The Five Competitive Forces That Shape Strategy - Essay Example

Opinion Article on the Five Forces That Shape Strategy Introduction: The Harvard Business Review saw a very complete compilation of the five competitive factors that affect strategy building for businesses in 1979, authored by Michael Porter. This article brought out some of the salient and most important points of business strategy and development which have been infamously known as ‘Porter’s Five Forces’ ever since this article went live. Porter takes a very comprehensive look at the various aspects of strategy building that have been used till then, and that have been ignored till the time of publication of the article, thereby, creating a piece that has come down in time as a path finder for many business owners and strategists. We study and form our respective opinions around this article through this paper. Porter’s Five Forces: The article begins with a short summary of the five factors described in one-liners, after which the main body of the article introduces the reader to the roles of a strategist and how it has become exceedingly narrowed down to checking competitor plans in recent years. While the author articulately puts forward his thesis of how the underlying forces of profitability remain the same in all business types, he also points out that strategy building is not a function of the competitor prices and strategy alone. In short, right from the introduction, he makes it very clear that for any business type, using the five factors for strategy building is highly important to its success (Porter, 1). We agree to this point that strategy building is a very important aspect of business development and that Porter’s observations are entirely important for strategy building. But we also cannot but consider the fact that not all these factors are important in cases of all businesses. And that the model proposed by Porter is not universally true as there are other factors that can be included in it too. Let us first take a quick round up of Porter’s five forces before we dwell on the other factors. The five main competitive factors as mentioned by Porter are as follows (Porter, 1): 1. Threat of New Entry: 2. Competitive Rivalry 3. Supplier Power 4. Buyer Power 5. Threat of Substitution All of the above mentioned points are directly relevant to businesses of any size. However, given the market scenario and the changes that we have seen in it over the past couple of decades, it is difficult to say whether the model is universally true or self-sufficient. Here are a few examples for us to note and learn from: Concept of Complementors This force was first expressed in the work of Barry Nalebuff and Adam Brandenburger, when they used the game theory to add the concept of complementors to the model as a force that can govern strategy development for a business. According to their predictions, complementors could be either the public or the government. The same force has also been propounded by the former CEO of Intel Corporation, Andrew Grove, who insisted that the government and the public affect the five forces and have the final say in shaping the strategy (Nalebuff and Brandenburger). Porter is also known to have considered regional government, national government and the public as factors which affect the five forces model. This brings the entire business fraternity together in conclusion that although Porter’s five models are pretty much basic as a tool to devise the strategy for one’s business, the final strategy is often governed by external forces which affect the tool. Getting Smarter: The 21st Century In our assessment we also feel that instead of relying entirely on the tool, one must go by individual strengths and weaknesses of the factors described in the tool. This is the universally applicable version of Porter’s five forces since, the presence of these factors, or their entire absence from the strategy building position arises from their industry specific strengths and weaknesses. Therefore, if you are entirely into depending upon the model for your strategy building moves, make sure you have a thorough understanding of the scope of each and every factor included in this model (Thurlby, 20). In a separate study it has been found that after the forces of globalization have hit economy and development in all parts of the world, the model seems a little weary since it is highly fit for old world economy, and not for the globalized economies of today. As is evident, adding a few factors that affect the model is a clever way to assess the success of your strategy, but how will a business owner or a strategy building team recognizes the factors or forces that will have an impact on the model in their specific niche? The answer lies in basic market study. Flexible By The Market: When a business builds its strategy using Porter’s five forces, there will be parts of the model that will be free from forces like threat of substitution. There could also be zero competitive rivalry or supplier power threats for companies that are launching a revolutionary product into the market. The apt example for this was Microsoft which ruled the computer buying market for a solid twenty years, owing to lack of competition. The only factor in its strategy that was of highest significance after the initial ten years was the threat of a new entry. The story is strikingly different for Apple, which is considered as the next best computer generating brand after Microsoft. Apple entered a space that had a couple of established players, and the brand had only its technological innovations to rely upon. Apple computers came across as fast paced cousins of Microsoft computers. Apple had loads of promise but was required to use the forces of digitalization, globalization and deregulation to its advantage. And that was what it precisely did. Apple’s growth is an example of how a business can be flexible around its strategy and exploit the loopholes in recent economic trends to maximize profits. They heightened technological innovation, differentiated its products, launched smartphones and iPads using all new software and actually gained access to the tech-savvy market space, by showing down other brands. Today, their strategy is more focused on smartphone and operating software creation than on computer or laptop manufacture. The Most Important Factor: The Internet It is very important to note that in today’s business world, the role played by the internet is of paramount importance. Porter’s five forces were created, applicable and designed for the pre-internet era when storing information across servers and creating a flow of information across the world through satellite transmission was not known. Therefore, bringing the five forces in today’s context, we cannot but agree that they are universally applicable, and that there are significant changes to be expected in this approach. According to Rivard et al. (2006), strategy building using the five forces today would need the support of marketing intelligence and planning to a great extent backed by the power of the internet (Rivard et al, 2006, 30). This was evident in the growth of companies like Apple and Intel and the case studies of BlackBerry and Panasonic. Conclusion: Workable strategies are no more desired in the world of business management today. Porter’s five forces were studied in an era before the forces of globalization, digitalization and deregulation, and therefore, was an epic compilation studying various aspects of strategy building and success back then. However, since the discovery of the internet in the 1980s, it became evident that business development was going to be governed by forces more than just the five forces by Porter. Today’s business world is more adaptive towards the fact that flexibility in using the tool prescribed by Porter is the only way to realize a strategy that will suite one’s business best. This involves taking into consideration the factors of complementors, digitalization, and globalization, and laying more emphasis on how these factors will affect the five forces. The end result is sure to be satisfyingly successful. References Nalebuff, Barry and Adam Brandenburger, The Right Game, February 27, 2015 from: https://hbr.org/1995/07/the-right-game-use-game-theory-to-shape-strategy Porter Michael E. The five competitive forces that shape strategy, Harvard Business Review, January 2008 Rivard, et al. “Resource-based view and competitive strategy: An integrated model of the contribution of information technology to firm performance.” Journal of Strategic Information Systems (2006) 5.1, pp. 29-50. Thurlby, Bob. Competitive forces are also subject to change. Management decision, (1998) 36.1, pp.19-24. Read More