The Five Competitive Forces that Shape Strategy

Questions: Despite the critiques of Porters five forces model, the framework remains an essential strategic tool that is taught in all business schools around the world. Porter himself remains convinced of the validity of his ideas and has recently responded to some of the critiques highlighted in your material. Please read the following article by Porter: Porter, M. E. (2008) The five competitive forces that shape strategy, Harvard Business Review, issue 1, pp. 7893, and then answer the following; A.i Critiques of Porters five forces concept (1980), suggest that might be inappropriate for application in non-competitive situations. (13 marks) A.ii Discuss the extent to which Porters five forces analysis may or may not apply to public sector organisations? Why? Support your answer with real life examples. (12 marks). B. Grant (2008) suggests that, while the five forces analysis enables us to develop an appreciation of an industrys potential for profit, it does not really discuss the characteristics of competition. Grant suggests that, organisations must deliver what customers want more effectively than their competitors do. He added that Key success factors are generally understood in terms of answers to these questions. Elaborate on Grants views and support your answer with real life examples. Answers: Question A: i) Porters five-force analysis tries to find out the level of competition within an industry and strategies in business development. The five forces are threat of substitute goods/services, competitive rivalry and threat from potential new entrants, power of the suppliers and power of the buyers (Chung 2013). The high competition reduces the power of the firm in a market scenario. A non-competitive situation in the market is regarded as the monopolistic market situation. Threat of potential new entry: Although a monopolistic market would want to limit this threat by creating high barriers to entry, no market is completely isolated from another, which means that external forces have the potency to admit new entrants to the market. Power of the buyer: As power of consumer increases, they would choose not only what the monopolisers offer but also what other players (manufacturers of goods/services) offer. Monopolisers tend to sell goods/services that are of high price but low quality. Power of the consumer can actually enable the customers to ignore the monopolisers and go for what the other manufacturers provide. Threat of Substitution: With time, buyers would definitely substitute goods/services from monopolisers to the competitors due to better quality and lower pricing. Power of supplier: Monopolistic markets tend to have low number of suppliers who control the entire market. They also control the prices, keeping them high. However, suppliers remain in constant fear of new entrants (Porter 2008). Competitive Rivalry: If there are more than a monopolisers in the same market, they tend to work together and not against each other. ii) The public and the private sector make strategies for marketing. Private sectors firm use the five competitive force strategy of Porter to analyze the external forces acting on the firm. But, with simple modifications, the five force strategy can be used in public sector agencies. Public sector agencies like Ministries and Departments uses the five force model to enforce laws and policies to steer the profit-making companies from making strategies detrimental to national interest. In the modified version of Porters Five Force model, the economic and political influences are integrated in the model (Dobbs 2014). The five forces like, threat of potential new entry, power of the buyer, threat of substitution, power of the supplier, competitive rivalry, affect the profit of an private company, a public organizations are more concerned with these forces affecting its ability to achieve its objective effectively. The Telecommunication industry in the Sultanate of Oman uses Porters Five Force Model to analyze the external forces acting on this industry (Kemp et.al. 2014). The analysis revealed that the competitive forces are competitive rivalry and threat of substitution. The threat to new entry and buyers power has remarkable effect, but suppliers power has a small effect. All the five forces have significant implication on the participants of the telecommunication industry of Oman. The participants of the telecommunication industry of Oman use the outcome of this analysis as a critical tool to construct strategies in the changing dynamics of this industry. This analysis also helps to identify the competitive forces acting on the telecommunication industry (Kotler et al. 2015). Question B: Grants model is a complement to Porters Five Force Model. The key success factors in Grants model are Customers demand Survival of a firm in face of competition These two factors are considered as the pre-requisite for success of a firm. Customers want can also be referred to as the demand analysis of the firm. The demand analysis can be divided into two parts to identify the target customers and their demand. The target consumer is a particular group of customer in the market on whom the firm concentrates while formulating marketing and advertising strategies. The firm communicates with the target consumer through electronic and print media. The target consumer having buying power provides the firm with profits. If the consumers give value to lower cost then firms can take advantage of economies of scale (Magretta 2013.). The survival of a firm in competition depends on intensity and dimensions of the competition it faces. The strategies of the firm are to obtain a higher position in the competitive scenario. A real life example following the Grant model is the National Bank of Oman. The banking system in National Banking of Oman has good reputation in satisfying their customer needs. They serve their customers according to their demands. Online banking with internet banking portal, relationship manager to handle phone banking are some of the ways in which the National Bank of Oman serve their customers. The objective of the National Bank of Oman is to provide service to their customers in a convenient and pleasant way. They help their customer to plan, protect and grow their finances both in long and short run. In 61 branches across the country, the bank is helping their consumers with relationship manager in each branch. The count of branches assures that the bank has been able to reach every corner of the country. Sarada wealth management is a service focused to provide benefits to the privileged customers. Mazaya banking service takes care of all banking and investment plan of the cus tomers. A cutthroat competition exists in the banking industry in Oman. Only the big financial institution can only be able to thrive through this competition. Out of total 18 commercial banks in Oman, only five has been able to remain in the comfort zone (Suneetha and Megharaj 2015). The National bank of Oman has been able to hold a second position in terms of net annual profits. This competition might be because of that a large number of banks targeting a small section as their customers. Thus, the survival of the fittest theory applies here. The bank able to serve and satisfy its customers will survive the competition. Oman being a country with relatively small population and a negative approach towards business expansion, financial innovation is absent here. Banks with poor customer service are just trying to scrap the business. Adapting technology and incorporating it in the banking system enhances customer service facilities. National Bank of Oman has been able to incorporate and use t echnology in serving their customers. It has been the most cost effective way to reach the target customers. References: Chung, C.Y., 2013. The Key Success Factors of Brand Extension for the Artists-Use Trendy Brand as an Example. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates.Competitiveness Review,24(1), pp.32-45. Kemp, Z.L.R.G., Jongsma, M.A., Huang, C., Dons, J.H. and Omta, S.O., 2014. Key Success Factors of Innovation Projects of Vegetable Breeding Companies in China.International Food and Agribusiness Management Review,17(4), p.177. Kotler, P., Burton, S., Deans, K., Brown, L. and Armstrong, G., 2015.Marketing. Pearson Higher Education AU. Magretta, J., 2013.Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press. Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming competition.Harvard Business Review,92(11), pp.64-88. Porter, M.E., 2008. The five competitive forces that shape strategy. Suneetha, S. and Megharaj, B.R., 2015. Customer value through value delivery process in jewellery industry-intensity of customer conception (with special reference to Hyderabad and Secunderabad).South Asian Journal of Marketing Management Research,5(1), pp.86-101.