Usages[ edit ] Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm 's strategic position. However, for most consultants, the framework is only a starting point. They might use value chain or another type of analysis in conjunction. According to Porter, the five forces framework should be used at the line-of-business industry level; it is not designed to be used at the industry group or industry sector level.
Since its publication init has become one of the most popular and highly regarded business strategy tools. Porter recognized that organizations likely keep a close watch on their rivals, but he encouraged them to look beyond the actions of their competitors and examine what other factors could impact the business environment.
He identified five forces that make up the competitive environment, and which can erode your profitability. This looks at the number and strength of your competitors.
How many rivals do you have? Who are they, and how does the quality of their products and services compare with yours? Where rivalry is intense, companies can attract customers with aggressive price cuts and high-impact marketing campaigns.
This is determined by how easy it is for your suppliers to increase their prices. How many potential suppliers do you have? How unique is the product or service that they provide, and how expensive would it be to switch from one supplier to another? The more you have to choose from, the easier it will be to switch to a cheaper alternative.
But the fewer suppliers there are, and the more you need their help, the stronger their position and their ability to charge you more. That can impact your profit. Here, you ask yourself how easy it is for buyers to drive your prices down. How many buyers are there, and how big are their orders?
How much would it cost them to switch from your products and services to those of a rival? Are your buyers strong enough to dictate terms to you?
When you deal with only a few savvy customers, they have more power, but your power increases if you have many customers.
This refers to the likelihood of your customers finding a different way of doing what you do. For example, if you supply a unique software product that automates an important process, people may substitute it by doing the process manually or by outsourcing it.
A substitution that is easy and cheap to make can weaken your position and threaten your profitability. Threat of New Entry.SWOT and Michael Porter's Five Forces analysis model are both useful tools in strategic planning.
While they both help in assessing your company's strengths and weaknesses relative to industry. Five Forces Analysis of the Video Game Industry Five Forces Analysis of the Video Game Industry The video game industry is the economic sector involved with the development, marketing and sale of video and computer games.
Porter's Five Forces Framework is a tool for analyzing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability.
An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. Since the last time you logged in our privacy statement has been updated.
We want to ensure that you are kept up to date with any changes and as such would ask that you take a . Porters Five Forces - Competitive Analysis.
Content rich web pages, including free porters five forces template available in PDF or MS Word. Plus handy hints and tips for leaders. "If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies are profitable." Understanding the Five Forces.
Porter regarded understanding both the competitive forces and the overall industry structure as crucial for effective strategic decision-making.