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Porter, Michael (2008). “The Five Competitive Forces That Shape Strategy” Harvard Business Review, 78-93.

Central Theme: Nowadays, the business world is full of competition. So, to stay in the market for the long-term industry or business need to change with the time and as per the customer’s needs and wants. In this technology era, businesses need to stay up-to-date with technology and with their products quality. In order to stay in this competition with competitors, manager of the business must have to plan their business strategies and also have to maintain tactical planning before making any large decision in the business. In the article “The Five Competitive Forces That Shape Strategy” by Michael Porter, he mentioned the five forces that every business person should considered before making any strategy-based decision. That five forces are 1. Rivalry Among Existing Competitors, 2. Threat of New Entrants, 3. Threat of Substitute Products or Services, 4. Bargaining power of Buyers, and 5. Bargaining Power of Suppliers. In the article Michael Porter has explained each force with visual perspective so it is a lot easier to shape a strategy. In this article Michael Porter has not just mentioned the five forces but he also has mentioned the bunch of suggestions like how to handle the issue and the many companies’ example so reader can easily understand. Michael has also provided how to implicate strategy with analysis of an industry and the concept of competitive business world and values of the that.

Critical Analysis: Threat of Entry: New entrants to an industry always bring new capacity and desire to gain market share and after all that puts pressure in prices, costs, and the rate of investment necessary to compete. In this case, particularly when new entrants who are diversifying from the other markets or industry, they can leverage exiting capabilities and cash flows to catch up with the on-going competition in the market. Michael gives an example of Pepsi, Microsoft, and Apple. The threat of entry puts a cap in the profit on the potential of an industry. When the threat is high in the businesses then most of the businesses hold their price down because otherwise they are not able to stay in the market longer. And or they are looking for the investment to compete with the new competitors. The Power of Suppliers: Who is the powerful supplier they have a lot a knowledge in the market, so powerful suppliers capture more of the value for themselves by changing higher prices, limiting quality or services, or shifting costs to industry participants. Michael Porter has mentioned the Microsoft example that, they have increased the computer prices on operating systems than other suppliers. Michael has also mentioned in the article that supplier group is powerful if they have more concentrated than the industry it sells to, if the supplier group does not depend heavily on the industry for its revenues, industry participants face switching costs in changing suppliers, supplier offer products which is different than the other suppliers, there is no substitutes for what the supplier group provides. The Power of Buyers:

Powerful customers, the flip side of the powerful suppliers – can capture more value by forcing down prices, demanding better quality of the products or more service, and generally playing industry participants off against one another, all at the expense of industry profitability. When buyers have negotiating leverage relative to industry then buyers count as powerful buyers. Michael Porter has mentioned customer group has negotiating leverage if there are few buyers or each one purchase in the bulk that are large relative to the size of a single vendor, industry’s products are standardized or undifferentiated, Buyers face few switching costs in changing vendors, the product it purchase from the industry represents a significant fraction of its cost structure or procurement budget and the quality of the buyers products or service is little affected by the industry’s product. The Threat of Substitutes: The substitutes perform the same or a similar function as an industry’s product by a different means. Substitutes not only limit profits in normal times, they also reduce the bonanza an industry can reap in good times. Michael Porter mentioned that the treat of the substitutes is high if offers an attractive priceperformance trade-off to the industry’s products and the buyer’s cost of switching to the substitutes is low. Rivalry Among Existing Competitors: In this force there is a lot of existing competitor’s tales many familiar from which includes price discounting, new products introductions, advertising campaigns, and product/service improvements. Michael Porter mentioned the intensity of rivalry if greatest if competitors are numerous or are roughly equal in size and power, industry growth is slow, exists barriers are high, Rivals are highly committed to the business and have aspiration for leadership, especially when they have goals that go beyond economic performance in the particular industry, products/service of rivals are nearly identical and there are few switching costs for buyers, and fixed costs are high and marginal costs are low. Main Takeaways: The main takeaways from this article is that there is a lot of competition in every industry and business. So, to get successful and stay in the market for the long-term you have to make correct business decision with the use to every business strategic management. In this article Michael Porter has defined every force in-depth to explaining why industry or business should need to take strategic management decision, how can they choose right strategy for their business. Five forces also hold key to identify or defining relevant industry boundaries correctly, around the arena in which competition actually take place, will clarify the causes of profitability and the appropriate unit for setting strategy....