Essay Strategic Management and Competitive Forces

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ARTICLE REVIEW FORM

NAME: Alison Benton DATE: 1/27/2015 ARTICLE TITLE:
The Five Competitive Forces That Shape Strategy

STATE THE MAIN IDEA (CONTRIBUTION) OF THIS ARTICLE TO THE FIELD OF STRATEGIC MANAGEMENT:

Michael E. Porter writes about five forces that help strategic management better understand the idea of industry competition. The article explains the different impacts that threats of new entrants, threats of substitutes, rivalry among existing competitors, and the bargaining power of buyers and suppliers can affect a company’s profits, and explains how to ultimately overcome these boundaries.

LIST THREE IMPORTANT FACTS THAT THE AUTHOR USES TO SUPPORT THE MAIN IDEA:

The author describes that although there is a threat to existing companies with new entrants, there are still seven barriers to entry that each potential new entrant must overcome to be a true threat. Each new entrant will have to overcome supply-side economies of scale, demand-side benefits of scale, customer switching costs, capital requirements, incumbency advantages independent of size, unequal access to distribution channels, and restrictive government policies. Each existing company should be aware and understand the potential threat these barriers have to new entrants, but they should also be aware that there are steps to overcome these barriers to make it easier to enter the market.

The article also explains how destructive rivalries can be to an industry; profits are negatively impacted when there are a large amount of rivals. Opposite of entry barriers, there are exit barriers, making it difficult for a company to withdraw themselves from the industry even if they are receiving little to no profits. If rivalries between companies start to compete with strict force on their prices, they will reverse their profits from their hands to their customers’ hands. Some rivalries can have positive impacts on their industry, too. If companies are competing on factors other than price, they can improve their customer value and cause prices to increase. Not only can rivalries cause negative and positive profits, they can also cause a zero-sum competition. When each firm is competing on the exact same levels, one firm’s gain is another firm’s loss; leading to zero-sum.

Each of the five forces affects each industry differently. In highly competitive industries, when the forces are strong, the companies tend to have lower returns on investments. When the forces are practically still, like the toothpaste industry, return on investments tend to be much more profitable. There may be five competitive forces, but there could just be one force that has the largest impact in one industry which completely determines the profits that particular industry receives. The article describes that the type of industry is unrelated to the fact that the structure is what drives competition and profitability. Understanding the five forces makes it easier for a company to better understand their current and future standings.

WHAT INFORMATION OR IDEAS DISCUSSED IN THIS ARTICLE ARE ALSO DISCUSSED IN YOUR TEXTBOOK OR OTHER READINGS THAT YOU HAVE DONE? LIST THE TEXTBOOK CHAPTERS AND PAGE NUMBERS. USE OF ADDITIONAL READINGS HIGHLY RECOMMENDED (SEE ARTICLE LIST IN D2L):

In chapter three, our textbook talks about external forces to a company. On page 72, the textbook explains about competitive forces and on page 75 to 78 the textbook is about Porter’s Five-Forces Model which is directly about the article.

In the “Gap” article found under additional readings on D2L, the author talks about how Gap did not conform to its competitors. It talked about how Gap was striving more for leadership and consistency rather than trying to change and compete with
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