The Five Competitive Forces that Shape Strategy

A not only identifying core competence is to be done for the organization to stand for long-run. These five competitive forces that shape strategy was presented by Michael E. Porter. According to Baustista who had reviewed an article regarding to Porter’s five forces, “The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.” Indeed, without diagnosing one’s organization competitive pressures in a market will not be assessed. And therefore not know its competitive edge amongst competitors.

The following are Porter suggested drive competition:

1. Existing competitive rivalry between suppliers

2. Threat of new market entrants

3. Bargaining power of buyers

4. Power of suppliers

5. Threat of substitute products (including technology change)

For the company to survive and strategic manager to be successful, it should seek to develop an edge over rival companies and can use this model to better understand the industry context in which the company operates.

Let us take a look of each force to know the detailed factors or guidelines to evaluate.

1. Existing competitive rivalry between suppliers

In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.

If rivalry among firms in an industry is low, the industry is considered to be disciplined. This discipline may result from the industry's history of competition, the role of a leading firm, or informal compliance with a generally understood code of conduct.

When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies. The intensity of rivalry commonly is referred to as being cutthroat, intense, moderate, or weak, based on the firms' aggressiveness in attempting to gain an advantage.

The intensity of rivalry is influenced by the following industry characteristics:

· larger number of firms

· Slow market growth

· High fixed costs

· High storage costs

· Low switching costs

· Low levels of product differentiation

· Strategic stakes

· High exit barriers

· diversity of rivals

· Industry Shakeout

Based on the given analysis criteria I examined that my organization has either low or medium risk rating. It implies that nothing to worry that much because rivals in the location can never easily destroy the organization.

2. Threat of new market entrants

It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry.

Barriers to entry are more than the normal equilibrium adjustments that markets typically make. For example, when industry profits increase, we would expect additional firms to enter the market to take advantage of the high profit levels, over time driving down profits for all firms in the industry. When profits decrease, we would expect some firms to exit the market thus restoring market equilibrium.

Barriers to entry arise from several sources and these are:

· Government creates barriers

· Patents and proprietary knowledge serve to restrict entry into an industry

· Asset specificity inhibits entry into an industry

· Organizational (Internal) Economies of Scale

These can be easily understood through this table:

Easily to Enter if there is: · Common technology · Little brand franchise · Access to distribution channels · Low scale threshold	Difficult to Enter if there is: · Patented or proprietary know-how · Difficulty in brand switching · Restricted distribution channels · High scale threshold
Easily to Exit if there are: · Salable assets · Low exit costs · Independent businesses	Difficult to Exit if there is: · Specialized assets · High exit costs · Interrelated businesses

Based on the given analysis criteria Porter gave, the organization I am with resulted a low risk rating on threats of new entrants.

3. Bargaining power of buyers

Determining who needs who the most is really essential on analyzing the buyer power. This can be correlated by the number of prospective customers compared to the number of suppliers (because suppliers are competitors). The power of buyers is the impact that customers have on a producing industry. This means that when a buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsy. It is a market where there are many suppliers but only one buyer. Under such market conditions, the buyer sets the price.

If I would relate it in the institution where I belong, students are powerful if they were financing the school. I think this is common predicament to all private schools that number of students is taken care of for them to have a higher rate of income and thus it could sustain all the expenses of the school and can still have higher rate of return. Moreover, the quality of education is compromised just to maintain the number of students. Some of the institution, as what I have heard, that they are not allowed to fail he students. This is a sad thing that education here in the Philippines was being commercialized. Tradeoff is the quality of student the school produces. On the other hand, students are weak if the accessible schools are all private. Therefore, students can hardly transfer to other school especially when its tuition fee rate is having less difference to compare with. If there is/are public school governs by local or national, students were incompetent to pass the entrance exam so they must settle to private school where no entrance exam will be given.

4. Power of suppliers

A producing industry requires raw materials – labor, components, and other supplies. The bargaining power of suppliers is like the bargaining power of customers but only in reverse. This time you are now the customer, where before you were the supplier.

The fewer suppliers that you have to choose from the less power you have to negotiate. It’s like a simple motion you act the lesser effort/energy you exert. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry’s profits.

To relate with, GITEC (Gillamac’s Information Technology Education Center) is just a franchised of STI. So I could label them as producing industry (buyer) for GITEC and supplier for STI. Now, GITEC did not withstand to other institutions over three years (I think. That is what I heard) that is the reason why it uses the name of STI. For this, supplier is powerful. Since the supplier (STI) has more credible profile, established older and well-known name nationwide over GITEC, they could demand high rate of percentage of each student’s payment or else contract cannot be renewed. On the other hand, supplier is weak when AMA foresee a great potential in GITEC and they will attempt to pirate to have franchise in them instead of STI.

