Porter's 5 Forces
What Is It?
The Porter five force analysis was formed by Michael E. Porter of Harvard Business School in the year 1979, this model identifies and analyses 5 competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths. This analysis shows the overall attractiveness of an industry meaning how profitable it is. For example an unattractive industry would be the pure or perfect competition, because all profits turn to normal profit in the long run which means the firm breakeven. On the other hand an attractive industry is one like a monopoly or an oligopolistic competition where there can be supernormal profit in both the short and long run.The Porter five force analysis is also very useful because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps.
Porter's five forces include three forces from horizontal competition which are, the threat of substitute products or services, the threat of established rivals, and the threat of new entrants. The other two forces are from the vertical competition which are, the bargaining power of suppliers and the bargaining power of customers.A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average.
What are they?
1. Treat of new entrants
Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the
The Porter five force analysis was formed by Michael E. Porter of Harvard Business School in the year 1979, this model identifies and analyses 5 competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths. This analysis shows the overall attractiveness of an industry meaning how profitable it is. For example an unattractive industry would be the pure or perfect competition, because all profits turn to normal profit in the long run which means the firm breakeven. On the other hand an attractive industry is one like a monopoly or an oligopolistic competition where there can be supernormal profit in both the short and long run.The Porter five force analysis is also very useful because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps.
Porter's five forces include three forces from horizontal competition which are, the threat of substitute products or services, the threat of established rivals, and the threat of new entrants. The other two forces are from the vertical competition which are, the bargaining power of suppliers and the bargaining power of customers.A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average.
What are they?
1. Treat of new entrants
Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the