What Is Porter's 5 Forces Analysis? What Are the Main Aspects of Porter's 5 Forces Analysis? How to Write Good Porter's 5 Forces Analysis of a Company? Where to Find Information for Porter's 5 Forces Analysis.
Introduction
There is continuing interest in the study of the forces that impact on an organisation, particularly those that can be harnessed to provide competitive advantage. The ideas and models which emerged during the period from 1979 to the mid-1980s (Porter, 1998) were based on the idea that competitive advantage came from the ability to earn a return on investment that was better than the average for the industry sector (Thurlby, 1998).
As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of competition within it, the forces inside the industry (microenvironment) that influence the way in which firms compete, and so the industry's likely profitability is conducted in Porter's five forces model. A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. Porter (1980a) defined the forces which drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the buyers, and the threat of substitute products or services. Porter suggested that the intensity of competition is determined by the relative strengths of these forces.
Main Aspects of Porter's Five Forces Analysis
The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organization's behaviour in a competitive market. These include the following:
The rivalry between existing sellers in the market.
The power exerted by the customers in the market.
The impact of the suppliers on the sellers.
The potential threat of new sellers entering the market.
The threat of substitute products becoming available in the market.
Understanding the nature of each of these forces gives organizations the necessary insights
There is continuing interest in the study of the forces that impact on an organisation, particularly those that can be harnessed to provide competitive advantage. The ideas and models which emerged during the period from 1979 to the mid-1980s (Porter, 1998) were based on the idea that competitive advantage came from the ability to earn a return on investment that was better than the average for the industry sector (Thurlby, 1998).
As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of competition within it, the forces inside the industry (microenvironment) that influence the way in which firms compete, and so the industry's likely profitability is conducted in Porter's five forces model. A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. Porter (1980a) defined the forces which drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the buyers, and the threat of substitute products or services. Porter suggested that the intensity of competition is determined by the relative strengths of these forces.
Main Aspects of Porter's Five Forces Analysis
The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organization's behaviour in a competitive market. These include the following:
The rivalry between existing sellers in the market.
The power exerted by the customers in the market.
The impact of the suppliers on the sellers.
The potential threat of new sellers entering the market.
The threat of substitute products becoming available in the market.
Understanding the nature of each of these forces gives organizations the necessary insights
References: Haberberg, A. and Rieple, A. (2001) The Strategic Management of Organizations, Essex: Pearson Education Limited. Kippenberger, T Luffman, G., Lea, E., Sanderson, S. and Kenny, B. (1996) Strategic Management, Oxford: Blackwell Publishers Inc. Porter, M Porter, M. (1980b) Competitive Strategy, New York: Free Press. Porter, M Sanderson, S. (1998) New approaches to strategy: new ways of thinking for the millennium, Management Decision, Vol. 36 issue 1, pp.9-13. Thurlby B (1998) "Competitive forces are also subject to change", Management Decision London Wheelen, T. and Hunger, J. (1998) Strategic Management and Business Policy, 6th ed., Reading: Addison-Wesley. Bibliography Baker, M. (1992) Marketing Strategy and Management, London: Macmillan. Freeman, R Ghemawat, P., Collis, D., Pisano, G. and Rivkin, J. (2001) Strategy and the Business Landscape: Core Concepts, Upper Saddle River: Pearson Education. O 'Shaughnessy, N Porter, M. (1979) How competitive forces shape strategy, Harvard Business Review, Vol. 57 Issue 2, pp.5-8. Scott-Morton, M Wolpert, J. (2002) Breaking out of the innovation box, Harvard Business Review, pp.77-83. http://www.mindtools.com/pages/Newsletters/20Jan05.htm