Comparison of How Competitive Forces Shape Strategy and the Five Competitive Forces That Shape Strategy by Michael Porter

Comparison of How Competitive Forces Shape Strategy and The Five Competitive Forces that Shape Strategy by Michael Porter

Throughout the paper, I will refer to “How Competitive Forces Shape Strategy” as the first article and “The Five Competitive Forces that Shape Strategy” as the second article to save space and time.

The core of the two papers which states that managers of companies often focus solely on direct competition in their industries and ignore other factors in their surrounding environments. Both papers go on to state that there are four other forces beside direct competition. These forces are customers, suppliers, potential entrants, and substitute products. These forces together determine whether an industry is profitable or not. There are differences between the articles in the subsections, which I will discuss but the general idea is similar.

Both papers agree that new entrants are a threat that bring with them new capacity as well as determination, resources, and a desire to prove themselves. However, according to “How Competitive Forces Shape Strategy” there are six major sources of barriers to entry while “The Five Competitive Forces that Shape Strategy” says there are seven major sources. The six shared sources are worded differently in each paper but have the same meaning and they are: economies of scale, product differentiation, capital requirements, cost disadvantages independent of size, access to distribution channels, and government policy. According to the second article, there is a seventh source, which is customer-switching costs, which are fixed costs that arise when customers change suppliers.

The first article describes the bargaining power of buyers and suppliers in one section while the second article puts each in its own section. A supplier group can be powerful for five reasons according to the first article while a group of suppliers can be powerful for six reasons in article 2. A group of buyers has power for 7 reasons in the first article and for four reasons in the second article. Another difference is the focus of the two articles. Article 1 focuses on intermediate buyers and article 2 focuses on the four reasons a buyer is price sensitive.