Analyzing your competition is one of the best ways to identify threats to your business and figure out how to address them. Knowing who your competition is, how their actions will affect you (and in what ways) is critical to your bottom line and future planning. Whether you are a Fortune 500 company or a small, local business, competition has a direct influence on your success.
One way to analyze your competition is by using Porter's Five Forces model to break them down into five distinct categories, designed to reveal insights. Originally developed by Harvard Business School's Michael E. Porter in 1979, the five forces model looks at five specific factors that determine whether or not a business can be profitable, based on other businesses in the industry.
'Understanding the competitive forces, and their underlying causes, reveals the roots of an industry's current profitability while providing a framework for anticipating and influencing competition (and profitability) over time,' Porter wrote in a Harvard Business Review article. 'A healthy industry structure should be as much a competitive concern to strategists as their company's own position.'
Porter regarded understanding both the competitive forces and the overall industry structure as crucial for effective strategic decision-making. In Porter's model, the five forces that shape industry competition are as follow:
1. Competitive rivalry
This force examines how intense the competition currently is in the marketplace, which is determined by the number of existing competitors and what each can do.
Rivalry competition is high when there are just a few businesses equally selling a product or service, when the industry is growing and when consumers can easily switch to a competitor's offering for little cost.
When rivalry competition is high, advertising and price wars can ensue, which can hurt a business's bottom line.
2. Bargaining power of suppliers
This force analyzes how much power a business's supplier has and how much control it has over the potential to raise its prices, which, in turn, would lower a business's profitability.
In addition, it assesses the number of suppliers available: The fewer there are, the more power they have. Businesses are in a better position when there are a multitude of suppliers.
3. Bargaining power of customers
Supplier Power
This force examines the power of the consumer and their effect on pricing and quality. Consumers have power when there aren't many of them but there are plentiful sellers, as well as when it is easy for customers to switch from one business's products or services to another's.
Buying power is low when consumers purchase products in small amounts and the seller's product is very different from any of its competitors.
4. Threat of new entrants
This force considers how easy or difficult it is for competitors to join the marketplace in the industry being examined.
The easier it is for a competitor to join, the greater the risk of a business's market share being depleted. Barriers to entry include absolute cost advantages, access to inputs, economies of scale and well-recognized brands.
5. Threat of substitute products or services
This force studies how easy it is for consumers to switch from a business's product or service to that of a competitor. It looks at the number of competitors, how their prices and quality compare to the business being examined and how much of a profit those competitors are earning, which would determine if they can lower their costs even more.
The threat of substitutes is informed by switching costs, both immediate and long-term, as well as a buyer's inclination to change.
There are several examples of how Porter's Five Forces can be applied to various industries online. As an example, stock analysis firm Trefis looked at how Under Armour fits into the athletic footwear and apparel industry.
Competitive rivalry: Under Armour faces intense competition from Nike, Adidas and newer players. Nike and Adidas, which have considerably larger resources at their disposal, are making a play within the performance apparel market to gain market share in this up-and-coming product category. Under Armour does not hold any fabric or process patents, hence its product portfolio could be copied in the future.
Bargaining power of suppliers: A diverse supplier base limits the company's bargaining power. Under Armour's products are produced by dozens of manufacturers based in multiple countries.
Bargaining power of customers: Under Armour's customers include both wholesale customers as well as end customers. Wholesale customers, like Dick's Sporting Goods and the Sports Authority, hold a certain degree of bargaining leverage, as they could substitute Under Armour's products with those of UA's competitors to gain higher margins. The bargaining power of end customers is lower as UA enjoys strong brand recognition.
Threat of new entrants: Large capital costs are required for branding, advertising and creating product demand, and hence limits the entry of newer players in the sports apparel market. However, existing companies in the sports apparel industry could enter the performance apparel market in the future.
Threat of substitute products: The demand for performance apparel, sports footwear and accessories is expected to continue, and hence this force does not threaten Under Armour in the foreseeable future.
Trefis has also completed Porter's Five Forces analysis of companies, including Facebook, Nike, Coach and Ralph Lauren. Another great example of the use of Porter's Five Forces on a familiar brand is the one recently done by Lawrence Gregory for McDonald's.
Strategies for success
Once your analysis is complete, it's time to implement a strategy to expand your competitive advantage. To that end, Porter identified three generic strategies that can be implemented in any industry ( and in companies of any size).
