Healthcare Essays on Porter’s Five Forces Model
Porter’s Five Forces Model
Porters five forces model is an essential tool for understanding the competitive structure of an industry. It is used in companies and organizations to generate and maximize profits in the face of competition. The five forces include customers’ bargaining power, supplier’s bargaining power, the threat of substitute products, new entrants’ risk, and intra-industry rivalry (Porter, 2008).The bargaining power of customers is their ability to negotiate. Consumers can force companies to lower their prices and improve the quality of their services at the expense of the profitability of an organization (Porter, 2008). Similarly, suppliers can determine the cost-effectiveness of a company in many ways. The presence of many suppliers, like in a monopoly, shows that the demand of the products is too high, thus profitability is likely to be achieved. Also, the presence of many customers from varied industries is an indicator of profitability. Suppliers can also search for better markets for the products they supply thus exercising their power.
Substitute products are the alternatives that exist in a market posing the threat of competition to companies with similar products. In most cases, substitute products are affordable and are of high quality, which presents stiff competition to existing products (Porter, 2008).
New entrants in a market pose a threat to the existing companies as they occupy a previously vacant position, thereby increasing the number of options available to customers (Porter, 2008). Usually new entrants have a plan for better quality products as they aim to conquer the market, and this often increases the pressure on prices. On the other hand, an intra-industry rivalry is a threat posed by existing competitors in the market either regarding price competition, aggressive advertising, and product introduction. When companies feel the effect of the competitive environment, then the rivalry is heightened.
How Health Care Managers Can Use the Model to Make Sound Decisions for Their Organizations
Porter’s five forces model is employed in various organizations and sectors with the health care sector proving a perfect place where the model can be used. First, in dealing with intra-industry threats from other hospitals, health care managers should maximize the services for patients, which can be accomplished if they focus on a patient-centered system, whereby the patient is cared for under proper medical conditions (Porter & Teisberg, 2006). The hospital can even allow some of its premises to be used for private practice, charging a fee for the service providers instead of losing customers to private practice. Medical supplies form a huge part of the hospital’s budget, which implies that managers should aim at getting the best quality products at the lowest prices.
While using Porter’s Five Forces model, managers should move away from supply-driven health care systems whose focus is on the profitability of the services offered, and move to a value-based system. This is because marketing and profitability in a health-care business are determined by the number of lives saved and by the quality of the services rendered to the sick rather than the quarterly profits made in sectors such as banking (Porter & Teisberg, 2006). Hospital managers can use the cost control measures to protect themselves from the rising competition by engaging in activities like improving communication between departments, reducing staff, and eliminating costly services can act as control measures. Moreover, health care managers can use the model to deal with the threat of substitute products from rival hospitals. This can be achieved through demonstrating high levels of competency, which will create price inelasticity (Porter & Teisberg, 2006). Hospital managers should consider and adapt to changes as they develop the hospitals’ strategies.
Porter, M. E. (2008). Competitive strategy: Techniques for analyzing industries and competitors. Simon and Schuster.
Porter, M. E., & Teisberg, E. O. (2006). Redefining health care: creating value-based competition on results. Harvard Business Press.