PORTERS FIVE FORCES
Michael Porter is a Professor in the Harvard Business School. He is perhaps the most respected business academic on the planet. He is also famous for developing Porters Five Forces, designed to analyze an industry's attractiveness and likely profitability. Developed in 1979 it is today, one of the most popular and highly regarded business strategy tools.
Porter recognized that organizations likely keep a close watch on their rivals, but he encouraged them to look beyond the actions of their competitors and examine what other factors could impact the business environment. He identified five forces that make up the competitive environment, and which can erode your profitability. These are:
- Competitive rivalry.- the strength of competition in the industry.
- Supplier power.- the ability of suppliers to drive up the prices of your inputs.
- Buyer power.- the strength of your customers to drive down your prices.
- Threat of substitution - the extent to which different products can be used in place of yours
- Threat of new entry - the ease with which new competitors can enter the market
According to Porter, by thinking about how each force affects you, and by identifying its strength and direction, you can quickly assess your position. You can then look at what strategic changes you need to make to deliver long-term profit.
D. John Carlson - 61 (0) 402 273 350