Creating Shared Value Essay

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Competitive Forces that Shape Strategy by Michael Porter

Michael Porter first published his article about his ideas regarding competitive forces in the Harvard Business Review in 1979. Since that time his ideas have become mainstream and a component of nearly every business curriculum available today. Porter rewrites his article on competitive forces every few years for the Harvard Business Review and provides updated content and new examples of how his model still applies to the modern business environment. The five forces that he includes in his model are (1) the barriers to entry in the industry; (2) the bargaining power of the suppliers; (3) the threat of any substitute products; (4) the bargaining power of buyers; and (5) the level of rivalry among companies within any given industry. When these forces are intense, it is argued that there is generally less room for profitability and the structure of the industry can drive profitability. This review will analyze the model presented by Porter and offer insights into its value.

The first force in the Porter's model is referred to as barriers to entry. This is basically how easy or difficult it is to enter an industry based on factors such as how much capital is required and how many players have already entered.

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If the barriers of entry are high, then this often provides a situation in which profits are more obtainable. However, when the barriers are low then companies must keep their prices down or a new firm can enter the market and accept a slightly lower profit margin. However, companies like Microsoft and Apple are able to charge premiums because it is difficult for small firms to compete with them.

Another force is known as the bargaining power of suppliers. In any complex product or service, firms are at dependent in some regard to their supply chain and their raw material suppliers. When the company's suppliers have a lot of power then they are more likely to retain a greater share of the value chain's profitability. For example, when only one supplier for a material is present then they can charge a premium for whatever good they are selling. However, when there is more competition amongst suppliers, this drives the market prices down. The example Microsoft is given again in regards to….....

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