The Five Forces Essay

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The Five Forces Framework and Competitive Strategy

In this framework due to Michael Porter there are two high-level stages in the creation of competitive strategy, each stage corresponding to a high-level determinant of profitability mentioned in the previous section. The first stage is the assessment of the attractiveness of the industry in which a given company is embedded based on a structural analysis of the industry. In this stage, called the five forces framework, five forces that influence industry attractiveness are identified, as well as the factors (e.g., number of competitors, size of competitors, capital requirements) that determine the intensity of each force and therefore the cumulative intensity of the five forces. The
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For example, the (conventional) personal computer (PC) industry would include PC manufacturers like Dell and Apple, suppliers of semiconductor chips like Intel and Micron, suppliers of disc drives like Seagate, suppliers of software such as Microsoft, etc. Substitute products could be pen-based tablet PCs or small hand-held personal digital assistants (PDAs). In the five forces framework described below, manufacturers and producers will be designated as (1) competitors in the industry if they already have established products, or (2) new-entrants if they are trying to enter the industry, or (3) substitutes, if they provide alternative (substitute) products. The term market denotes the buyers (or customers) of the product or service. For example, the market for PCs would include enterprises and individual consumers.
The analytical process of strategy analysis and creation can be decomposed into the following five steps.
1. Create a map of the industry in which the technology company is embedded.
There are five key sets of players that constitute the business landscape: competitors, new entrants, substitutes, suppliers, and buyers. Identify key players (companies) for each industry.
1. Perform a five forces analysis of the industry structure. The five forces that influence the intensity of
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