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Porter Five Forces Analysis is a strategic management tool to analyze industry and understand underlying levers of profitability in a given industry. National Grid Plc managers can use Porter Five Forces to understand how the five competitive forces influence profitability and develop a strategy for enhancing National Grid Plc competitive advantage and long term profitability in Utilities industry.
National Grid Plc is one of the leading firms in the Utilities. Over the years National Grid Plc has redefined the ways of doing business in Utilities. National Grid Plc is listed at London Stock Exchange (LSE) and have a market cap $ 41407.71 million (USD).
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In his revolutionary article in Harvard Business Review (HBR) - "Five Forces that Shape Strategy", Michael Porter observed five forces that have significant impact on a firm's profitability in its industry. These five forces analysis today in business world is also known as -Porter Five Forces Analysis. The Porter Five (5) Forces are -
Porter Five Forces is a holistic strategy framework that took strategic decision away from just analyzing the present competition. Porter Five Forces focuses on - how National Grid Plc can build a sustainable competitive advantage in Utilities industry. Managers at National Grid Plc can not only use Porter Five Forces to develop a strategic position with in Utilities industry but also can explore profitable opportunities in whole Utilities sector.
New entrants in Utilities brings innovation, new ways of doing things and put pressure on National Grid Plc through lower pricing strategy, reducing costs, and providing new value propositions to the customers. National Grid Plc has to manage all these challenges and build effective barriers to safeguard its competitive edge.
All most all the companies in the Utilities industry buy their raw material from numerous suppliers. Suppliers in dominant position can decrease the margins National Grid Plc can earn in the market. Powerful suppliers in Utilities sector use their negotiating power to extract higher prices from the firms in Utilities field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Utilities.
Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on National Grid Plc profitability in the long run. The smaller and more powerful the customer base is of National Grid Plc the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.
When a new product or service meets a similar customer needs in different ways, industry profitability suffers. For example services like Dropbox and Google Drive are substitute to storage hardware drives. The threat of a substitute product or service is high if it offers a value proposition that is uniquely different from present offerings of the industry.
If the rivalry among the existing players in an industry is intense then it will drive down prices and decrease the overall profitability of the industry. National Grid Plc operates in a very competitive Utilities industry. This competition does take toll on the overall long term profitability of the organization.
By analyzing all the five competitive forces National Grid Plc strategists can gain a complete picture of what impacts the profitability of the organization in Utilities industry. They can identify game changing trends early on and can swiftly respond to exploit the emerging opportunity. By understanding the Porter Five Forces in great detail National Grid Plc 's managers can shape those forces in their favor.