How Competitive Forces Shape Strategy [DOWNLOAD: PDF] (Digital)

~ Michael E. Porter (Author)

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Many factors determine the nature of competition, including not only rivals, but also the economics of particular industries, new entrants, the bargaining power of customers and suppliers, and the threat of substitute services or products. A strategic plan of action based on this might include: positioning the company so that its capabilities provide the best defense against the competitive forces; influencing the balance of forces through strategic moves; and anticipating shifts in the factors underlying competitive forces. McKinsey Award Winner.

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• Digital: 10 pages
• Publisher: Harvard Business Review (March 3, 2009)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (2 customer reviews)
• Amazon.com Sales Rank: #649,348 in Books (See Bestsellers in Books)

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56 of 57 people found the following review helpful:

5.0 out of 5 stars Strategy formulation = Coping with five competitive forces, October 28, 2001

By	Gerard Kroese (The Netherlands) - See all my reviews (REAL NAME)

Michael E. Porter is a Harvard Business School professor and a leading authority on competition. He has written several important novels and articles in the field of competition and strategic management. This article, published in the March-April 1979 issue of Harvard Business Review, meant the start of a great string of articles by Michael E. Porter. More importantly, it was the start of the positioning school in the field of strategic management.

"The essence of strategy formulation is coping with competition. ... intense competition in an industry is neother coincidence nor bad luck." The state of competition in an industry depends on five basic forces: (1) jockeying among current competitors, (2) threat of new entrants, (3) bargaining power of suppliers, (4), bargaining power of customers, and (5) threat of substitute products or services. The author describes each force in detail and its consequence on competition. The collective strength of these forces determines the ultimate profit potential of an industry, and it is the goal to find a position in the industry where the company can best defend itself against these forces or can influence them in its favor. The company needs to identify its strengths and weaknesses, and compare these against the underlying causes of each force. Then the company can devise a plan of action that may include (1) positioning the company, and/or (2) influencing the balance of the forces through strategic moves, and/or (3) exploiting industry change before opponents recognize it.

This article was awarded with the McKinsey Award (= best article in Harvard Business Review that year) and no reader will be surprised. It is a truly great article, and I must admit one of my all-time favorites. It will be remembered most for its introduction of the five competitive forces. Some people have criticized Michael Porter's framework(s) for being too static, but he has responded to those critics in his 1996-article 'What is Strategy?'. I would recommend this article to anybody in management and certainly all MBA-students. This is the first article you should read on strategic management! And to be followed up with Michael Porter's 1980-classic 'Competitive Strategy'. The article is written in simple US-English.

11 of 11 people found the following review helpful:

5.0 out of 5 stars How Competitive Forces Shape Strategy, January 22, 2006

By	Elijah Chingosho "Dr Elijah Chingosho" (Nairobi, Kenya) - See all my reviews (TOP 1000 REVIEWER)    (REAL NAME)

Michael Porter is a guru on competition and strategic planning. His article "How Competitive Forces Shape Strategy" is so powerful and incisive that any serious manager wishing to devise strategies to cope with competition in his/her industry needs to read, understand and be fully conversant with the five basic forces which Porter states determines the state of competition in an industry.

According to Porter, competition in an industry is rooted in its underlying economics. There are forces that go beyond the established rivals in a particular industry. The five forces are:

* The bargaining power of customers
* The bargaining power of suppliers
* The threats of new entrants
* The threat of substitute products and services
* Rivalry among the existing competitors.

The collective strengths of the five forces determine the ultimate profit potential of an industry. The task of the corporate strategist is to find a position in the industry where his/her company can best defend itself against the forces or can influence them in his favour. The strongest competitive force or forces determine the profitability of an industry and these are very essential in strategy formulation.

Every industry has an underlying structure that give rise to the five competitive forces. The strategist needs to know what drives the industry if he/she is to position the firm to effectively cope with the environment or influence the environment.

After assessing the forces affecting competition in an industry and their underlying causes, the strategic planner can identify the company's strengths and weaknesses. Strategy can be viewed as building defences against the competitive forces or finding positions in the industry where the forces are weakest.

This is an excellent article which is well presented. It is recommended reading for managers as it will certainly assist them in analysing competitive forces in their industry. I also recommend the article to students studying management, business studies or doing and MBA.