Blog 1 - Why Competition is not just about Profitability?

As I was going through this week’s readings, one article caught my eye. It was the “Five Competitive Forces That Shape Strategy” by Michael E. Porter. Having spent the summer interning at a large online e-commerce company, I could see the significance that these forces had on the organization’s overall strategy. However, there was one point that I was not entirely convinced about.

The article stated that competition was only based on profitability. The organization that I was interning at, is a well-known and respected company that is popular and has generated around $4.7 billion USD in 2017. Yet they have chosen to re-invest their earnings in improving their organization and hence are not as profitable as their rivals in that domain. In the 15 years that the company has been active, they have grown exponentially and are still in the nascent stages. It would be premature to dismiss them solely based on their profitability. Amazon followed a very similar business model in its early stages and a few days ago, they received their trillion-dollar evaluation, following Apple into that arena.

Therefore, it is entirely possible that an organization which is not highly profitable might still cause a huge disruption in the market

The five forces as detailed by the article were as follows:

1. Buyers
2. Suppliers
3. Substitutes
4. New Entrants
5. Existing Rivals

An interesting point to note is the way in which the new entrants/existing rivals compete. Buyers and suppliers are obvious areas in which they compete to promote their own product/substitute.

However, in the e-commerce space there is room to compete on several other fronts which makes it easier for newer entrants to level the playing field against established powerhouses (like Amazon). Also, it forces these giants to constantly keep innovating and provide the best value to its customers. For instance, the organization that I was working for was competing against the likes of Amazon and Ikea. 

Aside from competing on the above-mentioned fronts, they also focused on exclusive e-shopping avenues like delivery of the goods and services, customer support etc. 

A couple of features about their business model:

• They guaranteed 2-day delivery of all their products at no additional fee
• They had a dedicated analytics team for researching the customer complaints to improve customer experience
• They had a team of “buyers” within the company who were the point of contact for all the company’s suppliers 

Therefore, while the five forces are generic across all industries, there are several industry specific nuances that come into the picture when we are looking into strategies of competing organizations. Companies can afford to be ambitious about who their competitions are, but they need to take a more practical approach when it comes deciding on their competing platforms.

For example, It would be unwise for a newer entrant to compete against the likes of Amazon in terms of market share or revenue. Instead, improving on customer click through rate or customer retention could be the key in such arenas.

References

The Five Competitive Forces That Shape Strategy (Porter, Harvard Business Review, January 2008)