Investigating Competitive Advantage Using Porters Five Forces Model - Book Report/Review Example

? Review of Articles: Investigating Competitive Advantage Using Porter’s Five Forces Model Review of Articles: Investigating Competitive Advantage Using Porter’s Five Forces Model Introduction Competitive Advantage can be simply defined as an upper hand that companies have over their rivals. Building on Porter’s ‘five forces’, this paper will review five different articles investigating competitive Advantage that incorporate these strategies and examine its results and findings in their particular business environment. Competitive Advantage Generally, competitive advantage means that a company gains an edge in terms of sales margin or retention of clients more than its competition in the same competitive industry. There are various ways or strategies in which a company can achieve competitive advantage such as cutting costs to bring prices down, variety of products offered, or the effectiveness of the distribution chain and consumer service, especially in the service industry. However, it is important for organizations to understand the strengths and opportunities the competitive edge brings with it in order to benefit from the situation. Therefore, they need to position their businesses appropriately and be able to sustain the competitive advantage they have achieved. As other companies constantly strive to become the market leader, they are adopting various competitive advantage strategies that enable them to either, take advantage of their business environment resources or counteract the other firm’s competitive advantage through differentiation and innovation Porter’s Five Forces Competitive Model In recent times, various theories have emerged providing organizations systems and techniques for achieving Competitive Advantage in the contemporary economic environment. Among many of these theories, Michael Porter, an economist and Associate Professor at Harvard University, proposed a Theory of Competitive Advantage in an article published in the Harvard Business Review in 1979, titled “How Competitive Forces Shape Strategy”. In this article, he describes the factors and conditions for a sustainable competitive advantage in the industry to which it belongs. Moreover, he explains how to measure the attractiveness of an industry through focusing an organization’s efforts on these five forces: rivalry among existing competitors, threat of new entrants, bargaining power of buyers, threat of substitute products or services, and bargaining power of suppliers (Porter 2008). Michael Porter explains that all industries appear to differ in, for example, operation of business of an aircraft manufacturer is very different from that of a small-scale restaurant. Similarly, the product or service offered in these industries but the principal business factors remain the same in all industries. He identifies these five market forces as coherent drivers of profitability and aims to achieve competitive advantage through exploiting them. However, he realizes that these underlying structural forces are influenced by various factors and strategists must study these forces to comprehend how they can achieve profitability by successfully foreseeing and manipulating competition. Now we will review five journal articles on competitive advantage that used Porter’s five forces. Article 1 The first article is titled “Fathoming Porter's Five Forces Model in the Internet Era”, which is written by Karagiannopoulos, Georgopoulos and Nikolopoulos (2005). The purpose of the article is to use Porter’s five forces to examine the effect of Internet in the contemporary business environment compared with the old economy. It also studies whether Porter’s model lead to innovation through exploitation of the surroundings in which the business is operating (Karagiannopoulos, Georgopoulos and Nikolopoulos 2005). In the introduction of the article, the authors highlight the scope and aims of their research. They discuss how difficult it is to compare an internet-economy with a non-internet one, but insist on how important the technology of Internet has been since the time it was introduced in the corporate sector. Next, the authors discuss how the market or industry behaves when a new technology or innovation is introduced. They cite Porter that suggest the economic conditions to become unsustainable at these times, as market goes up due to zealous experimentations by companies and entrepreneurs. These rampant investments in the emerging sector misrepresent the market behaviour with a temporary upward shift in the share prices. Next, the article discusses how the Internet has enabled companies today to digitize information, cutting costs to the firm and creating value for customers. After which they give a little background on M. Porter and explain the Porter’s five forces; how it became a reference point to the literature of corporate strategy. Finally, they apply five forces model to analyze the Internet era, starting with reference to a Porter’s article, published in the Harvard Business Review in 2001, titled “Strategy and the internet”. The research suggests that ‘five forces’ framework is actually applicable to gauge the attractiveness of the industry, and companies can achieve competitive advantage by manipulating these forces. However, certain factors need to be reconsidered, accommodated, or remodelled by the companies accordingly to suit the requirements of the contemporary business environment. The authors conclude that Internet, despite being a very important technology with widespread use and possibilities, still has constraints; and it is important for companies to give these ‘old’ constraints proper attention to be successful in today’s competitive industry. The authors present their case through sufficient references, diagrams, figures, and flowcharts. Article 2 The second article on the review is written by Irene Siaw and Alec Yu, titled “An Analysis of the Impact of the Internet on Competition in the Banking Industry, using Porter's Five Forces Model” in 2004. The name of the article is quite self-explanatory, and this paper like Article 1 focuses on the impact of internet on competition but particularly in the Banking sector. The authors start with discussing the global impact of Internet over all industries. The information is narrowed down to precisely Internet banking, describing how Internet banking came into