BeTheBusiness Mentoring Porter's Five Forces

 BeTheBusiness Mentoring Porter's Five Forces

Porter's Five Forces is a framework developed by Michael E. Porter in 1979. It's a tool used to analyze the competitive environment of an industry in relation to strategy development. Porter posited that the competitiveness of an industry is shaped by five fundamental forces. Understanding these forces helps businesses to identify the strengths and weaknesses of their industry, forecast potential changes, and craft strategies to gain a competitive advantage.

HERE'S A BREAKDOWN OF EACH OF THE FIVE FORCES:

THREAT OF NEW ENTRANTS:
DESCRIPTION: This force looks at how easy or difficult it is for competitors to join the marketplace. If it's easy for others to enter the market and compete, then the industry's profitability can be undermined.
FACTORS INFLUENCING THE THREAT: Barriers to entry like high startup costs, economies of scale, brand loyalty, and access to distribution channels.

BARGAINING POWER OF SUPPLIERS:
DESCRIPTION: This force examines the power that suppliers can have over an industry. If there are few suppliers or if their products are unique, they can command higher prices, thus potentially squeezing the profitability of firms within the industry.
FACTORS INFLUENCING POWER: The number of suppliers, the uniqueness of their product or service, the relative importance of the buyer to the supplier, and the availability of substitutes.

BARGAINING POWER OF BUYERS:
DESCRIPTION: This force gauges the power that customers have over the industry. When customers have a lot of power, they can demand lower prices or higher product quality, affecting an industry’s profitability.
FACTORS INFLUENCING POWER: The number of buyers, the importance of each individual buyer to the business, and the cost to the buyer of switching from one supplier to another.

THREAT OF SUBSTITUTE PRODUCTS OR SERVICES:
DESCRIPTION: This force evaluates the likelihood that customers will switch to a different product or service. If substitutes are easy and affordable to find, this can weaken an industry's power.
FACTORS INFLUENCING THE THREAT: The availability of close substitute products, the relative price performance of these substitutes, and the level of customer willingness to switch.

RIVALRY AMONG EXISTING COMPETITORS:
DESCRIPTION: This force examines how intense the current competition is in the marketplace. Industries with many competitors or where competitors are of equal size or strength tend to be more competitive.
FACTORS INFLUENCING RIVALRY: Industry growth rate, fixed costs, product differentiation, and capacity.

In essence, Porter's Five Forces is a tool to understand where power lies in a business situation, helping businesses understand both the strength of their current competitive position and the attractiveness of the industry they are in or considering entering. By understanding where power lies, a company can take advantage of its strengths, improve its weaknesses, and avoid taking wrong steps.

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Tim HJ Rogers
BeTheBusiness Mentor
HTTP://www.timhjrogers.com/bethebusiness/
MBA Management Consultant + Change Practitioner
PRINCE2 Agile-Scrum Projects, Programmes and PMO
ICF Trained Coach, IoD Business Mentor, Mediator
Tim@AdaptConsultingCompany.com
Mob 447797762051

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