How Competitive Forces Shape Strategy
Porter How Competitive Forces Shape Strategy was introduced in the year 1979. In this article, Porter talks about five forces that affect the performance of a company in the market. These forces include firstly the threat of entrance which talks about how new industries try to enter the market. Porter continues by arguing that strategy can be perceived as creating defenses in opposition to competitive forces or even finding a spot in an industry where there is a weaker force. When the forces signal changes in strength, alters the competitive landscape that is critical to the ongoing formulation of strategy. When exploring the five forces implication framework, porter explains the reason as to why there is no profit in a fast-growing business, how to use mergers to eliminate todays competition and how acquisition can reduce the profit potential of an industry.
How it works
He also explains the role of the government policies in changing relative strength of the forces and also understanding complements by the use of the forces. Porter also shows how businesses can affect the key forces in its industry to form a more effective structure to expand the pie altogether. Porter uses the five forces to reveal industrys profitability. Additionally, porter shows how businesses can impact key forces in the industry to produce a more effective structure in expanding the pie altogether. When competition is considered, it is crucial to consider direct competitors and as well reflect the broader competitive forces beside which firms are fighting to get profits. Peters five models show why any businesses profit is the way it is.
Therefore this paper answers a question as to whether Porters strategies are still relevant.Porters theory of five forces is has not been outdated. In his theory, Porter indicated managers to a system of variables that link enterprises to its environment although it does not directly enter in the decision mechanism in agreement to formulate a strategy. When it comes to competitive atmosphere, the scheme of policy has to take interaction variables? account with a hold to other management systems that are upstream, downstream, and upstream and which various delays compete for a similar set or subset of objectives. Hence, in dynamic competitive system should constantly vary over time whereby fact account for the competitive idea strategy and competitive advantage to the progress and survival of the system.
Moreover, the industry has to be pictured as an active system where administration must develop an optimal strategy to achieve set an objective for instance profit, market share, sales, development, improving the working condition, shareholder value that is included in company policy. In my opinion, Porter theory fails to identify the managerial rules to enable a dynamic process that alters the firm operation positioning to maintain and acquire a competitive advantage.Conclusion In conclusion, the most significant advantage of Porter’s theory the management attention focuses on substantial variables that impact companys strategic position variables the managers must consider when formulating a strategy.
Due to this information, I argue that Porter’s theory is still valid and it cannot be falsified just by looking at the ways the forces are applied. Therefore, this theory has not been outshined regardless of modern additions by other authors.Questions on Michael Porter.. Porter writes:Intense competition in an industry is neither coincidence nor bad luck. (page 137, upper-left). What are Porters main arguments for this view: Porter argues that the intense competition is rooted in the industry. The state of competition depends on the five forces and their collective strength determines how profitable the industry is. The weaker the forces then the greater the opportunity for the firm to have a better performance in the industry. According to Porter, there exist five forces which affect the performance of a company. These forces are pictured in the exhibit on page 141. What are these forces, and what do they involve?
Threat of entrants- new firms try to enter the industry by bringing new capacity and offering substantial resources, how serious the threat is depending on barriers to entry such as government intervention (how government places taxes/subsidies), economies of scale, product differentiation (brand identification forms a barrier to the new entrants)Bargaining power of costumers- costumers can force down the prices and demand higher quality.
Bargaining power of suppliers – suppliers can raise the price or lower the quality of the purchased goods, their power depends on the sales or purchases of the industry?· Threat of Substitutes- ? when they have better prices( offering the same quality and when they are produced by industries earning high profits?· Jockeying for position- rivalry among existing competitors using tactics trying to ensure their position in the industry? These forces highlight the weaknesses and the strengths of the company and allow each firm to see their positioning in the industry. Understanding those forces also allow firms to consider areas for diversification.? ?· the strongest competitive forces determine the profitability of the industry and are of great importance, e.g. even though a firm might not be threatening by new entrants they might be threatened by substitutes and thats should be their main focus.
According to Porter, how should a company formulate its competition strategy? Evaluate their strength and weaknesses and based on them plan actions on their 1st: position in the company (how best protect and provide their capabilities) 2nd influence the forces based on strategic moves(improving in this way the companys position) and 3rd anticipate shifts in the forces and respond to them (plan in the future before opponents recognize their plans)According to Porter, companies should choose a generic strategy. One such a possible strategy is cost leadership: being able to produce the product cheaper than competitors, so as to offer a lower price to the customer. There exists another strategy which is explained by the Dr. Pepper example.
Which strategy is this?? Peppers strategy at the beginning was a Integrated Strategy, both differentiation and low cost, where he tried not to compete with large soft drinks companies at the beginning such as Coca Cola and Pepsi however make the product different strength brand loyalty and using low raw material costs giving him cost advantage over his competitors.
How can a strategist help a company exploit industry change?? As industry evolution occurs strategist need to be aware of the new factors and where is the potential now in the industry.
What is multifaceted rivalry?Rivalry that it is not only in one single market but rather in many markets, where the firms needs to be aware not just their main rival in the industry however from other industries as well. Key to growth is to be in a position that you are not vulnerable.