Porter 's Five Forces Analysis

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Value Innovation We have all seen that despite recessions some companies grow in revenues and profits. Why is this so? Until recently, the dominant theory applied to factors driving profitability of an industry was Porter’s Five Forces Model. As the name implies, the level of competitive intensity within an industry from five specific sources determines attractiveness of an industry to potential entrants. Porter developed Five Forces Analysis in response to SWOT analysis, a model he found too vague. Porter 's Five Forces include three forces from 'horizontal ' competition and two forces from 'vertical ' competition: horizontally, the threat of substitute products or services, established rivals, and new entrants; and vertically, two…show more content…
If your customers rely on you to provide a tool or service that can be easily substituted with that of another tool or service provider, your market power is weakened. Your Blue Ocean Strategy Kim and Mauborgne argue that this approach limits companies to a fight over ever smaller slices of an existing market and therefore revenues. This is especially true in economies with an aging population. While these traditional competition-based or “Red Ocean Strategies” are necessary, they are insufficient to sustain high performance. They argued that companies need to go beyond competing, seizing new profit and growth opportunities in previously unexplored ways they call “Blue Oceans.” Competition-based strategies, such as Porter’s Five Forces assume that an industry’s fundamental structure is a given and firms are obliged to compete within existing constraints. To sustain their position in the marketplace, companies sticking to a Red Ocean Strategy emphasize creating competitive advantage over the competition, usually by observing what the competition does and striving to do what it does, but better or offering a cloned product, but cheaper. Attaining a bigger market share in this environment is a zero-sum game; one company’s gain is another’s loss. In an effort to explain why certain companies grew faster and were more profitable than comparable companies in their sector Kim and Mauborgne advanced the concept of Value Innovation. The foundation of
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