existence and how it has evolved. It explains using the Porter’s five forces, how internet has affected Competition in the banking industry through various factors and concerns, such as lowering down entry barriers, large banks having advantage because they are huge enterprises, and from heavy marketing expenditures on developing products and brands to customer relationships. Other factors include elimination of distribution channels to direct access to customers, “regulated government policy to unregulated global market, proprietary standards to eliminating switching costs, gatekeeper of finances to gateways to financial products” (Siaw and Yu 2004). With Porter’s five forces competitive model, the authors conclude that internet-banking sector has minimum threats to entry, with banks serving superior customer service as suppliers to fulfil the escalating bargaining powers of buyers. In the end, rivalry is on the rise as small banks can now easily enter the market and compete with large enterprises. Article 3 Third paper on the review also studies the scope and limitations of mainly “McCarthy’s four marketing mix model and Porter’s five competitive forces model” (Shin 2001) to recognize strategies specifically in internet-based companies to accomplish competitive advantage. E-commerce industries have unlimited scope and markets to conduct operations and therefore there are unlimited opportunities to exploit. The study uses the two models to measure the influence of internet on each of them, and whether a strategy could be formulated that could help companies in achieving competitive advantage without affecting each of the techniques. The authors conclude that E-business have an unlimited range of prospects but are low on profitability due to unclear strategy and direction. With the application of the McCarthy’s four marketing mix model and Porter’s five competitive forces model, these organizations would be able to overcome that problem. However, each firms’ management would require to study the marketing mix and the competitive forces in their respective industry to formulate a strategy that would enable them to achieve competitive advantage and enjoy economies of scale. Article 4 Fourth article is titled “Strategic planning for competitive advantage in construction” and is written by Martin Bettsa and George Ofori (1992). The underlying aim of this article is to study how to formulate a strategy that helps a firm achieve competitive advantage in construction industry. The authors start by discussing the Porter’s five forces model and its applications in various industries and business sectors. This is then compared with its implementation in the construction industry, at both, operational level and corporate management level. It is identified that strategic planning is endorsed only to some extent, and has yet to be recognized completely in the construction industry. The impediments and their possible reasons are acknowledged and a comparison is made between the current and the previous construction practices with respect to strategic planning. The authors evaluate that the construction industry will lose its character of dynamism on all levels, as there is an extensive capacity for application of the Porter’s five forces. They conclude that these concepts have relevance in devising strategies for gaining competitive advantage and profitability of different sizes and types of construction enterprises (Bettsa and Ofori 1992). Article 5 The final paper is titled, “The UK tour-operating industry: A competitive analysis” written by Crispin Dale (2000). As the name suggests, the research article studies the UK tour-operating industry in achieving competitive advantage through models presented by Porter and Thurbly. The scope of the study is to contemplate whether Porter’s five forces model is comprehensive enough to be applied to the modern UK tour industry. In addition, it aims at finding whether the model is any good in achieving growth and development in an increasingly competitive tour industry. Sufficient diagrams and flowcharts are also provided for explanation. The authors begin by describing the environment in which tour companies operate in UK, which then leads on to describing the Porter’s model. The model is then criticized for not incorporating the external factors, as tour industries operate under highly unpredictable and active external environment. The author presents an alternative model or a succession of Porter’s model made by Thurbly, which is applicable to the tour-operating industry. He argues, “other forces, such as digital information technology, regulation, the threat of alternatives, synergistic alliances and organisation reinvention, are shaping the future competitive tour-operating environment” (Dale 2000). Therefore, in order to achieve competitive advantage within the UK tour-operating industry, companies need to incorporate the above factors as well. Summary The Porter’s five forces model is a revolutionary work in the field of strategy and competitive advantage. This paper has reviewed five articles studying competitive advantage using Porter’s model, and sufficiently concluded that it is applicable in almost all industries. However, like any other theory, it is open to improvements and innovation. References Bettsa, M. and Ofori, G., 1992. Strategic Planning for Competitive Advantage in Construction. Construction Management and Economics, 10(6), pp.511-32. Bettsa, M. and Ofori, G., 1992. Strategic planning for competitive advantage in construction. Construction Management and Economics, 10(6). Dale, C., 2000. The UK tour-operating industry: A competitive analysis. Journal of Vacation Marketing, 6(4), pp.357-67. Karagiannopoulos, G.D., Georgopoulos, N. and Nikolopoulos, K., 2005. Fathoming Porter's Five Forces Model in the Internet Era. info, 7(6), pp.66 - 76. Porter, M.E., 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review, Available at: [Accessed 10 May 2012]. Rackoff, N., Wiseman, C. and Ullrich, W.A., 1985. Information Systems for Competitive Advantage: Implementation of a Planning Process. MIS Quarterly, 9(4), pp.285-94. Shin, N., 2001. Strategies for Competitive Advantage in Electronic Commerce. Journal of Electronic Commerce Research, 2(4), pp.164-71. Siaw, I. and Yu, A., 2004. An Analysis of the Impact of the Internet on Competitionin the Banking Industry, using Porter's Five Forces Model. International Journal of Management, pp.514-23. Read More