Assignment 2: The Five Forces that Shape Strategy
Zannia S. Carty
JWMI 515: Managerial Economics
November 9, 2014
Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack. By understanding how the five competitive forces that shape strategy influences profitability in a particular industry, executives can develop a strategy for enhancing their company’s long-term profits (Porter, 2014).
Define the relevant industry: The Oil Service Industry
The oil/energy industry is one of the largest industries in the United States. According to the Department of Energy (DOE), fossil fuels (including co4tral,…show more content… Their ability to map the contours of a market, and then maximize profit given that structure, is just as important as understanding demand, production, and costs (JWI518 W5 L2). Oil and gas prices fluctuate on a minute by minute basis, taking a look at the historical price range is the first place you should look. Many factors determine the price of oil, but it really all comes down to supply and demand. Demand typically does not fluctuate too much (except in the case of recession), but supply shocks can occur for a number of reasons. When OPEC meets to determine oil supply for the coming months, the price of oil can fluctuate wildly. Day-to-day fluctuations should not influence investment decisions in a particular energy company, but long-term trends should be followed more closely (OPEC, 2014).
Determine overall industry structure:
The energy industry is not any different than most commodity-based industries as it faces long periods of boom and bust. Drilling and other service firms are highly dependent on the price and demand for petroleum. These firms are some of the first to feel the effects of increased or decreased spending. If oil prices rise, it takes time for petroleum companies to size up land, setup rigs, take out the oil, transport it and refine it before the oil company sees any profit. On the other hand, oil services and drilling