Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools

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Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools

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Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools

Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools

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Porters Five Forces Analysis Undergraduate [Source Mind Tools 2009]


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Porters Five Forces explained for use in Practice of International Business EIMSO based course.

Source: http://www.mindtools.com/pages/article/newTMC_08.htm taken from web on 12/21/2009.

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Porters Five Forces Analysis Undergraduate [Source Mind Tools 2009]

  1. 1. Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools > Home > Problem Solving > Porter's Five Forces Store | Newsletter | Corporate Services | Press Room | Advertisers | Contact Us Member Login | Join the Mind Tools Community Leadership Skills Problem Solving Decision Making Project Management Practical Creativity Time Management Stress Management Information Skills Communication Skills Memory Improvement Useful Links Mind Tools Porter's Five Forces Mind Tools Free eNewsletter E-book Assessing the Balance of Power in a Business New Career Skills - Situation twice a month PLUS Strategy Toolkit Free! The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a Subscribe to our free e- Not a business situation. This is useful, because it helps newsletter, and get new Member Yet? you understand both the strength of your current skill-builder tools every The Mind Tools Career competitive position, and the strength of a position two weeks. Plus get our Excellence Club gives you're looking to move into. Strategy Toolkit pdf worth you the training, coaching US$9.99 free when you With a clear understanding of where power lies, you subscribe! and support you need to can take fair advantage of a situation of strength, make a lasting success of The key tools on the "Great newsletter. Simple and improve a situation of weakness, and avoid taking your career. Take our Mind Tools site, not too long. Great articles. wrong steps. This makes it an important part of your Thank you." FREE tour, and find out brought together into planning toolkit. what it can do for you! one easily Mandi J Luis, Burlington, Ontario, Canada Conventionally, the tool is used to identify whether downloadable, easily new products, services or businesses have the printable PDF. First name potential to be profitable. However it can be very illuminating when used to understand the balance of Email Recent Discussions: More>> power in other situations too. Privacy THOUGHT OF THE Policy DAY: Set the stage for How to Use the Tool: change What People Say Five Forces Analysis assumes that there are five important forces that About Mind Tools... Being Assertive determine competitive power in a situation. These are: The next steps for my 1. Supplier Power: Here you assess how easy it is for suppliers to drive "Thank you I use my goal setting up prices. This is driven by the number of suppliers of each key input, Mind Tools EBook all the uniqueness of their product or service, their strength and control the time – it's a real over you, the cost of switching from one to another, and so on. The Quick Start comfort knowing I have fewer the supplier choices you have, and the more you need such a detailed and Store: suppliers' help, the more powerful your suppliers are. exhaustive book to Download Site 2. Buyer Power: Here you ask yourself how easy it is for buyers to refer to for help and Career Community drive prices down. Again, this is driven by the number of buyers, the guidance." Leadership Training importance of each individual buyer to your business, the cost to them Time Management of switching from your products and services to those of someone Training else, and so on. If you deal with few, powerful buyers, they are often Patricia Wright, Stress Training able to dictate terms to you. Bodmin, Cornwall, UK Career Direction 3. Competitive Rivalry: What is important here is the number and Coaching & Help capability of your competitors – if you have many competitors, and "I really enjoy the new they offer equally attractive products and services, then you’ll most Mind Tools Showcase Top Skills Areas: likely have little power in the situation. If suppliers and buyers don’t newsletter. The Achieve More get a good deal from you, they’ll go elsewhere. On the other hand, if 'refresher' courses help Lead Effectively no-one else can do what you do, then you can often have tremendous to solidify the Manage Stress strength. foundation of skills Improve Memory 4. Threat of Substitution: This is affected by the ability of your necessary to add new Find Direction customers to find a different way of doing what you do – for example, skills, grow What we do: if you supply a unique software product that automates an important professionally, and Free help process, people may substitute by doing the process manually or by excel in a career. They http://www.mindtools.com/pages/article/newTMC_08.htm[12/21/2009 11:33:56 AM]
  2. 2. Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools Self-Study Courses outsourcing it. If substitution is easy and substitution is viable, then work really well in Career Community this weakens your power. tandem with the Training Programs 5. Threat of New Entry: Power is also affected by the ability of people existing newsletter. Coaching & Help to enter your market. If it costs little in time or money to enter your Plus, the more market and compete effectively, if there are few economies of scale in Mindtools the better!" Who we help: place, or if you have little protection for your key technologies, then Managers & Owners new competitors can quickly enter your market and weaken your New Managers position. If you have strong and durable barriers to entry, then you Bryan Seely, Professionals can preserve a favorable position and take fair advantage of it. Bellingham, Employees WA, USA Career Starters These forces can be neatly brought together in a diagram like the one below: Practitioners & HR "Thanks tons for the To use the tool to understand your situation, look at each of these forces About us: article - it was so timely one-by-one. About Mind Tools - I have a couple of Contact Us clients to whom I sent it What's New? - I appreciate your Site Services effort with the Directory newsletter - I always read it." Relevant Courses & Resources Sherry Nau, Rochester, Career Excellence NY, USA with a Mind Tools Coach "I'd like you to know that I really enjoy your newsletters. I think they are the best I have seen. Please do not stop as they are very informational, very Mind Tools Career useful, and for real." Coaches give you the focused personal help you Gabriele Dani, need to find direction, think Woodbury, MN, USA through your goals, and make the very most of More Testimonials >> your life and career. What Bugs You? Find Out More >> Let us know about Mind Tools Ebook anything wrong, or anything you don't like about this site, and you could win a US$50 Brainstorm the relevant factors for your market or situation, and then check Amazon voucher! against the factors listed for the force in the diagram above. Click here >> Then download our free worksheet, mark the key factors on the diagram, and summarize the size and scale of the force on the diagram. An easy way Sponsored Links of doing this is to use, for example, a single “+” sign for a force moderately in your favor, or “--" for a force strongly against you (you can see this in the example below). Stat-Ease DOE The key tools on the Mind Tools site, brought Software Then look at the situation you find using this analysis and think through how together into one easily Improve your it affects you. Bear in mind that few situations are perfect; however use downloadable, easily Product or environmental scanning as a framework for thinking through what you could printable PDF. Process w/ change to increase your power with respect to each force. Powerful & Easy- More>> to-Use Software! This tool was created by Harvard Business School professor, Michael www.StatEase.com Porter, to analyze the attractiveness and likely-profitability of an industry. Since publication, it has become one of the most important business Pareto Software http://www.mindtools.com/pages/article/newTMC_08.htm[12/21/2009 11:33:56 AM]
  3. 3. Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools strategy tools. The classic article which introduces it is "How Competitive for Excel Forces Shape Strategy" in Harvard Business Review 57, March - April Easily create 1979, pages 86-93. Paretos and more with SPC XL. Example: Download the demo today. Martin Johnson is deciding whether to switch career and become a farmer - www.sigmazone.com he's always loved the countryside, and wants to switch to a career where he's his own boss. He creates the following Five Forces Analysis as he thinks the situation through: Risk Management Software tools for risk management can be used for any type of asset www.statpro.com Hot Stock Picks Stocks that move up 700%. Join today for Free to profit. www.monsterstox.com Ads by Google Forex Analysis Swot Analysis Fea Analysis Pest Analysis Search Now: Drawn using SmartDraw. Click for free download. This worries him: The threat of new entry is quite high: if anyone looks as if they’re making a sustained profit, new competitors can come into the industry easily, reducing profits; Competitive rivalry is extremely high: if someone raises prices, they’ll be quickly undercut. Intense competition puts strong downward pressure on prices; Buyer Power is strong, again implying strong downward pressure on prices; and There is some threat of substitution. Unless he is able to find some way of changing this situation, this looks like a very tough industry to survive in. Maybe he'll need to specialize in a sector of the market that's protected from some of these forces, or find a related business that's in a stronger position. Key points: Porter's Five Forces Analysis is an important tool for assessing the potential http://www.mindtools.com/pages/article/newTMC_08.htm[12/21/2009 11:33:56 AM]
  4. 4. Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools for profitability in an industry. With a little adaptation, it is also useful as a way of assessing the balance of power in more general situations. It works by looking at the strength of five important forces that affect competition: Supplier Power: The power of suppliers to drive up the prices of your inputs; Buyer Power: The power of your customers to drive down your prices; Competitive Rivalry: The strength of competition in the industry; The Threat of Substitution: The extent to which different products and services can be used in place of your own; and The Threat of New Entry: The ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down). By thinking through how each force affects you, and by identifying the strength and direction of each force, you can quickly assess the strength of the position and your ability to make a sustained profit in the industry. You can then look at how you can affect each of the forces to move the balance of power more in your favor. For more information on five forces analysis, and on Michael Porter's approaches to competitive analysis, read Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. The next article in this section looks at Core Competence Analysis - a key technique for understanding your competitive strengths. To read this, click "Next Article" below. Was this article helpful? Spread the Word: Where to go from here: Join Mind Tools Free Newsletter Download & Print Next Article New Articles (Not included in the Mind Tools E-book.) * Shows articles available in full only to Career Excellence Club members Failure Mode and Effects Analysis (FMEA) - Spotting problems early on* TRIZ - A powerful methodology for creative problem-solving The Straw Man Concept - Build it up, knock it down, create a solid final solution Heuristic Methods - Using rules of thumb* Writing a Procedure - Making sure things are done without mistakes and omissions. Swim Lane Diagrams - Mapping and improving organizational processes* 5 Whys - Getting quickly to the root of a problem Root Cause Analysis - Tracing a problem to its origins Using Aides Memoire - Remember everything that's important* CATWOE - Understanding the different elements that contribute to a problem* Inductive Reasoning - Drawing good generalized conclusions* http://www.mindtools.com/pages/article/newTMC_08.htm[12/21/2009 11:33:56 AM]