5. Threat of substitute products

In Porter's model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices.

After analyzing, result shows that STI has medium risk rating of threat of substitute products.

Overall implication of these is the said subject of the study shows a medium risk which means that healthy status amongst competitors was the assessment. It is not high risk that you have to be keen to always leverage your competitors. Also, not low risk that you have to be passive and relax since the organization is top of the industry. The following conclusions were drawn based on the analysis and findings presented above:

· Having a positive rating on bargaining power of customers implies that customers (students) are independent towards the supplier (school). Relatively, supplier (school) is very dependent on the fluctuating number of customers (students).

· Having high risk rating on bargaining power of suppliers implies that producing industry (GITEC/STI Tagum) is very dependent on the supplier (STI main). Franchising STI name has a great impact.

· Having low risk on threats of new entrants caused STI Tagum’s confidence boost. This is by the help of the notion of franchising.

· Having medium risk on threats of substitute products or services implies that there is no need to worry of competitors’ second best product/service. This also means that competitors’ product does not affect our organization offered service.

Having either medium or low risk of rivalry amongst existing company implies that nothing to worry that much. It also means that they can never easily destroy STI Tagum.

The Core Competence of the Corporation

For the organization to stand out in the marketplace, identifying core competences is worth to note. This is important also to leverage over competitors and to take advantage of competitive analysis.

Articulate a strategic intent that defines organization and its market. To support that intent identifying core competences is the step in doing so.

Based on the Harvard Business review article written by C.K. Prahalad and Gary Hamel, the following questions are posed to be addressed:

1. How long could we dominate our business if we did not control this competency?

2. What future opportunities would we lose without it?

3. Does it provide access to multiple markets?

4. Do customer benefits revolve around it?

Let us now take a look at each question and try to have a detailed description of its implication.

1. How long could we dominate our business if we did not control this competency?

The question asks for how long is the dominance pointed out the period of time the organization could withstand against competitors as one of the factors that core competences be identified.

For short-run, competitiveness derives from the Price/Performance attributes of current products. If I would relate it to my organization, since we are not dealing with the products but the services we render to the students, I can say price correlates to the performance attributes of the service. As for my observation, stated price is just for the performance of the faculties together with the facilities we have like the ratio of students to computer unit is 1:1 and all rooms are fully air-conditioned. This could affect the dominance period of the organization in the market.

For long-run, competitiveness derives from an ability to build at lower cost and at faster speed than competitors plus core competences that spawns unexpected products. In our organization, this ability is very dependent to HQ and HO. HQ has the power to approved newly offered program while HO has the power to decide the costs which will students be paying. If I were to analyze, HQ provides updated program that is suitable to match the industry’s need and HO provides also just cost of service upon the fluctuating cost in the market.

To answer the question of how long the dominance period, I can say it is not getting too long if the situation cited from the previous articles would not be addressed. For almost three years of my residency, I observed that the number of students is rising positively every year but what is happening now? Imagine the immediate effect right after his term; from approximately even hundred students we have drastically dropped to four hundred. An implicit understanding behind is the nearest downfall of the organization.

2. What future opportunities would we lose without it?

As the article cited an example about American and European companies such as GE, Motorola, GTE, Thorn and GEC chose to exit the color television business which they regard as mature, they lost out on a $20-billion-a-year opportunity.

Relating to my organization, we have this plan to become college. For sure this would require large amount of money for the expansion of the school. We could trade the offering of 2-year program to bachelor’s degree which is more likely profitable since it is ladderized program.

3. Does it provide access to multiple markets?

I think that our product which is our students is match to industry’s need because the curriculum they undertake is accordance to industry competence.

4. Do customer benefits revolve around it?

Well, our students benefited this advance courses against competitors like first year students have data structures and object oriented programming course already compared to other school they can take this courses when they reach second year.

For the organization to stand still in the market, core competences like Price/Performance attributes; ability to build at lower cost and at faster speed; trading in for future opportunities; accessibility to multiple markets; and benefits customer can gain are factors to be sharply considered.

