Business Strategy and Five Competitive Forces

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Business Strategy and Five Competitive Forces

As the name suggests, Michael Porters (2008) article The Five Competitive Forces That Shape Strategy aims to identify the decisive forces that define competition in the market. According to the author, these forces are rivalry among existing competitors, the threat of new entrants, the possibility of substitutes, and the bargaining power of both buyers and suppliers (Porter, 2008). The authors main point is that business strategy should focus on the detailed assessment of these forces to enlarge the overall profit pool and maintain sustained profitability (Porter, 2008). From his perspective, it would provide for a more stable and accurate perception of any given industry than, say, financial projections and stock analysis.

There are multiple learning outcomes to the taken from the article, most notably in its analysis of market competition. The first and most obvious outcome would be the knowledge of the five forces that Porter (2008) presents as decisive in shaping competition. Another major learning outcome is the knowledge of factors that may also impact the industry such as its general growth rate, government policies, or technology and innovation. The difference between the two is that the forces represent internal influences inherent to any industry, while factors are external influences that exert their impact indirectly by affecting the forces (Porter, 2008). Finally, one more learning outcome is registering some basic implications for strategy, especially when it comes to positioning a company or exploiting industry change.

The reading may have a profound impact on the student by challenging certain conventional wisdom notions about business strategy. For example, common sense would suggest that eliminating competitors to get a greater market share is a good strategy, but Porter (2008) points to the negative reaction from customers and supplies that it can cause. Similarly, conventional wisdom would state that fast-growing industries are the most attractive ones, but Porter (2008) notes how this growth empowers suppliers and attracts new entrants, making competition fiercer. Thus, the major impact of the reading is that it provokes the student to think critically about the fundamental forces shaping market competition and challenge preconceived assumptions.

Reference

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93, 137.

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