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Porters Five Forces

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Introduction

´╗┐Porters Five Forces What Works for Management Competing in Your Industry By Jain Subnash, Understanding the Phantom Competitors in Your Industry. Many business owners fear the global economy and labor market, but is that the only danger on your horizon? There are other forces (phantom competitors) that can impact your long-term success and this information will help you to discover them for your industry. This is a summary of what Michael Porter, a professor at Harvard Business School, calls Industry Attractiveness, or the Five Forces Model. I will attempt to present his model in a way that can be easily understood and applied to your specific business situation. I hope you find this helpful to identify and compete with the ?Phantoms? that threaten your business. One of the biggest mistakes made by smaller, entrepreneurial businesses is to assume they do not need to think about strategy. All businesses should be concerned about strategy and how to position themselves in their competitive environment. Whether you?re starting a business or trying to compete in an existing business, the first issue to address is the attractiveness of your industry. Analyzing your industry attractiveness (IA) will help you decide if you should get into a new industry, get out of the one you?re in or redefine it. ...read more.

Middle

If you?re selling to Wal-Mart, or other big box retailers, you are at the mercy of their pricing, inventory maintenance, returns, and in-store advertising policies. If you are selling a unique product or service into an underserved market you have greater flexibility and a more attractive industry. I recommend: You can evaluate the Buyers' Bargaining Power in your industry by answering the following questions. (Strong affirmative answers indicate minimal bargaining power, which is good for you) - Is the cost of your product/service insignificant when compared to your prospects financial resource? - Are prospects unfamiliar with your industry and product/service? - Do you sell a lot of one product or vs. one sale that sustains your company? - Is it difficult and expensive for prospects to shop-around for other products/services like yours? - Is it expensive/difficult for customers to switch away from your product/service? - Can you easily differentiate yourself from the competition? Market Forces are also determined by the bargaining power of buyers. Read more Description of the Model This industry model was initially described by Michael Porter in his book, Competitive Strategy. It addresses the key factors that influence industry profitability. The ideal position would be the outer edge of each axis. Any point on the scale where your enterprise ranks higher than all competitors represents a market opportunity. ...read more.

Conclusion

Consider the following strategies: defend strengths shift resources to attractive segments examine ways to revitalize the industry time your exit by monitoring for harvest or divestment timing Low Attractiveness Average Competitive Position The strategy advice for this cell is to restructure, harvest or divest. Consider the following strategies: make only essential commitments prepare to divest shift resources to a more attractive segment Low Attractiveness Weak Competitive Position The advice for this cell is to harvest or divest. You should exit the market or prune the product line. Description of the Model This chart portrays the interaction between three of the five forces from the Industry Attractiveness chart. If the prospect is in a position to dictate the terms under which they purchase your product or service and there is also a high probability of new competition or substitute products then it will be difficult to be profitable. As either or both of these forces is weakened, your potential for profitability increases. Characterize Your Enterprise The expert system will position your enterprise on the chart based upon your description of: switching costs economies of scale barriers to entry distribution channels differentiation You can trace through the supporting analysis and its conclusions, adjusting your input until you are satisfied your description accurately characterizes your enterprise. ...read more.

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