Porter's Five Forces Model

(noun)

A business tool to qualitatively measure business framework.

Related Terms

Examples of Porter's Five Forces Model in the following topics:

  • Limitations of the Five-Forces View

    • Like most models, Porter's Five Forces has advantages and limitations when applied to strategic planning processes.
    • Like most models, Porter's Five Forces has advantages and limitations when applied to strategic planning processes; one must understand how it is designed to be used and recognize its limitations.
    • According to Porter, the Five Forces model is best used at the broader level of an entire industry.
    • It has been noted that conclusions from the Five Forces model are highly debatable.
    • Employ Porter's Five Forces in a meaningful strategic way, with a thorough understanding of the potential limitations

  • Porter's Five Forces

    • Michael Porter, a leading business analyst and professor at Harvard Business School, has identified five key forces that affect the strategy of any industry.
    • His list, Porter's Five Forces, draws upon industrial organization (IO) economics to derive forces that determine the competitive intensity—and therefore attractiveness—of a market.
    • Managers use the Five Forces model to help identify opportunities or evaluate decisions in the context of the environment.
    • This image illustrates the important factors within Porter's Five Forces model.
    • Apply Porter's Five Forces to the external landscape to derive optimal strategies

  • Considering the Environment

    • SWOT analysis: In this particular model, a company's strengths and weaknesses are assessed in the context of the opportunities and threats in the business environment.
    • Porter's five-forces analysis: This analysis identifies factors of the industry's competitive environment that may substantially influence a company's strategic design.
    • The five forces include power of buyers, power of suppliers, rivalry (competition), substitutes, and barriers to entry (how difficult it is for new firms to enter the industry).
    • Understanding these varying forces gives the company an idea of how adaptable or fixed the organizational structure should be to capture value.
    • Porter's five-forces analysis identifies five environmental factors that can influence a company's strategic design: power of buyers, power of suppliers, competition, substitutes, and barriers to entry.

  • Using information technology competitively

    • Recall that Porter's model consisted of three main categories:
    • Use IS to alter the five forces in your favor.
    • The five forces are illustrated Exhibit 42.
    • Porter suggests that a business cannot be all things to all people.
    • Information systems can assist a business in implementing one of Porter's three generic strategies by using IS to create operational efficiencies, thus lowering manufacturing costs, for example.

  • Business to business marketing models

    • Porter's well-known Five Forces Model is often used as an analytical tool by companies when they are deciding whether or not to enter a particular industry.
    • Threat of substitutes: In Porter's model, substitute products refer to products that can be substituted for your own.
    • Porter's other widely-used tool is the Value Chain, which is used to model the firm as a chain of value-creating activities or processes.
    • For example, market attractiveness could be determined using Porter's five forces model.
    • Those who use the Five Forces Model and who base their thinking on today's industry structure would never see these changes coming in time.

  • The Impact of External and Internal Factors on Strategy

    • There are many effective models to discuss, measure, and analyze the external environment (such as Porter's Five Force, SWOT Analysis, PESTEL framework, etc.).
    • This model, created by Michael Porter, demonstrates how support and primary activities add up to potential margins (and potential competitive advantage).
    • Competitive and cooperative forces include rivals, new entrants, suppliers, and retailers; business factors include resources and capabilities.

  • Introduction

  • Conducting a Situational Analysis

    • The situation analysis consists of several methods of analysis: The 5Cs, SWOT and Porter's five forces analyses.
    • Porter five forces analysis is a framework for industry analysis and business strategy development.
    • It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market.
    • Strategy consultants occasionally use the five forces model to scan for and identify competitors to conduct qualitatively evaluate a firm's strategic position.
    • Firms use Porter's five forces to develop business strategy and conduct competitive analysis.

  • Combining Internal and External Analyses

    • This internal analysis requires careful consideration of the following models and factors:
    • Models such as the following outline these concerns effectively:

  • Strategic Management

    • Strategic management entails five steps: analysis, formation, goal setting, structure, and feedback.
    • While many management models pertaining to strategy derivation are in use, most general frameworks include five steps embedded in two general stages:
    • The process involves conducting Porter's Five Forces, SWOT, PESTEL, and value chain analyses and gathering experts in each industry relating to the strategy.
    • The above model is a summary of what is involved in each of the five steps of management: 1. analysis (internal and external), 2. strategy formation (diagnosis and decision-making), 3. goal setting (objectives and measurement), 4. structure (leadership and initiatives), and 5. control and feedback (budgets and incentives).
    • Identify the five general steps that allow businesses to develop a strategic process