Michael Porter Five Forces

1373 WordsOct 7, 20116 Pages
In Michael Porter’s article about The Five Competitive Forces that Shape Strategy, he identifies the five forces that shape industry competition as: threat of new entrants, bargaining power of buyers, threat of substitute products or services, bargaining power of suppliers, and rivalry among existing competitors. Then he breaks each of these down even further, giving information about the factors that should be considered when making assessments in each of these areas. The main underlying purpose of his article was that these five topics are the most important factors that a company must take into consideration when assessing any industry that they are currently in or are thinking about entering into. Assessing the industry in this manner…show more content…
Out of all of the different forms of rivalry, price is the most destructive to a firm’s profitability since lowering the price of their products is the change that is most easily identified by consumers. After assessing all of these areas of your competition, decisions will need to be made about whether the benefits of entering into the industry will outweigh the possible repercussions of entry. If a company decides to move forward, they will be doing so with a better understanding of what the industry’s long term profit potential may be. Porter also stresses the importance of mistaking the visual attributes of an industry for its actual underlying structure. (2008) Some areas he points out as being mistaken as attractive benefits for entering a certain industry are technology and innovation, industry growth rate, government, and complements. While some of these may make a particular industry look more attractive, a company must still determine how these factors influence the five forces. A few other final points that Porter makes in this article are that the structure of the industry is constantly changing. Therefore, the five forces will need to be re-evaluated periodically and adjustments to the overall business strategy will need to be made accordingly. Also, just evaluating the five competitive forces is not enough. Companies actually need to understand what those forces mean to the industry as well as to their own company. Porter
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