Porter's Five Forces Analysis's Factors
Planning through Performancesm Brief
Five Forces Analysis
Key Points: After 30 years, the Five Forces Analysis is still one of the most effective ways to assess industry structure and performance when done correctly. As the tool’s name states, there are five forces that together illuminate industry structure: Bargaining Power of Buyers, Bargaining Power of Suppliers, Barriers to Entry, Threat of Substitute Product or Services, and Rivalry Among Existing Competitors. A recent update to the model is the addition of Complements, goods or services that impact the demand of the products/services provided by the industry under analysis. It is considered more of a factor than a force per the model creator. Main Thoughts: Where the PESTEL analysis is a general or macro environmental analysis tool, the Five Forces model is a means to assess the micro or industry environment. Developed by strategy professor Michael Porter of Harvard Business School in the early 1970s, the Five Forces model has become one of the most widely known strategy analysis tools in use today. The tool helps users identify—through detailed examination of each force—what the underlying drivers of industry behavior and performance are.
Figure 1: The Five Forces Model
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Existing Competitors
Bargaining Power of Buyers
Threat of Substitute Products or Services
Bargaining Power of Buyers. Buyers are the customers or the purchasers of products or services within an industry. Buyers typically seek to maximize their value by purchasing at the lowest possible costs. The more power buyers have over the industry participants, the more effective they are in their quest to drive down process (and profits for the industry). As a group, buyers wield power over an industry when: There are few of them; They purchase a large amount of total output from the industry; Products or services they purchase are homogenous and
Five Forces Analysis
Key Points: After 30 years, the Five Forces Analysis is still one of the most effective ways to assess industry structure and performance when done correctly. As the tool’s name states, there are five forces that together illuminate industry structure: Bargaining Power of Buyers, Bargaining Power of Suppliers, Barriers to Entry, Threat of Substitute Product or Services, and Rivalry Among Existing Competitors. A recent update to the model is the addition of Complements, goods or services that impact the demand of the products/services provided by the industry under analysis. It is considered more of a factor than a force per the model creator. Main Thoughts: Where the PESTEL analysis is a general or macro environmental analysis tool, the Five Forces model is a means to assess the micro or industry environment. Developed by strategy professor Michael Porter of Harvard Business School in the early 1970s, the Five Forces model has become one of the most widely known strategy analysis tools in use today. The tool helps users identify—through detailed examination of each force—what the underlying drivers of industry behavior and performance are.
Figure 1: The Five Forces Model
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Existing Competitors
Bargaining Power of Buyers
Threat of Substitute Products or Services
Bargaining Power of Buyers. Buyers are the customers or the purchasers of products or services within an industry. Buyers typically seek to maximize their value by purchasing at the lowest possible costs. The more power buyers have over the industry participants, the more effective they are in their quest to drive down process (and profits for the industry). As a group, buyers wield power over an industry when: There are few of them; They purchase a large amount of total output from the industry; Products or services they purchase are homogenous and