The Five Competitive Forces That Shape Strategy by Michael E. Porter

Introduction

Business leaders apply diverse strategies, models, procedures, and initiatives to take their companies to the next level and make them more competitive. The article, “The Five Competitive Forces that Shape Strategy” by Michael E. Porter offers powerful forces that industrial players should take seriously in an attempt to tackle the problem of rivalry and meet the diverse needs of every customer. This paper begins by giving a detailed summary of the selected article. It goes further to relate the ideas presented in the document to the ones experienced in life and those studied in class.

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Article Summary

The selected article begins by acknowledging that managers and organizational leaders should analyze their industries using different forces in an attempt to understand the nature of profitability and competition. Porter argues that “the move to understand the competitive forces and their underlying causes in a given sector can determine profitability while providing a framework for anticipating and influencing competition over time” (80). The author applies this kind of knowledge to present five unique forces that tend to reshape or influence rivalry in a given industry. The document goes further to indicate that such aspects will differ from sector A to B.

The first force is the threat of a new entry. Emerging competitors in a given sector introduce superior models, resources, and capacities that might disorient costs, growth, and prices. The existence of barriers to entry makes it possible for different players to have a competitive edge (Porter 81). Newcomers will always be concerned if incumbents have adequate resources, have responded vigorously to entrants before, command a strong market share, or if the industry has been growing slowly.

The second force that competitors have to take seriously is the power of suppliers. Providers of raw materials and other resources might maximize value by charging increased prices for their products (Porter 82). Those who have monopoly will affect the performance of different companies. Suppliers associated with quality materials will have immense power over their business partners. The existence of a supplier group can also influence the future performance or attractiveness of a given industry.

The third force that companies should take seriously is the power of buyers. Consumer groups might capture adequate value by dictating prices and product quality (Porter 83). Buyers who are capable of negotiating leverage will apply their clout to control the behaviors and performances of different players in the targeted industry. Some might switch products in an attempt to influence key players in a given sector.

Companies should also consider the threat of substitute services or goods since they amount to the fourth force. Substitute products tend to compete directly with existing goods. Since such alternatives will always be present in the market, manufacturing companies should identify the level of threat in order to ensure that profitability levels are unaffected. Substitutes have also been observed to place ceiling on the prices of various products. Effective measures to improve the competitiveness of products or services can minimize the threat of this force. The article encourages strategists in different companies to be aware of all emerging changes and substitutes in an attempt to improve their products and remain competitive.

The fifth force is the level of rivalry among competitors in a specified industry. Porter indicates that “rivalry is destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers” (85). Players in a specific industry will apply different measures to emerge successful, including the introduction of new products, improving their offerings or services, and providing discounts.

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Increased levels of rivalry will affect the overall profitability of a given sector or industry. In such a sector, competitors will remain committed and implement goals that might remove others out of business. When the issue of price rivalry emerges, companies might begin to produce and market substandard goods that might not meet their customers’ demands. However, such kind of competition can be appropriate if all competitors focus on the best measures to transform or meet the changing needs of the targeted consumers. A proper knowledge of this force can, therefore, make it easier for leaders of emerging companies in a specific industry to be aware of the major challenges they might face.

The author identifies other powerful factors that continue to attract attention of strategists and industrial players. Some of the leading ones include technological changes and innovation, government policies, existence of complementary services and products, and the rate of industry growth. Investors should consider the influence of each of the above forces and factors in an attempt to make evidence-based decisions.

A proper understanding of such forces will empower organizational leaders to develop the most appropriate strategy. They will also identify sources of profitability and apply conditions or initiatives that can maximize performance (Porter 88). They should also examine the existing industry structure and propose changes that will support the outlined financial projections. The author admits that a detailed focus on these attributes will result in superior models and frameworks that are capable of promoting organizational profitability. This development will also have a positive impact on the general economy.

Relating Acquired Ideas: Lessons Gained in Class

The ideas and insights gained from the summarized article resonate with people’s lives and experiences. For instance, human beings use their competencies in order to succeed in their fields or careers. Professionals in the fields of management and business strategy should be aware of the major challenges facing their companies and industries. They will identify specific forces or factors that will deliver desirable results (Porter 89).

This means that they will begin by examining the major issues affecting profitability. They will also analyze emerging trends, sources of competition, and developments that can improve the level of performance. This knowledge will inform a powerful model for supporting the effectiveness and competitiveness of a given company.

Human beings always consider various forces that might affect their goals in life. Those who are aware of emerging issues and trends in their fields will make informed decisions in order to achieve their goals. Just like the concepts described by Porter, people should identify the unique forces shaping or influencing their careers. This knowledge will empower them to formulate superior personal philosophies that can make them successful. Investors should also use the five porters’ forces to examine the levels of profitability and rivalry in the selected industry and develop the most appropriate strategies (Porter 86). This analysis reveals that most of the ideas and concepts gained from the selected article can empower more people to achieve their personal and entrepreneurial objectives.

Similarly, the concepts outlined or analyzed in the selected article relate to the ideas studied in class. For instance, the course materials have made it possible for all learners to become competent decision-makers and problem-solvers. The insights can empower them to become skilled business analysts who can identify emerging obstacles in a given industry and make the most appropriate strategies (Porter 91). These concepts are similar or relate to the ones described in class. Individuals who pursue such aspects will make adequate decisions and find it easier to take their companies to the next level.

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The article offers timely lessons that can guide organizational leaders and students to apply international perspectives whenever addressing various issues. Within the business world, managers can monitor trends, forces, and changes that have the potential to disorient organizational performance (Porter 84). The application of evidence-based organizational theory and practice can empower leaders to become competent strategists for their firms. They will also use their abilities to manage their followers efficiently, be prepared for all threats or rivalries, and finally take their businesses to the next level. Business leaders who consider all the ideas discussed in class and the ones described in the selected article will achieve their objectives within a short period.

Conclusion

The above article summary has identified these five forces that business firms should take seriously: rivalry among competitors, threat of substitutes, bargaining power of suppliers, bargaining power of buyers, and threat of new entries. Strategists can monitor different factors that can influence business performance, including government policies, nature of industry, innovation, and emerging technologies. They can also develop superior decision-making and problem-solving abilities in order to implement evidence-based strategies for their firms. Such approaches will eventually deliver positive results.

Work Cited

Porter, Michael E. “The Five Competitive Forces that Shape Strategy.” Harvard Business Review, vol. 86, no. 1. 2008, pp. 78-93.

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