Michael Porter’s “Five Forces Model” – in the original “Five Forces Analyses” – is one of the outstanding models to perform a structural analysis of an industry. The management tool is based on the assumption that the strategy is oriented to the structure and competition of the industry and its permanent dynamic change.
Porter’s analysis supports you especially if you are starting a new business or you want to launch new products. It is a simple, but at the same time very effective method to provide the competition in your environment with all its strengths and weaknesses, to analyze and thus develop your own strategy.
Porter identified the five forces of “market entry,” “threat of substitution,” “bargaining power of buyers,” “bargaining power of suppliers,” and “rivalry among current competitors” for this purpose.
If these forces act very strongly within your industry, it will be relatively difficult for your company to operate profitably and achieve a good return on investment – especially if there is an imbalance and individual participants become too dominant. Porter’s analysis and the strategy to be developed from it are aimed at precisely these. The degree of each force determines the intensity of competition in an industry and reflects how far it extends beyond the established players. The goal is to use the findings of the analysis to weaken the competition with targeted measures and actions.
In an increasingly digitalized world, this competition is becoming fiercer, offerings more transparent, products more innovative and diverse, and suppliers and customers more powerful. Michael Porter’s Five Forces are thus becoming increasingly important in this ever faster changing environment.
