This model is a strategy tool used to identify the value of an industry structure by analyzing five fundamental competitive forces. The Five Forces Model was created by Michael Porter, and is the main subject of his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980).” This model takes an Outside-In approach to strategy, looking at all the environmental factors working on a firm. This is the opposite approach of the Core Competence Model which starts within the organization and develops a strategy from the Inside-Out. Porter’s model is one of the most widely used business strategy tools and very useful at looking at outside forces on a firm.
What are the 5 Forces?
Entry of Competitors – Is it easy for new entrants to compete?
Threat of Substitutes – Can the product/service be substituted, easily?
Bargaining Power of Buyers – Can buyers operate together, to create a strong position?
Bargaining Power of Suppliers – How many potential suppliers are there? Is there a monopoly on the supplies? How strong is the supplier’ position?
Rivalry Among Existing Players – How strong is the competition? Are they equal in strength? Is there a dominant player?
Benefits of the Five Forces￼ Model
This model is a powerful tool for competitive analysis at an industry level
This model provides useful input for SWOT Analysis
Five Forces Model is a useless tool if entering a completely new market: Blue Ocean Strategy
This model cannot be applied to large corporations with a portfolio of business units, instead it must be used on the the individual business unit level: Parenting Advantage
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