Porters Five

Porters fives forces model : Industry analysis model

Porters fives forces model is an excellent model to use to analyse a particular environment of an industry. So for example, if we were entering the PC industry, we would use porters model to help us find out about:

1) Competitive Rivalry

2) Power of suppliers

3) Power of buyers

4) Threats of substitutes

5) Threat of new entrants.

The above five main factors are key factors that influence industry performance, hence it is common sense and practical to find out about these factors before you enter the industry. Lets look at them below.

Competitive Rivalry

A starting point to analysing the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry will likely to be high. If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high. Generally competitive rivalry will be high if:

* There is little differentiation between the products sold between customers.

* Competitors are approximately the same size of each other.

* If the competitors all have similar strategies.

* It is costly to leave the industry hence they fight to just stay in ( exit barriers)

Power of suppliers

Suppliers are also essential for the success of an organisation. Raw materials are needed to complete the finish product of the organisation. Suppliers do have power. This power comes from:

* If they are the only supplier or one of few suppliers who supply that particular raw material.

* If it costly for the organisation to move from one supplier to another (known also as switching cost)

* If there is no other substitute for their product.

Power of buyers

Buyers or customers can exert influence and control over an industry in certain circumstances. This happens when:

* There is little differentiation over the product and substitutes can be found easily.

* Customers are sensitive