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Competitive forces at work in business

Business professionals and Nobel-prize winning economists both spend entire careers studying what are broadly categorized as the laws of supply and demand.

While economists look at the topic in theoretical terms, businesspeople need to take those theories, understand them and then make practical decisions that affect the direction their companies take in the future. This makes it important for an online MBA program to excel at teaching economic theories in ways that give students real tools to use in their careers.

Strategy and competitive forces

For example, Porter’s Five Forces and how they impact business strategy are among the topics covered in leading Master of Business Administration programs today. According to Harvard University Professor Michael E. Porter, industry competition is shaped by these five forces:

  • Threat of new entrants
  • Bargaining power of buyer
  • Rivalry among existing competitors
  • Threat of substitute products or services
  • Bargaining power of suppliers

To successfully guide a company – whether it’s a well-established Fortune 500 firm or a nimble startup – its leaders need to understand how Porter’s Five Forces relate to its industry in general and to its specific positioning within its industry.

In a young industry like the peer-to-peer transportation sector, the threat of new entrants is much higher than it is in the long-established personal care sector. It’s more likely that another startup will challenge Uber and Lyft than a new soap company will emerge to challenge Procter & Gamble.

Competition shaped by more than competitors

Looking at Porter’s Five Forces again, it’s important to realize that the competitive forces that determine the nature of industry competition go beyond the individual players in any given market. In other words, narrowly focusing on what your competition is doing won’t necessarily lead to success.

Consider the “threat of substitute products or services” in light of the legacy taxi cab companies. Do you think that many leaders in that industry anticipated the peer-to-peer competition of Uber and Lyft, or were they just focused on what their traditional cross-town rivals were doing?

This is why an online MBA program needs to train its graduates to look at the bigger picture when assessing the competitive forces at work in their industries. Studying where venture capital is being invested and understanding how existing markets can be disrupted by new technologies is important for continued success. For example, it might have been smart for the management of a national established taxi company to invest in one of the peer-to-peer companies before they become so popular and presented such a threat to their old business model.

Be quick to respond

From these examples, you can see that business leaders need to be quick to respond to competitive forces. In the same way, a good MBA program needs to be able to update its curricula and methods of teaching not only to respond to changes in the business world, but also to meet the needs of its students.


Sources:

https://hbr.org/1979/03/how-competitive-forces-shape-strategy

https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy

http://techcrunch.com/2014/01/19/uber-and-disruption/

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