Porters Five Force Model

Give the brief Introduction of Porters five force model

Porter’s Five Forces model is an instrument that analyses the competition of a business. It is derived from industrial organization economics in order to identify the five forces that address the competitive intensity and thus industrial profitability. Porter’s forces refer to the microenvironment and contrast it with the macro environment. Any change in the given forces requires a reassessment of the marketplace. Porter’s model analyses the industry structure and the level of competition that is present in the industry. Therefore, the greater the competition is, the less profitable the industry becomes. These forces are classified as the threat of new entrants, bargaining power of suppliers, bargaining power of the buyers, threat of substitutes, and rivalry amongst existing competitors. Michael E. Porter had developed this model as a response to the SWOT analysis. Both of these can be classified as tools to assess business progress.

When did the Porters five force model has been started and whom?

The five forces model was developed by Michael Eugene Porter, an academic of Harvard University. This model was first printed in the Harvard Business Review in the year 1979. Porter was an accomplished economist who was greatly known for his theories. The framework that he developed is considered to be extremely crucial to the development of business strategies in the modern world. Apart from developing this framework, he has authored 18 books and various number of articles. Apart from being an economist, Porter is also referred to as a researcher as well. His numerous theories have helped businessmen shape their business models. These theories have also helped to eliminate a great number of competition as well.

What was the need of this Porters five force model? 

Porter’s Five Forces is extremely necessary when it comes to analysing the competitive environment of a business. Since the power of a company’s rivals needs to be severely analysed, this framework proves to be extremely beneficial for all businesses. Thus, implementing strategies after analysing them through Porter’s Five Forces would be extremely advantageous to weed out the competition and also the rivals. The adjustment in the business that one could make after applying the Porter’s Five Forces would help them generate a business model which would lead to higher profit for all of the investors.  Thus, Porter’s Five Forces seeks to analyse the competitive advantage of a business. This can be done by analysing the different factors that lead to the competitive pressures for each of the five forces that are mentioned. After analysing these factors, it is imperative to figure out if the pressures for these categories are strong, moderate or weak.

What are the uses of these Porters five force model? 

In order to utilize Porter’s five forces it is essential to analyse each sector of the business under the framework that is suggested. The first point is the threat of a new entry. If a competitor could enter a specific market with little effort and affect the business, then it would mean that one needs to adapt, modify and develop their business strategy. The second is the threat of substitution. This asks a business to evaluate the likelihood of substituting a business’s product with their rival’s product. An example that is suitable for this category is the replacement of the CD market with the iPod. The iPod was able to implement an easier strategy to fulfil the needs that a CD player would fulfil. It revolutionized that market. The third point to consider is the bargaining power of suppliers. This aspect assesses how suppliers are able to increase their cost price and consequently affect the bottom line. If the supplier understands that other companies are able to fulfil a similar need, then they may charge significantly more for this unique service. Fourth is the bargaining power of buyers. A business needs to address whether other buyers have the power to lower their prices. In this case, the more buyers a business possesses, the greater power they have. The fifth and last aspect to consider is the competitive rivalries. Here, a business needs to assess the strength of their existing customers.

What is the Criticism of Porters five force model?

Even though Porter’s Five Forces is extremely beneficial in order to assess a business model, there are some major pitfalls of this model as well. The biggest weakness is the composition. The model may be utilized as a short-term strategy but applicability window has been extremely reduced due to the fast-changing external factors. Another major mistake is that instead of applying it to the entire industry, many businesses tend to apply this model to a specific company. It must be realized that in order to assess a particular company, it is best to utilize SWOT analysis.

What is the related topic and concept of Porters five force model?

A concept that is related to the Porter’s Five Force Model is that of SWOT analysis. SWOT analysis is defined as the study that is utilized by a particular organization in order to identify the internal strengths and weaknesses of the company. SWOT stands for strengths, weaknesses, opportunities and threats. This is used to take a data-driven look at the internal and external factors of a business or industry. Thus, like Porter’s five forces, SWOT analysis is an important tool to analyse the various factors of a business.