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Porter's Five Forces is a strategic theory model that aims to help create an overview of competition in the industry the company finds itself in, including the attractiveness of the industry and the earning potential.
The model was introduced in 1979 by Michael S. Porter in his article "How Competitive Forces Shape strategy" in the Harvard Business Review .
A company can use the analysis model both for the industry in which it is already located, but also for industries it is considering entering.
The principle is that the stronger the competition, the less profit.
Competition is assessed on the basis of 5 parameters. Each of these parameters can have a positive or negative impact on competition, so that the industry as a whole becomes more or less profitable. The 5 parameters are:
The threat among existing actors - among other things,
Number of competitors
Market growth (size and speed)
Exit barriers
The threat from new intruders - here, among other things,
Start barricades
Switching costs for customers
Capital requirements
Customers' bargaining power - among other things,
Number of customers and size of customer order
Customer's ability to switch suppliers
The risk of backward integration
The bargaining power of the suppliers - here, among other things,
Number and size of suppliers
The risk of forward integration
Dependencies
The threat from substitute products - among other things,
Product differentiation
Technological development
Customer's willingness to change
Porter's Five Forces must not just be designed so that you can then tick the check mark by now it is completed. Together with your other strategy material, it must be translated into concrete actions . An easy and simple approach is to use MakeMyStrategy™ as structures and summarize all your work into one comprehensive and coordinated action plan.
Now the focus is on the ball
Peter Hartvig
Owner and CEO. Managing Director
Hartvig Consult