Cost leadership
Your goal is to increase profits by reducing costs while charging industry-standard prices, or to increase market share by reducing the sales price while retaining profits.
Differentiation
To implement this strategy, make the company's products significantly different from the competition, improving their competitiveness and value to the public. It requires both good research and development plus effective sales and marketing teams.
Focus
A successful implementation means the company selects niche markets in which to sell their goods. It requires an intense understanding of the marketplace, its sellers, buyers and competitors. More information about the generic strategies is available in Porter's 1985 book, 'Competitive Advantage' (Free Press).
Alternatives and addendums
While Porter's Five Forces is an effective and time-tested model, it has been criticized for failing to explain strategic alliances. In the 1990s, Yale School of Management professors Adam Brandenbuger and Barry Nalebuff created the idea of a sixth force, 'complementors,' using the tools of game theory.
In their model, complementors sell products and services that are best used in conjunction with a product or service from a competitor. Intel, which manufactures processors, and computer manufacturer Apple could be considered complementors in this model. More information can be found at Strategic CFO.
Additional modeling tools are likely to help round out your understanding of your business and its potential. A value chain analysis helps companies understand where they have the best productive advantage, while the BCG matrix helps companies identify which products are likely to benefit the most from increased investment.
Additional reporting by Katherine Arline and Chad Brooks. Some source interviews were conducted for a previous version of this article.
(Redirected from Porter five forces analysis)
A graphical representation of Porter's five forces
Porter's Five Forces Framework is a tool for analyzing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability. An 'unattractive' industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching 'pure competition', in which available profits for all firms are driven to normal profit levels. The five-forces perspective is associated with its originator, Michael E. Porter of Harvard University. This framework was first published in Harvard Business Review in 1979.[1]
Porter refers to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. 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. A clear example of this is the airline industry. As an industry, profitability is low because the industry's underlying structure of high fixed costs and low variable costs afford enormous latitude in the price of airline travel. Airlines tend to compete on cost, and that drives down the profitability of individual carriers as well as the industry itself because it simplifies the decision by a customer to buy or not buy a ticket. A few carriers--Richard Branson's Virgin Atlantic is one--have tried, with limited success, to use sources of differentiation in order to increase profitability.
Porter's five forces include three forces from 'horizontal' competition--the threat of substitute products or services, the threat of established rivals, and the threat of new entrants--and two others from 'vertical' competition--the bargaining power of suppliers and the bargaining power of customers.
Porter developed his five forces framework in reaction to the then-popular SWOT analysis, which he found both lacking in rigor and ad hoc.[2] Porter's five-forces framework is based on the structure–conduct–performance paradigm in industrial organizational economics. Other Porter strategy tools include the value chain and generic competitive strategies.
- 1Five Forces
Five Forces[edit]
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Threat of new entrants[edit]
Profitable industries that yield high returns will attract new firms. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents, abnormal profitability will fall towards zero (perfect competition), which is the minimum level of profitability required to keep an industry in business.
The following factors can have an effect on how much of a threat new entrants may pose:
- The existence of barriers to entry (patents, rights, etc.). The most attractive segment is one in which entry barriers are high and exit barriers are low. It's worth noting, however, that high barriers to entry almost always make exit more difficult.
- Government policy such as sanctioned monopolies or legal franchise requirements.
- Capital requirements - clearly the Internet has influenced this factor dramatically. Web sites and apps can be launched cheaply and easily as opposed to the brick and mortar industries of the past.
- Absolute cost
- Cost disadvantages independent of size
- Switching costs are well illustrated by structural market characteristics such as supply chain integration but also can be created by firms. Airline frequent flyer programs are an example.
- Expected retaliation - For example, a specific characteristics of oligopoly markets is that prices generally settle at an equilibrium because any price rises or cuts are easily matched by the competition.
- Access to distribution channels
- Customer loyalty to established brands. This can be accompanied by large brand advertising expenditures or similar mechanisms of maintained brand equity.
