![]() If they are low, and it takes little effort, time, money (or reduced legislation), then the threat of competitor’s flooding in is extremely high. This likelihood is typically determined by what’s known as the barriers to entry. The first of Porter’s Five Forces we’re going to analyze is new entrants or the possibility (and likelihood) of companies entering an industry and boosting the competition. Now, to effectively use Porter’s Five Forces to analyze your industry you’ll have to look at each threat individually. “Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack.” – Michael Porter Once you understand them you can make better predictions, refine your strategy, and ultimately become more profitable. These four previous forces combine to determine the competitive rivalry that exists within a sector.The power that customers have over you.The power that suppliers have over you.The threat of new competitors entering, which is closely related to the barriers to entry.The threat of existing substitute products.This is, after all, why the majority of businesses exist.Īs I briefly highlighted above, the Five Forces are: Porter’s Five Forces (listed in no particular order) that affect an industry’s profitability are:Īt its core, Porter’s Five Forces was created to help us evaluate the profitability of an industry. His fame and recognition came off the back of developing the Five Forces Framework that bears his name.Īlong with the Five Forces Framework, his Value Chain, Diamond, and Four Corners Analysis models completely changed macro-business analysis around the world. ![]() His models and theories received numerous awards leading to recognition as one of the most influential economists in history. He is the author of more than 18 books over 125 articles on corporate and competitive business strategy. Competitive Strategy Book (Michael Porter)įirst of all, let’s start with the man himself.īorn May 23, 1947, in Ann Arbor, Michigan, Michael Porter is a leading economist and professor at Harvard Business School.
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