Porter argues that a competitive strategy must emerge from a refined understanding of the rules of competition that determine market attractiveness (Clegg p.60). Michael Porter’s Five Forces Model focuses on defining the rules of competition within a market, which I find to be important, and should be considered when analyzing an organizations’ Strategy and Competitive Performance.

Business strategists’ main focus is to understand and know how to deal with competition. At times managers define competition briefly and many times only include ‘today’s’ direct competitors. Porter suggests, competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The fifth force, the intensity of competitive rivalry, is the result from all five forces combined that defines an industry’s structure and shapes the nature of competitive interaction within an industry.

The bargaining power of customers

“Powerful customers” are able to apply pressure to drive down prices, or increase the required quality for the same price, and ultimately reduce profits in an industry. The smaller the number of customers, the greater their power and if the size of their orders are in larger volume, the greater the power! Customers enjoy strong bargaining power when they can choose from a wide range of supply firms and they find it easy and inexpensive to switch to alternative suppliers.

The bargaining power of suppliers

If the supplier increases their prices paid, profits will obviously reduce. Organizations must consider that suppliers will be in a powerful position when there are only a few large suppliers, resources which they supply are scarce, switching to another supplier is expensive, few substitute resources available, just to name a few.

The threat of new