5 Forces Individual_project

Abstract

Review the article by Michael Porter assigned for reading in Week 1, The Five Competitive Forces That Shape Strategy, published in the January, 2008 edition of the Harvard Business Review.

Then, write a 1,500 word (minimum) to 2,000 word (maximum) paper providing a brief essay on how each of these factors apply to the business you are in. Be specific about your industry, your product, your strategy, and your competition. If you are currently working in the public or non-profit sector, use as a focus a prior employer.

The Five Competitive Forces That Shape Strategy

JPMorgan Chase & Co. was officially founded in 1823 and is headquartered in New York, NY. However, their lineage can be traced back to 1799 when first chartered by the New York State Legislature as The Manhattan Company to supply "pure and wholesome" water to the citizens of New York City. Since then, JPMorgan Chase & Co. has grown from over 1200 predecessor institutions into one of the largest global financial services firms with about $2.5 trillion in assets. It is considered the largest bank holding company in the US and one of the largest mortgage lenders and credit card issuers. Their global reach consists of 60 countries with formidable investment banking and asset management operations (History, n.d.).

Rivalry among Existing Competitors

The five forces analysis is to allow the organization to expand on each factor. The first threat to consider is the intensity of the rivalries among your competition in the industry. The intensity affects profitability for organizations in the industry and the rivalry is the primary determinant of how competitive it will be. An organization must strive to maintain a competitive advantage in their industry through innovation (Porter, 2008)

JPMorgan Chase & Co. has a plethora of competition in both US based firms and global firms headquartered throughout the world. Within the US, we see the intense competition from viewing the different marketing campaigns of JPMorgan Chase & Co., Bank of America Corporation, Citigroup Inc., and Wells Fargo & Company. Currently JPMorgan Chase & Co. is ranked at number 18 on the Fortune 500 list in 2013with over $108.2B in revenue and $21,284MM in profits leading the charge for financial institutions. Bank of America Corporation is the next closest ranked financial institution at number 21 with $100.1B in revenue and $4,888MM in profits. In terms of profit, Wells Fargo & Company is close behind JPMorgan Chase & Co. with $18,897MM in profits but only $91.2B in revenue resulting in being ranked number 25 on Fortune 500 list for 2013. As we narrow down the competition and view the list of top Federal Financial Institutions Examination Council's (FFIEC), JPMorgan Chase & Co. is ranked number one with more than $60MM in total assets ahead of Bank of America Corporation. However, as JPMorgan Chase & Co. becomes more in the spotlight of the Federal Government for lawsuits and litigations, their dominance could begin to wind down. An example of this is the recent $13B settlement with the US Government for residential mortgage bond lawsuits. While this can create an opportunity for JPMorgan's competitors to capitalize on their legal problems, much of the financial industry has found themselves in the middle of investigations with Bank of America still defending their firm from other potential lawsuits (Chidi, 2013; Fortune, n.d.; JPMorgan, n.d.; Judge, 2013).

The increased regulations and oversights have scaled back certain products such as lending that use to have excellent profit margins for many banks. As a result, JPMorgan Chase & Co. has shifted their focus on minimizing risk and improving technology and product offerings to consumers. Their investment in information capital has been significant for the organization which is comparable to many other financial institutions in the US. An example of the competitive advantage for JPMorgan is increased automation, mobile banking, and online banking that have met the needs of the market. The focus for the future will be placed more on improving existing products and services while streamlining services to maintain the competitive advantage in the US and global markets (Chidi, 2013).

The Threat of New Entrants

When looking at the threat of new entrants into the markets, it is important to note that this is common when the industry is yielding high returns as they attract new firms. However, this then affects the profitability for all firms in that same industry and the same market. As the profit rates decline and trend towards zero, this brings the industry into a perfect competition. To counter these threats, organizations should look at a few strategic ways that they can block new firms entering into their industry (Porter, 2008).

The financial industry itself has little threats from new entrants in terms of new large financial institutions from forming as a result of the financial crisis in 2008. This is supported by over 465 banks that failed from the financial crisis of 2008-2012 with 23 banks failing in 2013 thus far according the FDIC (Failed, 2013). In addition, there is a severe lack of trust of banks as a result which a major barrier from new institutions forming. The biggest threat would be the continuing merging of smaller banks by the larger institutions entering new markets with the full power of their brand and reputation (Porter's, n.d.).

There are new ventures and services that are starting to impact different aspects of the banking industry such as internet bill payment and peer-to-peer lending. PayPal is becoming a major player with how consumers pay for transactions both online and in some stores. Prosper and Lending Club, two successful peer-to-peer lending platforms in the US, have become major players by serving both prime and subprime borrowers as financial institutions have been turning down 90% of loan applications. On the flip side to peer-to-peer lending, it has enabled private investors to diversify their portfolios (Farzad, 2013)

Bargaining Power of Buyers

The threat of the bargaining power of customers is how consumers can influence an organization's offers of products or services as it relates to the options and prices. This pressure can cause organizations to reassess their current levels in order to meet the demand. Many organizations have resorted to loyalty programs as a way to circumvent this threat which offers discounts and other perks (Porter, 2008).

The financial industry is not as much under threat from an individual customer but attracting new customers do pose a challenge. JPMorgan Chase & Co. and other financial institutions will offer new customers financial incentives for opening a new account with certain limitations and requirements in order to qualify. An example of such a requirement would be that the customer would have to establish direct deposit. Other incentives include high-yield savings accounts to attract new customers. In short, the hassle for customers would be to switch their banking services from one institution to another. Many customers typically have several accounts or different products and services because these institutions offer rewards or discounts. Other hassles would be for customers to switch any automatic debit or bill pay which can be a challenge. While the internet has made this easier, JPMorgan Chase & Co. needs to continue to find new ways to streamline setting up new accounts (Porter's, 2013; Weisbaum, 2013).

Bargaining Power of Suppliers

The threat of the bargaining power of suppliers can include suppliers from working with an organization to charging excessive prices for their unique resources. This can be a challenge unless an organization can have strong partnerships with suppliers or if there are labor unions in the industry that can help regulate such practices. However, this could be a threat that may be difficult to counter if your supplier is the only one offering the products you need for your organization (Porter, 2008).

For many financial institutions, capital remains the primary resource. As a result, there are four main suppliers in this industry to include customer deposits, mortgage and loans, mortgage-backed securities, and loans from other financial institutions. JPMorgan Chase & Co. will need to continue to build their assets in face of continued litigations. The benefit to JPMorgan Chase & Co. and other financial institutions is that their do not have consistent bargaining powers as they shift depending on the market. However, as technology continues to improve it could help increase the bargaining power of both suppliers and customers by increasing their price sensitivity on a consistent basis (Porter's, n.d.).

Threat of Substitute Products or Services

The threat