Porter's Five Forces Analysis for the Pharmaceutical Industry

By Maria Gabriela Marin

Porter's Five Forces Model helps strategic business managers analyze the industry in which their companies operate to determine what can be done to get an advantage over their existing competitors and also to determine how attractive a particular industry would be for new entrants.

Porter's Five Forces are: 1) Threats of entry posed by new or potential competitors; 2) Degree of rivalry among existing firms; 3) Bargaining power of buyers; 4) Bargaining power of suppliers and 5) Closeness of substitute products.

Below is an anlysis of the Pharmaceutical Industry using the above named forces:

1. Threats of entry posed by new or potential competitor (LOW)

• High entry barriers due to costs associated with research & development of new drugs (i.e. years of investment in R&D for a drug that may/may not work)
• Government regulation (i.e. FDA)
• The threat of entry posed by new or potential competitor is a LOW competitive force due to the above entry barriers & regulatory constraints.

2. Degree of rivalry among existing firms (HIGH)

High rivalry among main companies in the industry. For example the current rivalry in the erectile dysfunction space where Bayer & GlaxoSmithKline claim that Levitra works faster or Eli Lilly & ICOS claim that Cialis works longer than Pfizer’s Viagra

The degree of rivalry among existing firms is a HIGH competitive force

3. Bargaining power of buyers (MEDIUM)

• Hospitals & other health care organizations buy in bulk quantities and exert pressure on pharmaceutical companies to keep prices in check
• Regular patients have lost bargaining power due to price increases in generic drugs
• The bargaining power of buyers is a MEDIUM competitive force.
  

4. Bargaining power of suppliers (LOW)

• Sales for the pharmaceutical industry concentrate in a handful of large players and that has decreased the bargaining power of suppliers.
• The bargaining power of suppliers is a LOW competitive force
  

5. Closeness of substitute products (HIGH)

• Demand for generic versus brand name drugs has increased because of the costs
• Generic drug companies do not have the high costs associated with the research & development of new drugs and that allows them to sell at cheaper prices
• The closeness of substitute products is a HIGH competitive force

Overall and based on the above analysis of Porter’s Five Forces, we can conclude that the pharmaceutical industry is not attractive for new entrants.

Lehman Brothers' Mission Statement

By Maria Gabriela Marin

In the "Strategic Managemet A Primer" by Parthasarthy & Booke, we are reminded that a firm's mission statement "is a description of the firm's current task or business and market position (who the firm presently is), its vision for the future (what it intends to become), and how it plans to get to its future position (values and targets that will guide its actions toward the vision)."

For this analysis, I selected the mission statement of Lehman Brothers:

"We are One Firm, defined by our unweavering commitment to our clients, our shareholders, and each other, Our vision is to build unrivaled partnerships with and value for our clients, through the knowledge, creativity, and dedication of our people, leading to superior results for our shareholders."

Lehman Brothers' mission statement lacks a description of its core business and current market position. It will be difficult for someone, who is not familiar with the firm, to discern from the above statement that Lehman Brothers is a global financial services company that serves corporations, governments and individuals.

I believe that its vision for the future clearly states its purpose and more importantly its commitment to Lehman Brothers' clients and shareholders. Moreover, it describes how it intends to accomplish these results by relying on the talent of their people.