- Industry profitability (the more profitable the industry, the more attractive it will be to new competitors)
- Network effect which is particularly influential in internet based social networks such as Facebook
Threat of substitutes[edit]
A substitute product uses a different technology to try to solve the same economic need. Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on. For example, tap water is a substitute for Coke, but Pepsi is a product that uses the same technology (albeit different ingredients) to compete head-to-head with Coke, so it is not a substitute. Increased marketing for drinking tap water might 'shrink the pie' for both Coke and Pepsi, whereas increased Pepsi advertising would likely 'grow the pie' (increase consumption of all soft drinks), while giving Pepsi a larger market share at Coke's expense.
Potential factors:
- Buyer propensity to substitute. This aspect incorporated both tangible and intangible factors. Brand loyalty can be very important as in the Coke and Pepsi example above; however contactural and legal barriers are also effective.
- Relative price performance of substitute
- Buyer's switching costs. This factor is well illustrated by the mobility industry. Uber and its many competitors took advantage of the incumbent taxi industry's dependence on legal barriers to entry and when those fell away, it was trivial for customers to switch. There were no costs as every transaction was atomic, with no incentive for customers not to try another product.
- Perceived level of product differentiation which is classic Michael Porter in the sense that there are only two basic mechanisms for competition - lowest price or differentiation. Developing multiple products for niche markets is one way to mitigate this factor.
- Number of substitute products available in the market
- Ease of substitution
- Availability of close substitute
Bargaining power of customers[edit]
The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices.
Potential factors:
- Buyer concentration to firmconcentration ratio
- Degree of dependency upon existing channels of distribution
- Bargaining leverage, particularly in industries with high fixed costs
- Buyer switching costs
- Buyer information availability
- Availability of existing substitute products
- Buyer price sensitivity
- Differential advantage (uniqueness) of industry products
- RFM (customer value) Analysis
Bargaining power of suppliers[edit]
The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
Potential factors are:
- Supplier switching costs relative to firm switching costs
- Degree of differentiation of inputs
- Impact of inputs on cost and differentiation
- Presence of substitute inputs
- Strength of distribution channel
- Supplier concentration to firm concentration ratio
- Employee solidarity (e.g. labor unions)
- Supplier competition: the ability to forward vertically integrate and cut out the buyer.
Competitive rivalry[edit]
For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully market a product. Positioning pertains to how the public perceives a product and distinguishes it from competitors. An organization must be aware of its competitors' marketing strategies and pricing and also be reactive to any changes made.
Monster stat block creator 5e. Potential factors:
- Sustainable competitive advantage through innovation
- Competition between online and offline organizations
- Level of advertising expense
- Powerful competitive strategy which could potentially be realized by adhering to Porter‘s work on low cost versus differentiation.
- Firm concentration ratio
Usage[edit]
Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. However, for most consultants, the framework is only a starting point and value chain analysis or another type of analysis may be used in conjunction with this model.[3] Like all general frameworks, an analysis that uses it to the exclusion of specifics about a particular situation is considered naïve[by whom?].
According to Porter, the five forces framework should be used at the line-of-business industry level; it is not designed to be used at the industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely related products and/or services are sold to buyers (see industry information). A firm which competes in a single industry should develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for diversified companies, the primary issue in corporate strategy is the selection of industries (lines of business) in which the company will compete. The average Fortune Global 1,000 company competes in 52 industries [4].
Criticisms[edit]
Porter's framework has been challenged by other academics and strategists. For instance, Kevin P. Coyne and Somu Subramaniam claim that three dubious assumptions underlie the five forces:
- That buyers, competitors, and suppliers are unrelated and do not interact and collude.
- That the source of value is structural advantage (creating barriers to entry).
- That uncertainty is low, allowing participants in a market to plan for and respond to changes in competitive behavior.[5]
An important extension to Porter's work came from Adam Brandenburger and Barry Nalebuff of Yale School of Management in the mid-1990s. Using game theory, they added the concept of complementors (also called 'the 6th force') to try to explain the reasoning behind strategic alliances. Complementors are known as the impact of related products and services already in the market.[6] The idea that complementors are the sixth force has often been credited to Andrew Grove, former CEO of Intel Corporation. Martyn Richard Jones, while consulting at Groupe Bull, developed an augmented five forces model in Scotland in 1993. It is based on Porter's Framework and includes Government (national and regional) as well as pressure groups as the notional 6th force. This model was the result of work carried out as part of Groupe Bull's Knowledge Asset Management Organisation initiative.
