Porter's Five Forces of Competition

Porter's Five Forces of Competition

Length: 627 words (1.8 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
Introduction

Competition in the business environment and strategies to counter that competition has existed and evolved for centuries, however a true revolution in the strategy field did not occur until relatively recently by a Harvard University professor and economist by the name of Michael E. Porter. According to Porter, "the job of the strategist is to understand and cope with competition" (Porter, 2008), however Porter observed that competition was often too narrowly defined, and that managers almost always neglected other competitive forces such as customers, suppliers, other marketplace entrants, and the potential for substitutes products. Consequently, in 1979, Porter published an article in the Harvard Business Review titled How Competitive Forces Shape Strategy, officially introducing the world to Porter's five competitive forces that shape strategy (Porter, 2008).

Porter's Five Forces

The five competitive forces that shape strategy that Porter introduced to the world in that article 35 years ago are Threat of New Entrants, Bargaining Power of Suppliers, Bargaining Power of Buyers, Threat of Substitutes, and Rivalry among Existing Firms. In developing the Five Forces, Porter's goal was to help strategic managers determine just how attractive their specific industry is or will become in the future (Mawhinney, 2008), although it is important to note that according to Porter, "the configuration of the five forces differs by industry" (Porter, 2008).
To further assist strategic manager's in analyzing their industry, Porter's Five Forces can be further divided into sub-components. Therefore it is imperative that strategic managers assess the positive or negative effect each sub-component has on the main force as a whole so that they "can assess the forces driving competition in an industry and evaluate the odds of a firm successfully entering and competing in an industry" (Stahl & Grigsby, 1997, pg. 145).

The Five Forces and Operating Overseas

Over the past twenty years, technologically advances has led to a boom in globalization, which in turn has dramatically increased international competition. Porter's Five Forces model was never intended to be a domestic or regional only tool for strategic managers. In fact, it is an excellent tool for an organization to utilize to determine one's international strategy. The results from assessing the forces driving industry competition will ultimately determine an organization's profit potential, which is the bottom line for all businesses. In other words, "a high competitive force can be regarded as a threat and a low competitive force can be considered as an opportunity as it allows a company to earn high profits" (Jeyarathmm, 2008, pg.

How to Cite this Page

MLA Citation:
"Porter's Five Forces of Competition." 123HelpMe.com. 05 Apr 2020
    <https://www.123helpme.com/view.asp?id=363349>.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Porter 's Five Forces Competition Essays

- PORTER’S FIVE FORCES Porter’s five forces is a framework to analyze level of competition within an industry and business strategy development. It is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market, this specific one being the crop production industry. The five forces are competition (rivalry) within and industry, bargaining power of buyers, bargaining power of suppliers, threat of new entrants, and threat of substitutes. Competition within the Crop Production Industry In this industry competition is steady, and there are many different topics that stem from competition....   [tags: Supermarket, Grocery store, Safeway Inc.]

Research Papers
2202 words (6.3 pages)

Essay about Porter 's Five Forces Model Of Competition

- In my opinion the most important element of their strategy should be forming a trustworthy and positive relationship with their existing and potential customers. As Hennig-Thurau (2000) explains in such a competitive market the contact with customers is vital. There is a lot of arguments in the press relating to compensation for customers that were affected by the scandal, this is because they were sold a vehicle with false information and also will have lost value on their purchase due to the market value dropping (BBC, 2015)....   [tags: Strategic management, Management]

Research Papers
946 words (2.7 pages)

Essay on Analysis Of Porter 's Five Forces Analysis

- Strategy Analysis: Porter’s Five Forces Analysis While I am writing this article, many people like me are thinking that business competition is a war between two or more corporation for more sales or market share. But according to Harvard business prof. Michael E.Porter, competition or comparison is more complex. It is not about who is biggest, it’s all about who is most profitable. The Porter’s Five Forces Model reflects or illustrate how this competitive environment is in industry or corporation is reflected and they are: Supplier power, Threat of new entrants, Buying power, Threat of substitutes....   [tags: Coca-Cola, Soft drink, Competition, Marketing]

Research Papers
1424 words (4.1 pages)

Essay on Porter 's Five Forces Analysis

- Section – 1 D Competitive Environment Porter 's five forces Porter 's five forces The confectionery industry is very dynamic in its nature. Things have changed within this industry very frequently before. According to (Porter, pp 4, 1985) “the collective strength of these five competitive forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry”. This model is one of the best tools available for analytical evaluation the competitive nature of the industry....   [tags: Porter five forces analysis, Management]

Research Papers
954 words (2.7 pages)

Porter 's Five Forces Model Essay

- 1. Describe Michael Porter’s model and its components. Pick an industry and describe how the different components of the model relate to the industry. Porter 's Five Forces model, it named after Michael E. Porter. He identifies and analyzes five competitive forces that structure every industry, helps to determine an industry 's weaknesses and strengths. There are five components of Porter 's five forces model i. Potential of new entry into the industry ii. Rivalry among existing firms iii....   [tags: Strategic management, Porter five forces analysis]

