Strategic Management

Porter's Five Forces (B)

What are the Porter's 5 Forces? When do we use Porter's Five Forces model?

Posted: Feb 2008

The Porter's Five Forces is the analytical management tool used for strategic analysis of the business environment. It is used for development of marketing strategies, business decisions, planning and organization of the Company.  

Michael E. Porter

Porter's Five Forces is the analytical model explain us that in any industry branch there are five forces that influence what happens within the industry:

1. Existing Companies,
2. Potential new Companies,
3. Substitutes for products offered,
4. The Suppliers, and
5. The customers.

Porter's Five Forces combine to make up the business environment. By studying the structure of and dynamics between these forces, you can discover opportunities for improving upon your marketing strategies. Porter designed his basic model to be applied to an entire industry. The same analytical method, however, could also be used to study a specific branch of the industry. With this tool you are analyzing:

Competitors: Those Companies that offer the same product, service, or information as your Company.

Potential new entrants: Companies that could potentially enter to your segment of market.

Customers: Customers, Shoppers and Consumers that buy, re-sell or consume products of your company and of your competitors.
 
Suppliers: Those companies that supply you with the products or raw materials as well as services.

Substitutes: Products of other companies that are not having the same characteristics as your product, but they could eventually be purchased and used instead.

Using Porter's Five Forces analysis, you can get a better picture of the business environment in which your Company operates. Of course this tool is effective proportionally to time and effort invested for analysis.

Porter's Five Forces is a useful tool used to scan the Company's environment, and is often used in conjunction with SWOT analysis, for internal scanning.