Porter indirectly rebutted the assertions of other forces, by referring to innovation, government, and complementary products and services as 'factors' that affect the five forces.[7]
It is also perhaps not feasible to evaluate the attractiveness of an industry independently of the resources that a firm brings to that industry. It is thus argued (Wernerfelt 1984)[8] that this theory be combined with the resource-based view (RBV) in order for the firm to develop a sounder framework.
See also[edit]
References[edit]
- ^Michael E. Porter, 'How Competitive Forces Shape Strategy,' May 1979 (Vol. 57, No. 2), pp. 137-145.
- ^Michael Porter, Nicholas Argyres and Anita M. McGahan, 'An Interview with Michael Porter', The Academy of Management Executive16:2:44 at JSTOR
- ^Tang, David (21 October 2014). 'Introduction to Strategy Development and Strategy Execution'. Flevy. Retrieved 2 November 2014.
- ^'External Inputs to Strategy | Boundless Management'. courses.lumenlearning.com. Retrieved 2017-12-06.
- ^Kevin P. Coyne and Somu Subramaniam, 'Bringing Discipline to Strategy, McKinsey Quarterly, 1996, (Vol. 33, No. 4), pp. 14-25.
- ^Brandenburger, A. M., & Nalebuff, B. J. (1995). The Right Game: Use Game Theory to Shape Strategy. Harvard Business Review, (Vol. 73, No. 4), 57-71. PDF
- ^Michael E. Porter. 'The Five Competitive Forces that Shape Strategy', Harvard Business Review, January 2008 (Vol. 88, No. 1), pp. 78-93. PDF
- ^Wernerfelt, B. (1984), A Resource-based View of the Firm, Strategic Management Journal, Vol. 5: pp. 171-180 PDF
Further reading[edit]
Wikimedia Commons has media related to Porter's Five Forces Model. |
- Coyne, K.P. and Sujit Balakrishnan (1996),Bringing discipline to strategy, The McKinsey Quarterly, No.4.
- Porter, M.E. (March–April 1979) How Competitive Forces Shape Strategy, Harvard Business Review.
- Porter, M.E. (1980) Competitive Strategy, Free Press, New York.
- Porter, M.E. (January 2008) The Five Competitive Forces That Shape Strategy, Harvard Business Review.
- Ireland, R. D., Hoskisson, R. and Hitt, M. (2008). Understanding business strategy: Concepts and cases. Cengage Learning.
- Rainer R.K. and Turban E. (2009), Introduction to Information Systems (2nd edition), Wiley, pp 36–41.
- Kotler P. (1997), Marketing Management, Prentice-Hall, Inc.
- Mintzberg, H., Ahlstrand, B. and Lampel J. (1998) Strategy Safari, Simon & Schuster.
Retrieved from 'https://en.wikipedia.org/w/index.php?title=Porter%27s_five_forces_analysis&oldid=901717235'
A graphical representation of Porter's five forces
Porter's Five Forces Framework is a tool for analyzing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability. An 'unattractive' industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching 'pure competition', in which available profits for all firms are driven to normal profit levels. The five-forces perspective is associated with its originator, Michael E. Porter of Harvard University. This framework was first published in Harvard Business Review in 1979.[1]
Porter refers to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. 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. A clear example of this is the airline industry. As an industry, profitability is low because the industry's underlying structure of high fixed costs and low variable costs afford enormous latitude in the price of airline travel. Airlines tend to compete on cost, and that drives down the profitability of individual carriers as well as the industry itself because it simplifies the decision by a customer to buy or not buy a ticket. A few carriers--Richard Branson's Virgin Atlantic is one--have tried, with limited success, to use sources of differentiation in order to increase profitability.
Porter's five forces include three forces from 'horizontal' competition--the threat of substitute products or services, the threat of established rivals, and the threat of new entrants--and two others from 'vertical' competition--the bargaining power of suppliers and the bargaining power of customers.
Porter developed his five forces framework in reaction to the then-popular SWOT analysis, which he found both lacking in rigor and ad hoc.[2] Porter's five-forces framework is based on the structure–conduct–performance paradigm in industrial organizational economics. Other Porter strategy tools include the value chain and generic competitive strategies.
