Outside-in Business Unit Strategy: The Five Competitive Forces Framework of Michael Porter explained
What is the Five Forces
model of Porter?
Description
The Five Forces model of
Porter is an outside-in
business unit strategy tool
that is used to make an
analysis of the
attractiveness (value...) of
an industry structure. The
Competitive Forces
analysis is made by the
identification of 5
fundamental competitive
forces.
1.
2.
3.
4.
5.
Entry of
competitors how easy or
difficult is it for
new entrants to start to compete, which barriers do exist.
Threat of substitutes - how easy can our product or service be substituted, especially cheaper.
Bargaining power of buyers - how strong is the position of buyers, can they work together to order large
volumes.
Bargaining power of suppliers - how strong is the position of sellers, are there many or only few potential
suppliers, is there a monopoly.
Rivalry among the existing players - is there a strong competition between the existing players, is one player
very dominant or all all equal in strength/size.
Sometimes as a sixth competitive force is added:
6.
Government
Porter's competitive forces model is probably one of the most often used business strategy tools and has proven its
usefulness on numerous occasions. Porter's model is particularly strong in thinking outside-in.
Limitation of Porter's Five Forces model
Care should be taken when using this model not to underestimate or underemphasize the importance of the (existing)
strengths of the organization (inside-out thinking).
Overview Book: Competitive Strategy
•
•
In Part I, Porter discusses the structural analysis of industries (with the five forces), the three generic
competitive strategies (overall cost leadership, focus, and differentiation), an excellent framework for
competitor analysis, competitive moves, strategy toward buyers and suppliers, structural analysis within
industries (strategic groups, strategic mapping, mobility barriers), and industry evolution (life cycle,
evolutionary processes).
In Part II, Porter discusses competitive strategy within various generic industry environments, such as
fragmented industries (with no real market leader), emerging industries (e-commerce and Internet are excellent
•
examples, although not mentioned in this book as it was written in 1980), mature industries, declining
industries, and global industries.
In Part III, Porter discusses strategic decisions which businesses/firms can take, such as vertical integration
(forward, backward, partnerships), capacity expansion, and entry into new industries/businesses.
Book: Michael E. Porter - Competitive Strategy - www.amazon.com/exec/obidos/ASIN/0684841487/valuebasedman-20
Compare with: Porter Competitive Advantage | Four Trajectories of Industry Change | Parenting Advantage | Core
Competence | Delta Model | Resource-Based View | BCG Matrix | Greiner | Kay | Organizational Configurations
| 3C's | Porter Diamond Model | Bricks and Clicks | Twelve Principles of the Network Economy
Return to Management Hub: Decision-making / Valuation | Finance / Investing | Marketing | Strategy | Supply
Chain / Quality
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