20th October 2013 - 27th October 2013, Porter's 5 Forces.

20th October 2013 -  27th October 2013, Porter's 5 Forces.

This week consisted of understanding the Harvard's professors invention of five forces and the importance of it and how it can be applied to every business in this world. The diagram above shows what those Porter's five forces are, and how it acts as a simple and powerful tool for understanding where the power lies within a business.When you understand where the power lies in the business, you can take advantage of your strengths and can work on your weaknesses. In these classes, we learnt on how to use these five forces to determine competitive power in a business.

Bargaining Power of the suppliers: This is nothing but the dependency of your business to a supplier, that is, if you have lesser suppliers, the more you are dependent on them, making them more powerful, the more suppliers you have, the bargaining power of the suppliers weakens as he know that you have a variety and you can switch if he doesn't give you a good offer. Also their uniqueness and control over you, if they can make a product which other suppliers can't, they are in power and they can take the benefit by charging higher.

Bargaining Power of Customers: Here you ask yourself, how easy it is, for a buyer to bargain with you, Again, this is driven by the numbers of buyers, each being equally important to you and the cost of them, switching to a different product from yours.

Industrial Competitiveness: You're in control, if the competition is low or you're a monopolist, you can control the customers, while if there is high competition, you know that if you don't come up with a good and unique deal, which differentiates your product in a unique way, from those who are your competitors, your customers will switch to your competitor's product as they have a lot of available choices for a particular product. So, you need to bring a deal, which others can't offer to stay in a competitive market.

Threats of New Entrant: If you're in industry where the barriers to entry is high,and entering that particular industry is not easy, you have a benefit, you know that your competition level will stay stable at some level and you can benefit from this while if there are lesser barriers and entering this industry is easy, more people can invest and enter this industry making in more and more competitive which might make you weak towards your suppliers and customers.

Threat from Substitute Products: If your customers or people find a substitute way of the services or product you are offering, which are more cheaper and easy to get, they will surely turn to that , destroying your industry. So in other words, if substitute product or service is easy and viable, this weakens your power.

This was not it, no doubt the entire week was about this, but we also learned  by looking at some examples and realising the importance of it. We were shown example of three companies which were a blast in their time, but neglecting these 5 points, made them vanish from their industries. one of the example was KODAK, which neglected the rivalry increase and technological increase, the use of digital cameras, they were confident with their printed photos and neglected the upcoming competition. What is Kodak today? i can just say it was a huge company and one of the biggest for cameras and now it doesn't even exist. Same with black berry, they came up with their unique messenger but didn't follow up nicely, the competitors took over their market and now black berry messenger is available on all the phones.

Also, these 5 forces benefits people for evaluating and forecasting on, before investing into a business, that is, if i want to start a business, i can use these 5 forces and research with these to get myself an idea on whether it is worth investing, whether i can make my market share, for instance, if there is high competition, it is difficult for me to enter into a market, with my competitors having the benefit of supplier and customer bargain, they are already leading me and i can get an idea of how the market is, and if i want to enter, what would i have to do, how would i make myself unique to prove myself better from others, what would be my strengths and weaknesses.

Porter's five forces are really important, but using it only gives you a partial picture of what it looks like. Also, with the advancement in technology, their is an increase in the converging industries, which makes you realise that this is not enough, you have to take your competitors seriously and you have to think broadly, you have to predict future advancements and be the starter of innovative products in your industry, not your competitors.

Here is the video, which was shown us in class, in this, porter himself explains his five forces.

http://www.youtube.com/watch?v=mYF2_FBCvXw