Study of Software Industry Using Porter's Five Forces Model

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Abstract

Corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should be based on an understanding of industry structures, and the way they change.

Michael Porter provided a frame work that models an industry as being influenced by five forces. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porter’s model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. A strategic Business manager seeking to develop an edge over rivals can use this model to understand the industry context in which the firm operates.

Software industry is a growing industry and there are many potential new entrants to the industry. A study of the Software industry using Porter’s five forces model provides key insights into the industry trends. The study provides key challenges faced by the industry, and throws up some great opportunities that are present in the industry.

Overall, the studies done through this paper reveal that software industry is a great industry to get into, for those who have the capability to create opportunities out of challenges.

Introduction

Software Industry is considered to be a very profitable industry. This perception attracts many players to this field. Many of the new entrants to the industry do not do any scientific analysis before they get into the field. This some times result into failures and uncertainties in the industry. A lot of new entrants fail to correctly assess and analyse the competitive strength and position of the firm in this industry.

Michael Porter’s



References: 1. Festa, Paul: Rivalries set aside in defense of Internet Explorer ,Staff Writer, in CNET News.com September 25, 2003 2 3. Jackson, Gerard (1998) : The New Australian, No. 78, 8-14 June 1998 ,” Magic puddings, Microsoft and the Myth of Increasing Returns in Software”, 4 5. McKinsey & Company (2006): Software 2006 Industry report put together by McKinsey & Company 6 7. Pollack, Andrew (1991) : I.B.M. and Apple Give Up Rivalry To Preserve Grip on Their Industry , New York Times, July 4, 1991 8 9. Reserve Bank of India (India’s Apex Bank) RBI Notification Dated 10th August, 1998, Sub: Memorandum on Guidelines for Extension of Working Capital Finance for Information Technology and Software Industry, 10 11. Weier, Mary Hayes in the InformationWeek February 3, 2007 (From the February 5, 2007 issue) 12

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