Porter's Five Forces

Essay by rayelongUniversity, Bachelor's February 2007

download word file, 2 pages 3.4

Porter's Five Forces Model

Any organization in the global marketplace needs to do everything it can to stay competitive or it will not survive. Organizations need to continually conduct self evaluations to remain competitive and differentiate themselves. There are several models available to guide an organization in its quest to maintain a competitive advantage. One of these models is Porter's Five Forces Model.

In 1979 Michael Porter, Bishop William Lawrence University Professor at Harvard Business School's Institute for Strategy and Competitiveness, introduced his Five Forces Model. Previously, industries most often used SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. Most found that SWOT analysis was a lengthy process of list making and therefore preferred a method that would give more information about the marketplace. Porter's Five Forces Model contends that marketplace attractiveness can be determined by evaluating the:

1.Competitive Rivalry

2.Power of Suppliers

3.Power of Buyers

4.Threat of Substitutes

5.Threat of New Entrants

Porter's Five Forces Model (www.wikipedia.com)

To determine competitive rivalry an organization will look at the number of competitors already in the market, how fast the industry is growing, advertising expense, and brand equity. Power of suppliers can be determined by evaluating the importance of volume to the supplier, cost of supplies compared to the selling price of the product (profit or loss), and the degree of differentiation of the products. One of the most important aspects of the evaluation process is the bargaining power of the customers. Determining if there is a market for the product really governs whether or not an organization decides to produce a product (or service). Knowing buyer bargaining leverage and buyer volume will help an organization determine whether or not it is in the organizations best interest (is it profitable?) to produce the product or service. The threat...