Human

Resource
Management

Porters Five Force

Model

Presented by
Anika Mary Varkey
Zubair Nazir
Health Care Industry
The healthcare industry (also called the medical industry or health
economy) is an aggregation and integration of sectors within the
economic system that provides goods and services to treat patients. It
comprises of providers of diagnostic, preventive, remedial, and
therapeutic services such as doctors, nurses, hospitals and other private,
public, and voluntary organizations. It also includes
medical equipment and pharmaceutical manufacturers.
Porters five forces analysis is a framework that attempts to analyse the
level of competition within an industry and business strategy
development. It draws upon industrial organization (IO) economics to
derive five forces that determine the competitive intensity and therefore
attractiveness of an Industry. The HR department plays an important role
in health care industry. There are life threatening situations that occur in
this industry. The existence of hospitals and pharmaceutical industries
depends on its employees. Its the duty of the HR department to recruit
the right people, give appropriate training, attractive compensation
packages and a good working environment.
Competitive Rivalry
In the healthcare industry, the rivalry within pharmaceutical companies is
very intense, whereas less intense within hospitals. Amongst hospitals,
the competition is not as intense due to the fact that within a certain area
there is only one hospital available to individuals. If an individual becomes
sick, there is usually one hospital that individual can go to. However, in
major metropolitan areas, we can see an increase in competition. Some of
the urgent care centres provide faster service (avoiding wait in ER). The
urgent care which has the cheapest prices and best care seem to win. In a
hospital, the main elements are doctors and nurses. Even if there are
good hospitals in the vicinity, if they dont have experienced doctors and
nurses, the hospital wont be preferred. Its the policy of the HR
department to provide a good compensation package and a working
environment for the doctors and nurses so that they dont lose their
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employees to them. In regards to the pharmaceutical companies, the

competition within rivalries is intense. Each company is spending a
tremendous amount of money within their research and development
department, so that they can be the first to develop a new drug. To be the
first, to develop a new drug, it requires skilled labour, especially for R & D
and the HR policies should ensure that they retain the skilled employees
with a good working environment and attractive compensation package.
Within the pharmaceutical industry, the first company that develops a new
drug will get the patent to make the drug for a certain amount years,
therefore eliminating their competition.
Pressure from Substitutes
The present substitutes for hospitals are home health care and private
practices. Specialised and experienced doctors will take up private
practices. This will create a problem for fresher. The same is the case for
nurses. In order to avoid a situation in which home health care replaces
hospitals, the hospital should provide better services and better care for
which the employees have a significant role, which is the responsibility of
the HR department. In order to prevent specialised doctors from starting
private practices, the HR department must maintain them by providing
better services for them. In Pharmaceutical companies, man will be
replaced by machines. So the HR department must ensure that the layoff
policies are implemented effectively if required.
Threat of New Entrants
Within the healthcare industry, the threat of new entrants is very tight. For
example, pharmaceutical companies must have the initial capital to invest
into their research and development department to develop new drugs.
After developing these new drugs, these companies must also deal with
the policies that must be met by the government agencies before the drug
is released. In healthcare, it seems to be very tight for new entrants to
enter. This is very difficult due to the fact that there are very strict
guidelines and regulations set by the government to open a hospital.
These guidelines also prevent the huge monopoly of hospitals being open
in a certain area by only allowing certain amount of hospitals to be open
within a given area. In case a new hospital manages to enter the market,
the HR department must ensure that they dont lose their employees to
them. A new hospital or pharmaceutical company probably enters the
market by adopting the latest technology and innovations. The hospital
should also make sure that it is updated with the latest technologies and
innovations. To make this happen, the HR department should decide
whether to take new employees or maintain existing skilled employees
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with appropriate training. With the adoption of a new technology, if they

have to lay off a few employees, the HR department must make sure that
they are provided with a good VRS. They have to find the means to meet
and manage these costs.
Bargaining Power of Buyers
In the field of healthcare, it seems as though the bargaining power of
buyers is very limited. People will get sick and suffer from diseases
whether the economy is doing well or bad. The demand for good doctors
and nurses are increasing. So, the buyers have no other option other than
to select the best employees to provide the best service. But in the case
of nurses, the supply is more and demand is less. Freshers have no other
option other than to work in any hospital without demanding an attractive
salary. The supply of technical staff is also high. Pharmaceutical
employees are also available in huge numbers.
Bargaining Power of Suppliers
In the healthcare industry, doctors have a huge bargaining power. In
regards to pharmaceutical companies, the bargaining power varies. When
a company delivers a new drug in the market, it needs the hospital to
carry the drug to make its profits. In this essence, the hospital can decide
whether or not they want to carry the drug. But if a hospital wants to
attract new patients and keep their old patients, they must have the latest
medications. Since there is a shortage of experienced doctors, the
bargaining power of doctors to hospitals is huge. Hospitals must maintain
competitive salaries for physicians, because they need to have quality
physicians to treat their patients. If a hospital chooses not be competitive,
doctors will search for other hospitals to work. Once a hospital loses a
certain amount of quality of doctors to another group, their patient
population has the choice to switch to the new group. If your patient
population moves to another group, you will be decreasing your profits.
This will cause hospital profits to decrease.