- 1Five Forces
Five Forces[edit]
Part of a series on |
Strategy |
---|
|
|
|
|
Threat of new entrants[edit]
Profitable industries that yield high returns will attract new firms. Jeremih late nights download itunes download. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents, abnormal profitability will fall towards zero (perfect competition), which is the minimum level of profitability required to keep an industry in business.
The following factors can have an effect on how much of a threat new entrants may pose:
- The existence of barriers to entry (patents, rights, etc.). The most attractive segment is one in which entry barriers are high and exit barriers are low. It's worth noting, however, that high barriers to entry almost always make exit more difficult.
- Government policy such as sanctioned monopolies or legal franchise requirements.
- Capital requirements - clearly the Internet has influenced this factor dramatically. Web sites and apps can be launched cheaply and easily as opposed to the brick and mortar industries of the past.
- Absolute cost
- Cost disadvantages independent of size
- Switching costs are well illustrated by structural market characteristics such as supply chain integration but also can be created by firms. Airline frequent flyer programs are an example.
- Expected retaliation - For example, a specific characteristics of oligopoly markets is that prices generally settle at an equilibrium because any price rises or cuts are easily matched by the competition.
- Access to distribution channels
- Customer loyalty to established brands. This can be accompanied by large brand advertising expenditures or similar mechanisms of maintained brand equity.
- Industry profitability (the more profitable the industry, the more attractive it will be to new competitors)
- Network effect which is particularly influential in internet based social networks such as Facebook
Threat of substitutes[edit]
A substitute product uses a different technology to try to solve the same economic need. Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on. For example, tap water is a substitute for Coke, but Pepsi is a product that uses the same technology (albeit different ingredients) to compete head-to-head with Coke, so it is not a substitute. Increased marketing for drinking tap water might 'shrink the pie' for both Coke and Pepsi, whereas increased Pepsi advertising would likely 'grow the pie' (increase consumption of all soft drinks), while giving Pepsi a larger market share at Coke's expense.
Potential factors:
- Buyer propensity to substitute. This aspect incorporated both tangible and intangible factors. Brand loyalty can be very important as in the Coke and Pepsi example above; however contactural and legal barriers are also effective.
- Relative price performance of substitute
- Buyer's switching costs. This factor is well illustrated by the mobility industry. Uber and its many competitors took advantage of the incumbent taxi industry's dependence on legal barriers to entry and when those fell away, it was trivial for customers to switch. There were no costs as every transaction was atomic, with no incentive for customers not to try another product.
- Perceived level of product differentiation which is classic Michael Porter in the sense that there are only two basic mechanisms for competition - lowest price or differentiation. Developing multiple products for niche markets is one way to mitigate this factor.
- Number of substitute products available in the market
- Ease of substitution
- Availability of close substitute
Bargaining power of customers[edit]
The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices.
Potential factors:
- Buyer concentration to firmconcentration ratio
- Degree of dependency upon existing channels of distribution
- Bargaining leverage, particularly in industries with high fixed costs
- Buyer switching costs
- Buyer information availability
- Availability of existing substitute products
- Buyer price sensitivity
- Differential advantage (uniqueness) of industry products
- RFM (customer value) Analysis
Bargaining power of suppliers[edit]
The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
Potential factors are:
- Supplier switching costs relative to firm switching costs
- Degree of differentiation of inputs
- Impact of inputs on cost and differentiation
- Presence of substitute inputs
- Strength of distribution channel
- Supplier concentration to firm concentration ratio
- Employee solidarity (e.g. labor unions)
- Supplier competition: the ability to forward vertically integrate and cut out the buyer.
Competitive rivalry[edit]
For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully market a product. Positioning pertains to how the public perceives a product and distinguishes it from competitors. An organization must be aware of its competitors' marketing strategies and pricing and also be reactive to any changes made.
Potential factors:
- Sustainable competitive advantage through innovation
- Competition between online and offline organizations
- Level of advertising expense
- Powerful competitive strategy which could potentially be realized by adhering to Porter‘s work on low cost versus differentiation.
- Firm concentration ratio
Usage[edit]
State of decay 2 outpost limit. Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. However, for most consultants, the framework is only a starting point and value chain analysis or another type of analysis may be used in conjunction with this model.[3] Like all general frameworks, an analysis that uses it to the exclusion of specifics about a particular situation is considered naïve[by whom?].
