is not necessary to analyze all elements of all competitive forces with the same depth. Moreover, the key forces in the competitive environment will vary in different industry. Different forces take on prominence in shaping competition in each industry (Porter,

The manner in which firms are able to compete is most commonly categorized by implementing Michael Porter’s strategic typologies. Porter’s strategic theory has been the most widely accepted strategic approach used by fellow academics (Kim and Lim 1988; Bordean et al 2010). Porter proposed three generic strategies namely: cost leadership, differentiation and focus strategy. Warszawski (1996) later introduced a competitive strategy

Before understanding “how” we must know “what” Porters Five Forces model really is (Michael E. Porter, 2008). Company strive to secure a competitive advantage over their rivals, I mean who doesn’t want to be the best? Although the intensity of rivalry varies within each industry and these differences can be important in the development of strategy, but rather the five forces (Porter, 2008) being a strategy of any sort, it acts a framework in securing a strategy. The only time where strategy is irrelevant, would be when you have no competitors where ultimately the environment is a monopoly, or when you have a ton of money to throw around and waste. But