The Five Competitive Forces That Shape Strategy

The article and video by Porter on the five competitive forces that shape strategy were very interesting for a few reasons. When I first was introduced to the five forces by Porter, the concept made sense to me, but I couldn’t apply it in a real-life experience. Now, given more work experience and a better understanding of different industries, the concept has come full circle for me and I have a better sense of the fundamentals of the concept. Porter does a great job in applying his concept to many industries that I can relate with and with the aid of years of research; the concept has stood the times and can easily be understood and described.

Porter says that competition is narrowly viewed. Even in today’s highly competitive environment, many companies are involved in price wars and lose focus on the true nature of competition. It was very interesting that Porter discusses that competition is viewing suppliers, new entrants, and new products. Price is not the only factor for competition.

The five forces views three distinct questions that Porter discussed. They include honing on what is causing profitability. Basically, the concept is looking at why a company is profitable, what characteristics cause profitability and how to improve profits. Secondly, what are the trends that are significant that is changing in the industry? How has the influence of the industry shaped competition, what new technology have been introduced, and what can we do to have a better presence in the industry. Thirdly, what are the constraints to find competitive position?

These questions define the concepts of the five forces. Porter in the video discusses the odd characteristics of the airline industry. He points to the industry as a price competition (every airline wants to have the cheapest prices), low barrier of entry (anyone can start an airline business by leasing a gate and renting planes), and consumers are price sensitive (consumers will go with any flight that is cheaper no matter the airline). Airlines are not making much money, in fact, Porter points to suppliers to be the true money makers. The plane manufactures have high bargaining power than consumers do within the airline industry. Additionally, all of these forces coupled with transportation substitutes (driving, train, shipping packages by ground instead of air) are causing the industry to behave very strongly. Additionally, the labor industry can latterly shut the company down since its labor intensive.

I found the airline discussion very interesting, especially since I brought up the airline industry. Typically, companies in this industry are exactly the same, selling the same products and offering the same services and the only characterize that truly differs are price points and cities that they fly into.

On the flip side, an industry that Porter described as the exact opposite is the soft drink industry and commercial printing, dental consulting and supplemental dental insurance industry. He says the five forces are attractive.

The five forces is a concept that can be applied to any industry and it focuses the underlying fundamentals and it disregards the latest trends or technological advancement. A recent surge of this in practice is the Internet. Porter calls the Internet an enabling technology and not a force for the framework.

Porter later discusses in the video that he’s learned that it is complex applying the fundamentals of the five forces and that rivalry can become positive because it allows a company to find a unique needs that differs from the competition. It focuses on what the company stands of, what they are committed to, and how to improve their competitive advantage. Porter says that competition can read to rivals picking up different choices rather than leading to price wars.