Porters Five Forces Model of Competition
Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organizations strategy. One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure. According to Porter, the nature of competition in any industry is personified in the following five forces:
FIGURE: Porters Five Forces model
The five forces mentioned above are very significant from point of view of strategy formulation. The potential of these forces differs from industry to industry. These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry. Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry.
Lets discuss the five factors of Porters model in detail:
The power of Porters five forces varies from industry to industry. Whatever be the industry, these five forces influence the profitability as they affect the prices, the costs, and the capital investment essential for survival and competition in industry.
This five forces model also help in making strategic decisions as it is used by the managers to determine industrys competitive structure.
Porter ignored, however, a sixth significant factor- complementaries. This term refers to the reliance that develops between the companies whose products work is in combination with each other. Strong complementors might have a strong positive effect on the industry. Also, the five forces model overlooks the role of innovation as well as the significance of individual firm differences. It presents a stagnant view of competition.
- Porters Five Forces Analysis of the Airlines Industry in the United States
- Porters Five Forces Analysis of Samsung
- Porters Five Forces Analysis of Virgin Atlantic
- Porters Five Forces Analysis of China Mobile
- Personal SWOT Analysis
- Competitor Analysis
- What is Competitive Advantage ?
- Strategic Leadership
- Some Pitfalls to be Avoided
Authorship/Referencing - About the Author(s)
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