Research Papers
1090 words (3.1 pages)

Analysis Of Michael Porter 's Five Forces Model Essay

- Introduction Myra opened UMUC Haircuts in 1995 but has recently become aware of an increase in competition from numerous competitors. Lately, there has been news of a Hair Cuttery opening up within five miles making Myra anxious about how it might effect her business. She hopes her salon is able to remain and increase revenue by developing some aspect of her business. Five Forces Analysis The Five Forces Model, developed in 1979 by Michael Porter, is a useful business resource. It allows a business to determine if it can be profitable based on the industry and other competitors, in this case the competitor being Hair Cuttery....   [tags: Strategic management, Porter five forces analysis]

Research Papers
737 words (2.1 pages)

Sears Holdings Corp. (SHLD) SWOT Analysis, Porter’s Five Forces Analysis and Recommendations

- Our recommendation is to take Sears Holdings Corp. (SHLD) private through a private equity buyout. After doing so, we recommend implementing a centralized management structure and recruiting retail-savvy executives for the upper management team. We then recommend focusing on increasing value by capitalizing on SHLD’s real estate holdings through leasing agreements and increasing partnerships with complementary enterprises. Also, we recommend improving employee retention rates and retaining exclusive rights to private brands....   [tags: Porter’s Five Forces Analysis]

Research Papers
3014 words (8.6 pages)

The Porter 's Five Forces Essay examples

- The Porter’s five forces is a powerful technique used for understanding where power, profitability, strengths, and weaknesses lies within a business. It is an analysis that Michael E. Porter of Harvard Business School, put together to shape competition in industries. The five forces gives an insight of opportunities and threats in a firm outermost environment. It help to identify where the competitive position lies and where your company can move toward to. It is divided into vertical and horizontal forces....   [tags: Strategic management, Marketing]

Research Papers
812 words (2.3 pages)

Porter's Five Forces Essay

- Introduction All companies in the business sector which are in the same market of the industry are impacted by the bargaining, bargaining power of suppliers, intensity of competitive rivalry threat of new entrants in the same market of the industry and threat of substitute products or services All the businesses need to know them well Richard , H . (2007) 1- The extent of the strategy of Rolls Royce in the market is considered to be a deliberate strategy, the company has a great position in the market and has the ability to produce a wide range of products....   [tags: Game Theory, Business Strategy]

Research Papers
1387 words (4 pages)

Five Forces Model Essay

- Professor Michael Porter of the Harvard Business School developed a framework that aids in the development of an organizations competitive advantage. Porter identified five basic forces that act on the organization; I. The bargaining power of suppliers; II. The bargaining power of buyers; III. The threat of potential new entrants; IV. The threat of substitutes; V. The extent of competitive rivalry. The bargaining power of suppliers. Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods or services....   [tags: Competetive Advantage Michael Porter Five Forces]

Research Papers
1485 words (4.2 pages)

70). It is important to remember that Porter's Five Forces is just a model to assist strategic managers and should not be relied on exclusively.

Five Forces Limitations

As with any model or theory, Porter's five competitive forces that shape strategy has its limitations. One of the primary limitations of the Five Forces is subjectivity. When strategic managers assess each force and their corresponding sub-component, there is basically no right or wrong answer. The experience and expertise of the strategic manager will play a large role, and a less experienced manager can greatly affect a company's control of their specific market (Mawhinney, 2008).
A second primary limitation of the Five Forces is innovation. Industry structure is often reshaped as a result of continuing innovation, particularly in hyperactive industries. Critics argue that "many industries are hyperactive and hyperactive industries are marked by continuous innovation" (Jeyarathmm, 2008, pg. 78), therefore the Five Forces model has limited application.

Conclusion

Prior to the introduction of Porter's Five Forces, it is amazing to think that there was no core model that organization's would use to determine strategy in their competitive environment. Now, Porter's Five Forces, which Michael Porter continues to evolve, has become the central "go-to" model for strategic managers to anaylze just how attractive their specific industry is or will become in the future. While not perfect, and very subjective, Porter has succeeded in giving organizations a starting point in determining profit potential in a particular industry or marketplace.



Works Cited

Jeyarathmm, M. (2008). Strategic management. Mumbai, India: Global Media. Retrieved from
http://site.ebrary.com/lib/apus/docDetail.action?docID=10415735&p00=porter's five forces

Mawhinney, M. (2008). International construction. Chichester, GBR: Wiley. Retrieved from
http://site.ebrary.com/lib/apus/docDetail.action?docID=10232623&p00=porter's five forces

Porter, M. E. (2008, January). The five competitive forces that shape strategy. Harvard Business
Review, Retrieved from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1
Stahl, M.J. & Grigsby, D.W. (1997). Strategic Management: Total Quality and
Global Competition. Retrieved from http://ebooks.apus.edu.ezproxy1.apus.edu/BUSN601/Stahl_1997.pdf

Return to 123HelpMe.com