Porters Five Forces / Generic strategies / Value Chain
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Porter’s Five Forces technique is a very significant tool which attempts to point out at some of the significant strength in every business situation. These forces helps in identifies some of the competitive intensity as well as overall industry profitability. The Porter’s tool highlights competition from both external and internal sources. The strengths identified by the Porter’s tool may help a business to understand her strength in the competitive position as well as the strength of a place or step that the business wants to make (Porter, 2008). It is therefore clear that by identifying strength position, business can take fair advantage, eliminate wrong situations and eventually creating sustainable advantage.
Supplier power is one of the important forces which help business to determine ease of driving up prices by the suppliers. Business may counterbalance this force by standardizing specifications in parts for it to change among suppliers easily. Business may decide to add more vendors or even change technology to eliminate coming together of strong suppliers. By standardizing specifications, adding more vendors and changing technologies, it would be easy to weaken supplier power hence creating sustainable advantage (Porter, 2008).
Additionally, there is buyer power which includes the number of buyers as well as their importance to the business. Business would have sustainable advantage if the number of buyers who can control the business and lower down pressure. Business should therefore attempt to disperse their buyers and ensure that not a few buyers can control it by dictating transactional terms.
Moreover, business may have tremendous strength if there are few competitors in the industry. Competitive rivalry is a very crucial force that every organization must take serious note of. For sustainable advantage, a firm may decide to differentiate her products and add value as a way of staying ahead of their competitors. This will also reduce the threat of substitution through supplying of unique products that cannot be easily substituted hence boosting a business power. Furthermore, threat of new entry is very important because the easier it is to enter the market due to minimal cost and time, the bigger the threat. An organization should try as much as possible to guard her key technologies and increase economic of scales which strengthens durable barriers hence providing favorable position (Porter, 2008).
It is important for every business to create value since it is out of the value created that the profit margin rises. Every organization can only have competitive advantage when it provides more value to her customers because value chain activities determines both costs and influences profits. An organization must identify sub activities in her primary activities to ensure sustainability advantage. It is important to identify direct and indirect activities as well as quality assurance (Porter, 2008).
Adding value to direct activities and allowing them to run smoothly is very vital in boosting the overall value of a firm. There are also quality assurance actions that guarantee meeting of necessary standards that improve quality of both direct and indirect activities. Also, ascertaining sub activities for every support activity such as Human Resource Management, technology development and procurement activities that add value to the primary activity. Identification of links between the value activities may also boost competitive advantage from the value chain perspective (Porter, 2008).
Choosing the best generic strategy to trail strengthens all other strategic judgments made by the business. An organization must consider her capabilities and strengths before choosing the best generic strategy. Importantly, every generic strategy requires thorough SWOT analysis so as too come up with the best one. Moreover, five forces analysis should be carried out by the business to evaluate and analyze the industry in which the business deals in. Finally the business should compare SWOT analysis of the viable generic strategy with the Five Forces analysis and ensure that all the supplier power, buyer power, threat of substitution, threat of new entry and eventually boost competitive rivalry (Porter, 2008).
How Porter’s Five Forces apply for internet base company
Potential of New Entrants
Barriers to entry in the internet industry is very high because the current players have several servers located in many places worldwide and have gathered several years’ worth of data regarding user habits. It is therefore apparent that any new entry would be obliged to provide superior search results at a high speed to positively position itself in the competitive market. There is also huge starting capital required to get into the industry.
Supplier power
Supplier power is usually low in the internet industry and is not expected to rise as long as the particular companies maintain their dominance. There is low bargaining power as well as low product differentiation relative to the internet.
Buyer Power
Buyer power is very strong in the internet industry there are many competitors hosting alternative to the company offerings. Most of the internet company services are free and they predominantly rely on advertising which gives them a huge percentage of revenue.It is also interesting to note that internet companies do not have a few buyers control their businesses thus giving them strong buyer power.
Substitution Threat
The internet companies have commanding presence because the internet is the chief source of information due to the strong search engines. It is obvious that so far, there is no and perhaps there will be no foreseeable substitution for the internet thus making threat of substitution low.
Competitive rivalry
There are few competitors in the search engine including, Google, Yahoo and MSN which grasps a huge majority of internet services. It can be concluded that Internet Company’s competitive rivalry is moderate because all the players in the industry have the opportunity to be successful.
Reference
Porter, M. E. (2008). On competition. Boston, MA: Harvard Business School Pub.
