The Five Competitive Forces For Business Administrators To Know

May 25th, 2011 by Clifford

Harvard professor Michael Porter discusses his theory of the “Five Competitive Forces that Shape Strategy.” When taught in business school, the concept of competition is construed too narrowly by many business leaders, who think in terms only of direct competition when in reality there are many other threats to one’s market position and profitability.

The college professor, Porter states that aside from direct competition, the four other competitive forces that have an impact on a business’s strategy are: pressure from customers to lower prices; suppliers who are constantly trying to drive up the cost of supplying a given company or business; potential new entrants to an industry, which helps to drive prices down; and alternative industries, which also helps to bring down the prices that a business can charge its customers. All of these strategies have to be kept in mind when thinking about a career in business, business administration, or marketing.

Porter explains that his model can be applied to any industry to uncover the true sources of profitability, as well as trends in the industry that can be used to maintain competitive business advantage. As an example, Porter discusses the airline industry, which he sees as one of the least profitable industries in the world. Using Porter’s model, the reasons for this low profitability are clear. In addition to the fierce competition between airlines, these companies also face competitive forces in the form of “low barriers to entry,” which means that it is easy for small airlines to get started. There is also the fact that customers will use trains, cars, or buses when flying gets too expensive, and that the industry’s unionized labor supply can make it very difficult to cut company costs.

While these underlying competitive forces can seem difficult to understand for outside observers, a business administration degree can provide more understanding of how and why businesses do the things they do. To find the right business administration college go to US College Search and search for Business Administration and Management Degree.

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