Michael Porter's Five Forces
In 1979 a professor at Harvard Business School, Michael Porter, published an article in the Harvard Business Review. The article titled "How Competitive Forces Shape Strategy" outlined the five factors that he believed could help determine the profitability of an organization. The five factors being: the power of customers, the power of suppliers, the threat of new entrants, the threat of substitutes, and industry rivalry. He saw these five factors as being the cornerstone of developing and executing a business strategy. Furthermore, over the past thirty-five-years scholars and researchers have tested Porter's and the results have been intriguing.
Industry rivalry is the first and most important factor that Porter …show more content…
Depending on the relationship a supplier can either make or break a company. For example, if General Motors was to make their steal supplier angry and the supplier decided to raise the price. The obvious result is that General Motors is going to lose profits, at least until they are able to switch suppliers. However, that also takes time and money, so they are still going to lose profits. The goal is to find an equilibrium where suppliers and companies like General Motors are both happy. In the car industry it is pretty easy to find steel suppliers because iron isn't a rare commodity, but take diamonds, for instance, and that is a whole new ball game. There are only so many suppliers, so those suppliers have much more control of the diamond market and the jewelry market than say a single steel producer would on the auto industry or the steel market. For example, the De Beers company, which is the largest producer of diamonds, could easily raise prices up and jewelers would be forced to pay the cost. Although, if they raise it too then not as many people would be would be able to afford them and then they would lose money. They look to keep demand high by limiting supply. This way they maximize profitability and are able to maintain control of the market as a supplier
In 1979 a professor at Harvard Business School, Michael Porter, published an article in the Harvard Business Review. The article titled "How Competitive Forces Shape Strategy" outlined the five factors that he believed could help determine the profitability of an organization. The five factors being: the power of customers, the power of suppliers, the threat of new entrants, the threat of substitutes, and industry rivalry. He saw these five factors as being the cornerstone of developing and executing a business strategy. Furthermore, over the past thirty-five-years scholars and researchers have tested Porter's and the results have been intriguing.
Industry rivalry is the first and most important factor that Porter …show more content…
Depending on the relationship a supplier can either make or break a company. For example, if General Motors was to make their steal supplier angry and the supplier decided to raise the price. The obvious result is that General Motors is going to lose profits, at least until they are able to switch suppliers. However, that also takes time and money, so they are still going to lose profits. The goal is to find an equilibrium where suppliers and companies like General Motors are both happy. In the car industry it is pretty easy to find steel suppliers because iron isn't a rare commodity, but take diamonds, for instance, and that is a whole new ball game. There are only so many suppliers, so those suppliers have much more control of the diamond market and the jewelry market than say a single steel producer would on the auto industry or the steel market. For example, the De Beers company, which is the largest producer of diamonds, could easily raise prices up and jewelers would be forced to pay the cost. Although, if they raise it too then not as many people would be would be able to afford them and then they would lose money. They look to keep demand high by limiting supply. This way they maximize profitability and are able to maintain control of the market as a supplier