Five Forces Shape Strategy Analysis

Porter’s Five Forces (1980), named after Michael E. Porter, is a critical framework to access the level of risk and degree of potential profitability of each industry in which firms are competing. Specifically, five forces are shown in Figure 1, are includes competition between rivalry, potential of new entrant, threat of substitute products, and pressure on bargaining power of suppliers and customers.

Porter’s Five Competitive Forces Analysis is a framework developed by Michael E. Porter of Harvard Business School for study of industry analysis by analyzing five competitive forces which define industry and its business strategy. These five competitive forces determine the competitive advantages, disadvantages and attractiveness or profitability of industry.

“Porter’s five forces”: Introduction. “Porter’s five forces” is widely applied in today’s business world. Harvard Professor Michael E. Porter’s first HBR article “How competitive forces shape strategy” was published in 1979. It became revolutionary in the field of strategy. Porter’s subsequent work has brought big changes to the study of competitive strategy for corporations, regions, and nations. With assistance from his colleagues from Harvard Business School, Porter continues to update and extend his classic work, providing practical guidance for

The risk of generic substitution is also increasing with especially China dominating the production market. Customers will substitute for a generic product if the disposable incomes of the customers reduce resulting in customers willing to trade down for a inferior but cheaper product.

Porter (1979) states that the nature and degree of competition in an industry hinge on five forces:

Porter five forces analysis is a framework to analyze the level of competition within an industry and business strategy development. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of an Industry. Attractiveness in this context refers to the overall industry profitability. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average.

This generic strategy then leads to Porters five industry force. Porter five forces analysis is a framework to analyze level of competition within an industry and business strategy development. It draws up an industrial organization to develop five forces that determine the competitive intensity and the attractiveness of a market. Attractiveness refers to the overall business profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. An unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit. The five forces include; risk of entry, bargaining power of suppliers, threat of substitutes, rivalry among established companies, and bargaining power of buyers. As each of these forces grows stronger, it limits the ability of established companies to raise prices and earn greater profits. Power is affected by the ability of people to enter the market. If it costs too little in time or money to enter a market and compete effectively, if there are few economies of scale in place, or if there is little protection for key technologies, then new competitors can quickly enter the market and weaken the

Porter identifies five forces that shape every industry and which determine the intensity and direction of competition and therefore the profitability of an industry. The objective of strategic planning is to modify these competitive forces such that the organization’s position is improved. Management can then decide, based on the information given by the Five Forces model, how to influence or to exploit industry characteristics.

Porter’s 5-Forces Model identifies and analyzes 5 different competitive forces that shape the industry that a company is competing in and helps them determine weaknesses and strengths, which allows a company to tailor their business strategies to accommodate such problem areas. The model primarily deals with the threat of 1) competition, 2) new entrants, 3) substitutes, 4) power of suppliers, and 5) power of buyers.

Micheal Porter defines five competitive forces that shape an industry as the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and rivalry among existing competitors. As each force changes, or combines

The Porter 's Five Forces model, which was named after Michael E. Porter, identifies and analyzes five competitive forces that shape every industry, and helps determine an industry 's weaknesses and strengths. These forces are:

Porter’s Five Forces model is designed to assess the attractiveness of an industry based on the actual or potential competition through the following five forces: Rivalry Among Existing Competitors; Threat of New Entrants; Bargaining Power of Buyers; Bargaining Power of Suppliers; Threat of Substitute Products or Services

In order to understand the competitive environment, it is useful to carry out the Porter’s Five Forces Analysis:

Nowadays, organizations is facing rapid change to the business environment where it becomes more complex than it were before. Indeed, these situation means that businesses need to find strategy to analyzing the implications of these changes and modifying the organizations reaction itself towards these situation. The strategies that the organization will apply also require gaining a complete understanding of the external environment of the organization. While understanding the macro-environment of the business is important, organization also need to have great understanding of the competitors and the impact they will bring to the organization (Dobbs, 2014). In 1979, Michael E. Porter, a Harvard Business School student introduced five key forces that determined the essential appeal of a business sector in a long run (Schachter, 2012). Porter’s Five Forces is a framework that analyzes and identifies strategy of an industry, and also determines the weakness and strength of an industry, where the activities of the competitors also involved. Porter’s Five Forces is cover understanding strategy of bargaining power of supplier, bargaining power of buyer, competitive rivalry, threat of substitution, and lastly threat of new entry. In addition, by having good understanding where the power rely on, businesses may take advantage by gaining strength or improve the weakness and evade taking wrong decision. Porter’s Five Forces will help organizations to define the market properly and

Nowadays, due to dynamic change and highly competition in business environment, firms need to adapt themselves in order to cope with this situation. Strategies are key instruments that can make firms pass through these obstacles. In order to create strategies, firms need to have a clear goal and analyze both internal and external environment. In this essay, it will show how to use external environment to construct strategies by using Porter five forces framework to analyze attractiveness of the industry, and discuss the usefulness and its limitation. The essay will start with the concept of strategy and concept of Porter’s five forces framework. Then, it will examine each components of the framework and how it works. Lastly, the essay will critically discuss about benefits and limitations of using this model to analyze industry.