Assessing Industry Competitiveness:    Porter’s Five Forces Theory         Objective: To examine Porter’s Five Forces Theo...
Porter’s Framework                                           Buyer Power  Threat of                                  Degre...
Degree of Rivalry:          What Creates Fierce Competition         •    High Industry Concentration         •    Low Indu...
Porter’s Framework                                           Buyer Power  Threat of                                  Degre...
Threat of New Entrants Situations that make an industry difficult to enter: •      Regulatory Hurdles •      Proprietary T...
Porter’s Framework                                           Buyer Power  Threat of                                  Degre...
Threat of Substitutes  • Often creates downward pressure on    prices  • Can come from new technologyNovus Business and IT...
Porter’s Framework                                           Buyer Power  Threat of                                  Degre...
Supplier Power     Suppliers are Strong when:      • Suppliers are concentrated      • It is expensive to switch suppliers...
Porter’s Framework                                           Buyer Power  Threat of                                  Degre...
Buyer Power     Buyers are Strong when:      • Buyers are concentrated     Buyers are weak when:      • It would cost a lo...
Porter’s Framework                                           Buyer Power  Threat of                                  Degre...
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Lesson 22: Porter's Five Forces Theory

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Watch this with a 10-15 minute audiotrack at http://vimeo.com/novusprogram/lesson22

This lesson will discuss Michael Porter's economic theory about various forces that can affect the success of a business and the decisions that need to be made before starting a business. It will apply each particular force to small businesses to illustrate the core concepts and how small businesses can be impacted by industry competition.

The Novus project is a combination of video tutorials designed to be used in conjunction with a free business simulation software program. The Novus Business and IT Program contains 36 business and IT training videos, covering basic finance, accounting, marketing, economics, business strategy, Word, Excel, and PowerPoint. Users will have an opportunity to apply the lessons in the Novus Business Simulator. Over six rounds, the user or teams will have to make decisions on capital purchases, financing, production, financing, and human resources for a microbrewery. This channel has arranged the 36 video lessons into the order in which they are meant to be used with the simulator. To watch this slideshow as a video, please go to our Vimeo page at: https://vimeo.com/novusprogram. To download our free business simulation software, please go to our SourceForge page at: http://sourceforge.net/projects/novus/.

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Lesson 22: Porter's Five Forces Theory

  1. 1. Assessing Industry Competitiveness: Porter’s Five Forces Theory Objective: To examine Porter’s Five Forces Theory which provides a framework for assessing the competitive environment.Novus Business and IT Training Program
  2. 2. Porter’s Framework Buyer Power Threat of Degree of Rivalry Threat of New Entrants Within the Industry Substitutes Supplier PowerNovus Business and IT Training Program 1
  3. 3. Degree of Rivalry: What Creates Fierce Competition • High Industry Concentration • Low Industry Growth Rate • High Fixed Costs vs. Variable Costs • Perishable Products • High Storage Costs • Low Switching Costs • Little Product Differentiation • High Exit BarriersNovus Business and IT Training Program 2
  4. 4. Porter’s Framework Buyer Power Threat of Degree of Rivalry Threat of New Entrants Within the Industry Substitutes Supplier PowerNovus Business and IT Training Program 3
  5. 5. Threat of New Entrants Situations that make an industry difficult to enter: • Regulatory Hurdles • Proprietary Technology • High Start-up Costs • Need Economies of Scale to Prosper • Distribution Network is Hard to Create • Dominant Player with a Strong Brand ExistsNovus Business and IT Training Program 4
  6. 6. Porter’s Framework Buyer Power Threat of Degree of Rivalry Threat of New Entrants Within the Industry Substitutes Supplier PowerNovus Business and IT Training Program 5
  7. 7. Threat of Substitutes • Often creates downward pressure on prices • Can come from new technologyNovus Business and IT Training Program 6
  8. 8. Porter’s Framework Buyer Power Threat of Degree of Rivalry Threat of New Entrants Within the Industry Substitutes Supplier PowerNovus Business and IT Training Program 7
  9. 9. Supplier Power Suppliers are Strong when: • Suppliers are concentrated • It is expensive to switch suppliers Suppliers are weak when: • Buyers are concentrated • They supply commodity productsNovus Business and IT Training Program 8
  10. 10. Porter’s Framework Buyer Power Threat of Degree of Rivalry Threat of New Entrants Within the Industry Substitutes Supplier PowerNovus Business and IT Training Program 9
  11. 11. Buyer Power Buyers are Strong when: • Buyers are concentrated Buyers are weak when: • It would cost a lot or be difficult to switch to the product of a different supplier • They buy very specialized productsNovus Business and IT Training Program 10
  12. 12. Porter’s Framework Buyer Power Threat of Degree of Rivalry Threat of New Entrants Within the Industry Substitutes Supplier PowerNovus Business and IT Training Program 11
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