Moreover, the following are pointers to take-away with regards to core competences that were enumerated in the Harvard business article:

· Core competence is about harmonizing streams of technology, organization of work, and the delivery of value

· Cultivating core competence does not mean outspending rivals

· Maintain world manufacturing dominance in core products, and you will reserve the power to shape the evolution of end products

· Top management’s real responsibility is a Strategic Architecture that guides competence building

· A company is capable to compete only if it is conceived of as a hierarchy of core competencies, core products, and market-focused business units.

The Passive-Aggressive Organization

When we say healthy organization means hard to commit mistakes because their managers have access to good, timely information, the authority to make informed, and the incentives to make them on behalf of the organization in which they promptly and capably carries them out. This could also be mean that such organization is not only be based on the annual acquisition and rate of return does company has but the harmonious environment they have on their working place where employees are empowered on doing right things on their own towards company’s success because there employer is giving back the price they deserved.

Upon hearing this topic during the presentation, I was wondering of what type of organization I am with. I was amazingly notice that companies do really have characteristics of being passive and/or aggressive.

As I read the Harvard Business review article by Gary L. Neilson, Bruce A. Pasternack, and Karen E. Van Nuys with the title “The Passive-Aggressive Organization”, pointed out that resilience is the key of a healthy organization. It means, organization can react nimbly to challenges and recover quickly from those they cannot dodge. But based on the global online survey of Booz Allen Hamilton, it turned out that most of the companies are not resilient, result shows that fewer than one in five of the approximately 30,000 individuals described their organization that way. This falls to a label of “passive-aggressive” type of organization. It can be described as quiet but tenacious resistant.

The following are the classic failings of organization that makes it a passive-aggressive:

1. Unclear Scope of Authority

Knowing scope of authority is very essential for its effectiveness of position. How can you be an effective manager when you do not know what are your job descriptions? When you don’t know these, surely you don’t know the scope of your position. This could be very fatal to organization’s impact. It’s like you were sailing a ship without even knowing how to sail, what are the challenges and consequences of being the captain of the ship, how far you are sailing, and wide horizons you are heading.

For almost two years – term of our new administrative officer, I found him incompetent for the position for he has unclear scope of authority. He misunderstood the term delegation. Well, delegation means giving responsibility to somebody else which he often did it. But, giving those responsibility doesn’t mean that somebody would be responsible of all the sense of initiative, knowledge required and to face the consequence might come later. It means that you delegate a certain work to somebody with your guidance of expertise. The question is, “Does he have the expertise?” For what I heard from our bookkeeper who always happens to be that SOMEBODY, he doesn’t know the actual operation of the school that is the reason why he didn’t know how to consolidate the reports given to him by the cashier, registrar, career adviser and bookkeeper, even doing his report. This is always the problem every time the Head Office calls for AO meeting and presentation of school’s operation status. Since he doesn’t even know how to make reports, our bookkeeper will be obliged and forced by him to make one.

2. Agreement Without Cooperation

In every organization, doing works requires great cooperation to be successful. Of course, this could lessen the load and done quicker. It is very hard for the manager managing the entire organization without the help of his/her subordinates. Imagine a boat that is about to sink and all passengers are panicking except for one that is busy paddling. Can be that one be enough for them to escape the life threatening tragedy? If those passengers would not cooperate to the one who is paddling, then definitely the boat will sink.

What happen to AO-bookkeeper situation is, our bookkeeper give him consideration for he promised to learn the operation for him to know how to make reports. Disgustingly, he delegates his work to her not once, not twice, not thrice but many times. Our bookkeeper is very willing to teach him yet the willingness to learn the operation by heart of our AO is not seen. His actions convey his unwillingness because up until now he didn’t even know how to balance the sales report. Therefore, agreement of cooperation is acted upon on this case.

3. Misleading Goals

On a managing organization process, evaluation or assessment should be undertaken. In here we could align the behavior or actions acted by people in the organization if it’s leading to the established goal. If the manager doesn’t know his scope of authority, then he could mislead the organization to its goal. It’s like sailing a ship to destination A but going to a route of destination B.

Relating to our scenario, our AO doesn’t know much of his role and this is an exemplar towards misleading goals.

“Misunderstandings and misrepresentations concerning who really has the control over which decisions are often the first signs that an organization is slipping into passive-aggressive territory”, is the quote stated by the authors of the article which I strongly agreed.

Based on the factors given, my observation to my organization I am with is not slipping to passive-aggressive territory but really residing in it. I just pray for the quick healing of relationship of us the subordinates towards our AO and the managing power of the HO. I just hope that if our OA is still incompetent, he will peacefully resign from his post and HO will provide competent and reliable manager.