The result should be a document that everyone involved in the planning process understands and supports.
Understanding Porter's Five Forces The tool was created by Harvard Business School professor Michael Porter, to analyze an industry's attractiveness and likely profitability.
Since its publication init has become one of the most popular and highly regarded business strategy tools. Porter recognized that organizations likely keep a close watch on their rivals, but he encouraged them to look beyond the actions of their competitors and examine what other factors could impact the business environment.
He identified five forces that make up the competitive environment, and which can erode your profitability. This looks at the number and strength of your competitors. How many rivals do you have? Who are they, and how does the quality of their products and services compare with yours?
Where rivalry is intense, companies can attract customers with aggressive price cuts and high-impact marketing campaigns. Also, in markets with lots of rivals, your suppliers and buyers can go elsewhere if they feel that they're not getting a good deal from you.
On the other hand, where competitive rivalry is minimal, and no one else is doing what you do, then you'll likely have tremendous strength and healthy profits.
This is determined by how easy it is for your suppliers to increase their prices. How many potential suppliers do you have? How unique is the product or service that they provide, and how expensive would it be to switch from one supplier to another?
The more you have to choose from, the easier it will be to switch to a cheaper alternative. But the fewer suppliers there are, and the more you need their help, the stronger their position and their ability to charge you more.
That can impact your profit. Here, you ask yourself how easy it is for buyers to drive your prices down. How many buyers are there, and how big are their orders? How much would it cost them to switch from your products and services to those of a rival?
Are your buyers strong enough to dictate terms to you? When you deal with only a few savvy customers, they have more power, but your power increases if you have many customers. This refers to the likelihood of your customers finding a different way of doing what you do.
For example, if you supply a unique software product that automates an important process, people may substitute it by doing the process manually or by outsourcing it.
A substitution that is easy and cheap to make can weaken your position and threaten your profitability. Threat of New Entry. Your position can be affected by people's ability to enter your market.
So, think about how easily this could be done. How easy is it to get a foothold in your industry or market?
How much would it cost, and how tightly is your sector regulated? If it takes little money and effort to enter your market and compete effectively, or if you have little protection for your key technologies, then rivals can quickly enter your market and weaken your position.
If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
Adapted with permission from Harvard Business Review. The Five Forces are brought together in Figure 1, below. Figure 1 — Porter's Five Forces Note: According to Porter, these Five Forces are the key sources of competitive pressure within an industry.A good business plan starts with research into the potential business's industry, competitors and market.
This gives the business owner a complete understanding of the playing field. As a business. When how to write a business plan is at the top of the SBA list of the ten steps in how to start a business, it tells you something about how important the experts consider it to be. Planning a business and writing a business plan is more than just having a location picked and a product or service to sell.
Market and Competitive Intelligence. Our clients are finding an increasing need to build a business intelligence capability that will serve to improve the competitive position of their enterprise within their current and prospective markets.
Strategic Management > Competitor Analysis. Competitor Analysis. In formulating business strategy, managers must consider the strategies of the firm's competitors.
While in highly fragmented commodity industries the moves of any single competitor may be less important, in concentrated industries competitor analysis becomes a vital part of strategic planning. Industry analysis—also known as Porter’s Five Forces Analysis—is a very useful tool for business strategists.
It is based on the observation that profit margins vary between industries, which can be explained by the structure of an industry. The Five Forces primary purpose is to determine the attractiveness of an industry. of destinations using a methodology developed by the Brazilian School of Public and Business Administration at dividing the object of analysis into (Macro) Dimensions and Variables.
The adoption of a wide perspective, which may combine the main sub-sectors and the dimensions further complications. According to Crouch & Ritchie (