Porter’s 5 forces is a strategy that I personally have learned about in textbooks and heard frequently in lessons from Husson University. I have never been asked to look at this theory in question, in fact, it was the ‘true test’. It only makes sense for me to agree with these 5 forces, as it has proved true in business and study for 30 years. This strategy was taught by some of my most trusted professors, who excel in business and education, it is safe to say I agree with Porter’s assertions.
As mentioned in the video and Porter’s article the 5 Competitive Forces applies directly to the the airline industry. When the question is posed about why such a booming industry pulls such little profit, Porter’s 5 Competitive Forces of Strategy will provide an answer.
Porter gives a short analysis of the airline industry beginning with Force number one, large bargaining power from buyers. Customers are not willing to pay top dollar, nor are they willing to wait patiently. Threat of new entry remains large, even with minimal profits, because the industry is desired and considered sexy. (Porter, 2008)
Bargaining power of suppliers is also against this industry, they have considerable clout. GE, Airbus and Boeing get most of the profit, not the airline. The threat of substitution is high from competing industries such as train, vehicle, or shipping goods via ground transport.
The airline industry was an example given in the video, but Porter states that this strategy can apply to any industry. This can identify the structural underlying drivers of profit. In contrast to a low profit industry, take the oil industry through the 5 Competitive Forces model.
Oil is a high grossing, successful industry – for a select few. Bargaining power of buyer is relatively low, the few key players in set prices and small distributors do not get much say. The threat of entry is also low, because the barriers to entry are extremely high. The bargaining power of suppliers is limited. As the supplier control increases, the industry profit margin will decrease because the cost will increase. For now the oil industry is needed, and therefore the suppliers aren’t able to lower costs. The threat of substitutes is in motion as we speak. The electric and solar powered cars are on their way to combat gasoline, but it’s going to take awhile.
A simple review of the oil industry with Porter’s 5 Competitive Forces that Shape Strategy provides immediate insight into the reasons for it’s success. This model proves to work for almost any industry and if used correctly can make or break a business.
Porter, M. (2008, January). The Five Competitive Forces That Shape Strategy . Retrieved from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1
Sinha, P. (2008). Bargaining Power of Suppliers & The Airline Industry . Retrieved from http://www.scribd.com/doc/58246013/Bargaining-Power-of-Suppliers-and-Airline-Industry
Porter, M. (n.d.). Interview by T Stewart [Web Based Recording]. The 5 Competitive Forces that Shape Strategy. Harvard Business Review, Retrieved from http://m.youtube.com/#/watch?v=mYF2_FBCvXw&desktop_uri=%2Fwatch%3Fv%3DmYF2_FBCvXw