Module 2- Business Perspectives 501A
During week 2 of Business Perspectives 501A/Module 2, we focused
on concepts regarding the external and industry environments and how to analyze
the industry. We learned that the general environment is uncontrollable (how a
society impacts a company, typically future-focused). External analysis focuses on the firm's core
competencies to enhance and achieve goals.
Competitor analysis looks at competitors and future companies, including
rival behavior strategies. Finally, we focused
mainly on the industry environment and how this looks at direct influences on a
firm (Porter’s Five Forces). When a
firm can master general, industry, and competitor analysis, the firm should be
operating at top performance.
One type of framework used in analyzing a firm is Porter’s Five
Forces. “Michael E. Porter’s
Five Forces framework is one of the most widely regarded business strategy
tools. This framework offers organizations a systematic approach to assessing
their competitive environment and making strategic decisions that can influence
their long-term success” (Danao,
2024).
What are Porter’s Five Forces?
1.
Competitive Rivalry
2.
Supplier Power
3.
Buyer Power
4.
Threat of Substitution
5.
Threat of New Entrants
Competitive Rivalry is concerned with the intensity of the
competition, focusing on competitors.
Within this phase, one can review competitive firms, analyzing competitors'
products, including product differentiation and price points. The growth of the
industry should also be considered. “Rivalry
competition is higher when only a few businesses sell a product, the industry
is growing, and consumers can switch to
a competitor” (Marin, 2023).
When reviewing competitive rivalry, profitability can be analyzed. Typically, when you have higher rivalry, one
tends to have lower profit margins due to price competition. When analyzing
other firms in the context of competitive rivalry, you can then take the
feedback back to the company to differentiate your products, find a niche
market, and build brand loyalty.
Supplier Power reviews the supplier's ability to influence
prices, contracts/terms, and quality in the industry. When there are fewer suppliers and the
supplies are specialized or niche, the supplier tends to have greater
influence. This would also be true if it
were costly for the firm to switch suppliers.
When the suppliers have higher influence, they can negotiate higher
prices, better terms for themselves, and even adjust quality without much say
from the firm. The firm would need to be
cautious and develop partnerships with the supplier or attempt to diversify suppliers. “Finding
reliable suppliers and securing favorable terms is vital to success” (Danao,
2024).
Buyer
Power defines the ability of the customer to influence pricing and quality,
making firms compete for their business.
When there are fewer buyers for a product, buyer power tends to be high,
as the buyer is typically well informed and knowledgeable about that product. Buyer power is also high if the products are easily
substituted. “The electronics industry provides a compelling example of
buyer power. Price comparisons are easily accessible online, so finding the
best deals and discounts is easy” (Danao,
2024). When buyer power is high, typically
prices for the product are lower, and the customer can demand better quality. Again, if the firm is looking to lower buyer
power, they would need to differentiate their product, find a niche market, and
build brand loyalty, just as in competitive rivalry, to avoid being forced to
accept the lower profit margins.
Threat
of Substitution looks at the risk of losing customers to substitute/similar
products. The threat of substitution is
highest when the substitute good is a lower price, better quality, or easier to
obtain for the consumer. When the
substitution risk is higher, profit margins tend to be lower for companies as
the demand is reduced. “Threat of substitution examines
the number of competitors, how their prices and quality compare with the business
being examined, and how much of a profit those competitors are earning, which,
in turn, would determine if they can lower their costs even more” (Marin,
2023). The company would need to combat the substitute
by adjusting their product to consumer demands, adjusting pricing, or again
differentiating the good.
Threat of New Entrants defines how easy it is for new
companies to enter and fully join the industry. Established companies would see new companies
competing in the same market as a threat due to increased competition. The increased competition would lead to
decreased profit margins. The threat of
new entrants is higher when the entry barriers are low (start-up costs). When customers have little to no brand loyalty,
the threat of new entrants is also higher. Online stores face a high threat of new
entrants as it is “easy to set up an online store, meaning there’s a
lower barrier to entry in the retail sector. Platforms such as Shopify
allow new small businesses to attract customers and establish themselves
quickly” (Danao,
2024).
Porter’s Five Forces offers an analytical approach to
reviewing the firm's competitive strategies.
Typically, one reviews a product-producing business; however, Porter’s
Five Forces can also be utilized regarding healthcare. I was pleased to find an article from the
Wall Street Journal stating that Porter spent several years in the broken
healthcare industry analyzing and reviewing.
He even wrote a book, “Redefining Health Care: Creating Value-Based
Competition on Results” which I will look into. Porter’s analysis transitioned from
the typical business world into the healthcare business world, helping to
reshape the industry, focusing on value-based outcome measurements, encouraging
competition based on quality metrics and results.
Porter found that the
predominant issue with the focus of health care is the emphasis on volume
rather than quality metrics. He stated, “The real problem in health care is a
lack of good information on quality and outcomes. And without that information,
any effort to drive down costs through competition
will backfire. People might try to save money by avoiding cost-effective
drugs or preventive treatments, while spending money on costly but ineffective
procedures. Price information without quality information just leaves us in the
same mess we are in today," (Murray, 2006).
I found this quote to still be applicable
today. He argued that there needs to be publicly
reported standard quality metrics and encouraged government regulations. The journal states, “the problem is that without good measurement of those results,
the system doesn't drive others to follow the industry leaders. US healthcare competes on the wrong things” (Murray, 2006).
Porter stated that providers should
compete to improve outcomes at a reduced cost.
He emphasized value-based competition around medical conditions. Porter not only redefined the “typical”
business world but also transformed the healthcare business as well. Pushing
for measured quality outcomes at lower total costs rather than volume. Essentially, this is a typical supply-driven
model shifting to a patient-centered model. The United States is currently utilizing this
model today.
As a nurse manager over utilization review, I deal with
overutilization of services, excess days, avoidable days, delays, inappropriate
admissions, and denials every day. Porter's key concepts of value-based
competition and measuring outcomes and costs are also part of my daily life.
References
Danao, M.
(2024). Porter's five forces: definition and how to use the model. Forbes.
Retrieved June 10, 2025, from https://www.forbes.com/advisor/business/porters-five-forces/
Marin, M.
(2023). How Porter's five forces can help small businesses analyze the
competition. Business news Daily. Retrieved June 10, 2025, from https://www.businessnewsdaily.com/5446-porters-five-forces.html
Murray, A. (2006). Health-care fixes should focus on
quality. Wall Street Journal. Retrieved June 11, 2025, from https://www.wsj.com/articles/SB113875374948661567?gaa_at=eafs&gaa_n=ASWzDAgvuhTk1RR3Wc0dovgRlHcUs8KdHfCgvYTloLwRlmuCnqZ20kBEBcMtFiC22wQ%3D&gaa_ts=684a2af6&gaa_sig=QxUwp_HWW19PRmaJhQ1wf4PSzwTffhXCMdGs1qGGBR2Xhc6dZggtF2KVQBvJJR6XX8KCaprDIJmtQm6fupueTg%3D%3D
