Article Review by Caroline Doan
Porter, Michael E. "The Five Competitive Forces That Shape Strategy." Special Issue on HBS Centennial. Harvard Business Review 86, no. 1 (January 2008).
Michael E. Porter’s article, “The Five Competitive Forces That Shape Strategy”, is an extension of his first work, “Porter’s Five Forces”. This article addresses forces beyond the existing competition and creates a framework that helps strategists understand industry structure and analysis. Industry structure is the basis for competition and profitability. The five forces that shape industry competition are the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, substitute products, and finally rivalry among existing competitors. While there are many forces that many affect profitability in the short run, these five competitive forces drive industry profitability in the medium and long run.
The Five Forces
New players coming into the game changes the entirety of the game. These entrants put pressure on price, costs, and investment, capping the potential profits in the industry. Whether the barriers of entry are high or low, it is the threat or the possibility of a new player entering the game that affects profitability. Barriers of entry are advantages that those who already playing the field have over newcomers. These include, supply-side economies, demand-side economies, capital requirements, incumbent advantages independent of size, unequal access to distribution channels, and government policy. It is important to distinguish that these barriers do not always hinder entrants. For example, government policy may create opportunities for entrants to enter. Therefore, it is important for strategists to access the situation relative to potential entrants’ capabilities.
Suppliers have a lot of clout on their side. In any industry, it is important to establish value for...