Post Week 6

During week 6 we looked at Porter’s five forces. To start off we looked at what an environment is in as a business concept. What is an environment? This is basically the surrounding or conditions in which an organisation operates.  There are three types of environment when it comes to an organisation, which are internal, competitive and external. Firstly, the internal environment of a firm basically looks at its structure, objectives, authority, finances etc. It basically covers the internal workings of the organisation. The competitive and external environment of an organisation then looks at porter’s 5 forces. Professor Michael Porter looks at the five forces of that shape the strategy of an organisation.

To help analyse an organisations competitive environment, the first of his forces looks at the threat of a substitute to an organisation, most organisations have competitors and with these competitors comes with the threat of a substitute product. The second force looks at the amount of strength the organisations supplier could have which basically just illustrates the amount of bargaining power could have over the organisation. The third force looks at the power the organisations buyers have, which basically analyses the power the customers have over the organisation. The fourth force then looks at how large the threat of new entrants is to the industry the organisation is in. Finally all these four other forces lead to the fifth force which is the intensity of the rivalry of firms in the industry. The outcome of these four forces would help determine how fierce the competition in an industry is.

Porter’s 5 forces just analyses the factors regarding competition and the factors to be considered under the surface of an organisation. For example if buyers hold a lot of power or there is high threat of substitute a firm would not be able to keep their prices high therefore causing price wars leading to high intensity of competition in the industry or in a scenario where the suppliers have low bargaining power and there are high barriers to entry such as start-up costs. The organisation would be able to keep their prices low therefore allowing them to make good profits.

There are some good examples of firms in intense rivalry, for example Samsung and apple who have been battling for customer loyalty for a while now.

Porter’s 5 Forces - http://www.youtube.com/watch?v=mYF2_FBCvXw