Five forces analysis

Question

How can I use 5 forces analysis?

Answer

Porter's 5 Forces analysis is a tool for analysing the micro business environment. It is a common feature of business, management and marketing reports. The forces in the model are: Threat of New Entrants, Threat of Substitutes, Bargaining Power of Suppliers, Bargaining Power of Buyers, and the Intensity of Rivalry in an Industry. Threat of new entrants focuses on how likely or unlikely it is that new firms will enter an industry. Threat of substitutes analyses if there are similar products or not that customers can use instead of your business’ products/services. Bargaining power of suppliers analyses if there are a lot of suppliers or only a few suppliers and how much control they have over setting prices of resources needed for a business to operate. Bargaining power of buyers focuses on how much choice buyers have and how easily they can switch to buying the product/service from a different company. All of these are combined and analysed together to assess how intense the level of rivalry is in a particular industry. This analysis should then be used to help generate recommendations for strategies which are provided at the end of the report (Porter, 2008).

References

Porter, M.E. (2008) "The Five Competitive Forces that Shape Strategy", Harvard Business Review, January 2008, p.86-104