According to Porter, the five forces framework should be used at the line-of-business industry level; it is not designed to be used at the industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely related products and/or services are sold to buyers (see industry information). A firm which competes in a single industry should develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for diversified companies, the primary issue in corporate strategy is the selection of industries (lines of business) in which the company will compete. The average Fortune Global 1,000 company competes in 52 industries [4].
Criticisms[edit]
Porter's framework has been challenged by other academics and strategists. For instance, Kevin P. Coyne and Somu Subramaniam claim that three dubious assumptions underlie the five forces:
- That buyers, competitors, and suppliers are unrelated and do not interact and collude.
- That the source of value is structural advantage (creating barriers to entry).
- That uncertainty is low, allowing participants in a market to plan for and respond to changes in competitive behavior.[5]
An important extension to Porter's work came from Adam Brandenburger and Barry Nalebuff of Yale School of Management in the mid-1990s. Using game theory, they added the concept of complementors (also called 'the 6th force') to try to explain the reasoning behind strategic alliances. Complementors are known as the impact of related products and services already in the market.[6] The idea that complementors are the sixth force has often been credited to Andrew Grove, former CEO of Intel Corporation. Martyn Richard Jones, while consulting at Groupe Bull, developed an augmented five forces model in Scotland in 1993. It is based on Porter's Framework and includes Government (national and regional) as well as pressure groups as the notional 6th force. This model was the result of work carried out as part of Groupe Bull's Knowledge Asset Management Organisation initiative.
Porter indirectly rebutted the assertions of other forces, by referring to innovation, government, and complementary products and services as 'factors' that affect the five forces.[7]
It is also perhaps not feasible to evaluate the attractiveness of an industry independently of the resources that a firm brings to that industry. It is thus argued (Wernerfelt 1984)[8] that this theory be combined with the resource-based view (RBV) in order for the firm to develop a sounder framework.
See also[edit]
References[edit]
- ^Michael E. Porter, 'How Competitive Forces Shape Strategy,' May 1979 (Vol. 57, No. 2), pp. 137-145.
- ^Michael Porter, Nicholas Argyres and Anita M. McGahan, 'An Interview with Michael Porter', The Academy of Management Executive16:2:44 at JSTOR
- ^Tang, David (21 October 2014). 'Introduction to Strategy Development and Strategy Execution'. Flevy. Retrieved 2 November 2014.
- ^'External Inputs to Strategy | Boundless Management'. courses.lumenlearning.com. Retrieved 2017-12-06.
- ^Kevin P. Coyne and Somu Subramaniam, 'Bringing Discipline to Strategy, McKinsey Quarterly, 1996, (Vol. 33, No. 4), pp. 14-25.
- ^Brandenburger, A. M., & Nalebuff, B. J. (1995). The Right Game: Use Game Theory to Shape Strategy. Harvard Business Review, (Vol. 73, No. 4), 57-71. PDF
- ^Michael E. Porter. 'The Five Competitive Forces that Shape Strategy', Harvard Business Review, January 2008 (Vol. 88, No. 1), pp. 78-93. PDF
- ^Wernerfelt, B. (1984), A Resource-based View of the Firm, Strategic Management Journal, Vol. 5: pp. 171-180 PDF
Further reading[edit]
Wikimedia Commons has media related to Porter's Five Forces Model. |
- Coyne, K.P. and Sujit Balakrishnan (1996),Bringing discipline to strategy, The McKinsey Quarterly, No.4.
- Porter, M.E. (March–April 1979) How Competitive Forces Shape Strategy, Harvard Business Review.
- Porter, M.E. (1980) Competitive Strategy, Free Press, New York.
- Porter, M.E. (January 2008) The Five Competitive Forces That Shape Strategy, Harvard Business Review.
- Ireland, R. D., Hoskisson, R. and Hitt, M. (2008). Understanding business strategy: Concepts and cases. Cengage Learning.
- Rainer R.K. and Turban E. (2009), Introduction to Information Systems (2nd edition), Wiley, pp 36–41.
- Kotler P. (1997), Marketing Management, Prentice-Hall, Inc.
- Mintzberg, H., Ahlstrand, B. and Lampel J. (1998) Strategy Safari, Simon & Schuster.
Retrieved from 'https://en.wikipedia.org/w/index.php?title=Porter%27s_five_forces_analysis&oldid=901717235'