The Five Competitive Forces That Shape Strategy Pdf
In 1979, Michael E. Porter wrote an article for the Harvard Business Review, "How Competitive Forces Shape Strategy". In this article, he introduced the concept of the Five Competitive Forces that determine the attractiveness of a market and ultimately shape a company's strategy. In 1980, he published a book titled "Competitive Strategy: Techniques for Analyzing Industries and Competitors" which elaborated on the Five Competitive Forces model. Today, this model is still widely used to analyze industries and competition, and it is available free of charge as a pdf from the Harvard Business Review website. This article will provide a comprehensive overview of the Five Competitive Forces that Shape Strategy pdf.
Threat of New Entrants
The first force is the Threat of New Entrants. This force determines how easy or difficult it is for new companies to enter an industry and compete with existing companies. If it is easy for new companies to enter the industry, then the competition will be high and the profits will be low. On the other hand, if it is difficult for new companies to enter the industry, then the competition will be low and the profits will be high. The factors that affect the Threat of New Entrants are barriers to entry such as economies of scale, brand recognition, government regulations, and patents.
Threat of Substitutes
The second force is the Threat of Substitutes. This force determines how easy or difficult it is for customers to switch to a substitute product or service. Substitutes can be products or services from other industries that fulfill the same need as the existing product or service. If there are many substitutes available, then the competition will be high and the profits will be low. On the other hand, if there are few substitutes available, then the competition will be low and the profits will be high. The factors that affect the Threat of Substitutes are the availability of substitutes, the price of substitutes, and the quality of substitutes.
Bargaining Power of Customers
The third force is the Bargaining Power of Customers. This force determines how much bargaining power customers have over the prices and quality of the products or services offered by the company. If customers have a lot of bargaining power, then they can demand lower prices and higher quality, which will decrease the profits of the company. On the other hand, if customers have low bargaining power, then the company can charge higher prices and provide lower quality, which will increase the profits of the company. The factors that affect the Bargaining Power of Customers are the number of customers, the size of orders, and the availability of substitutes.
Bargaining Power of Suppliers
The fourth force is the Bargaining Power of Suppliers. This force determines how much bargaining power suppliers have over the prices and quality of the raw materials or components used by the company. If suppliers have a lot of bargaining power, then they can demand higher prices or provide lower quality, which will increase the costs of the company. On the other hand, if suppliers have low bargaining power, then the company can negotiate lower prices or higher quality, which will decrease the costs of the company. The factors that affect the Bargaining Power of Suppliers are the number of suppliers, the uniqueness of their products or services, and the switching costs.
Rivalry Among Existing Competitors
The fifth and final force is the Rivalry Among Existing Competitors. This force determines how intense the competition is between existing companies in the industry. If the competition is intense, then the profits will be low. On the other hand, if the competition is low, then the profits will be high. The factors that affect the Rivalry Among Existing Competitors are the number of competitors, the degree of differentiation among their products or services, and the exit barriers.
Conclusion
The Five Competitive Forces that Shape Strategy pdf is a valuable tool for businesses and investors to analyze industries and competition. It helps them to identify the key factors that determine the attractiveness of a market and ultimately shape the strategy of a company. By understanding the Five Competitive Forces, companies can develop a competitive advantage and increase their profits.
