Michael Porter five forces model

1. Porter’s Six Forces Model
Dr. Gopal Thapa
Associate Professor
Tribhuvan University

2. Porter’s Six Forces Model
 In 1979, Michael Porter an American academic
introduced the five forces of the business strategy
framework to shape the business.
 Later, in the mid-90s, Porter added the sixth force
to the existing fives.
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3. The six forces model
 It serves as a strategic business tool enabling
businesses to assess market competitiveness and
attractiveness.
 It offers insight by analyzing six key areas of
business activity and the competitive forces
influencing an industry.
 Its primary aim is to distinguish the industry’s
framework, identifying both strengths and
weaknesses, to facilitate the development of an
effective corporate strategy.
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4. Porters’ Six factors Model
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5. Six Factors
 Power of Buyers
 Power of Suppliers
 Risk of Substitutes
 Risk of New Entrants
 Competitive Rivalry
 Complementary Products
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6. Strategic Group
 It refers to a cluster of companies within an
industry that pursue similar strategies or have
comparable business models, allowing for a more
refined analysis of competitive dynamics.
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7. Strategic Group
 A Strategic Group is a set of companies within an
industry that share similar strategic attributes:
 similar product offerings,
 target customer segments,
 distribution channels,
 pricing strategy, and
 other strategic factors.
 It helps us understand the competitive landscape of
an industry and the various strategies that
companies adopt to gain a competitive advantage.
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8. Strategic Groups
 Strategic groups are common in most
industries. Companies, within the same
industry, that employ similar strategies
with similar resources or have comparable
business models, belong to one strategic
group
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9. Strategic Groups
• Have similar characteristics
• Have similar market shares
• Respond to market trends or competition (threats
and opportunities) in similar ways
• Offer similar customer service
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10. Michael S. Hunt, a Harvard
Professor
 Michael S. Hunt, a Harvard Professor, who first
coined the term in his doctoral thesis report in
1972, specifies that companies within the same
strategic group are very similar to each other in
terms of:
 ‘cost structure, degree of product diversification,
formal organization, control systems, and
perceptions and preferences of individuals.
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11. Strategic Groups
 Competition among companies that are in the
same strategic group is often aggressive as they
are generally trying to win over the same
customers.
 The action of one company will evoke fierce
reactions from the rest who don’t want to lose
their market share in the industry.
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12. Characteristics
•Homogeneous within:
 Companies within a Strategic Group share
similar strategic attributes.
•Heterogeneous between:
Different Strategic Groups have distinct strategic
attributes.
•Boundaries:
 There are boundaries between Strategic Groups,
and it’s difficult for companies to move from one
group to another.
•Stable:
 Strategic Groups are relatively stable over time,
and changes occur gradually.
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13. Key Success Factors
 Success factors are all of the different
internal and external influences which can
impact the potential success of a business.
 A success factor is an essential component or
action needed to guarantee an organization's
success
 A success factor can be any trait, attitude, skill,
knowledge, motive, value, or any other
characteristic crucial to success.
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14. Critical success factors
 Strategic Focus
 People
 Operations
 Marketing
 Finance
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15. Examples
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16. Hospitality
• Frequent customer feedback
• Efficient marketing
• Attractive menu
• Reliable and high-quality service
• Increased profit margins
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17. Media
• Sourcing news ethically
• Encouraging diversity in all departments
• High written quality
• Achieve the best production value possible
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18. Health
• Indiscriminate patient care
• High hygiene standards
• Excellent verbal communication
• Quick treatment options
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19. Retail
• Maintaining a clean shop
• Improving product offerings
• Better communication with customers
• Optimized marketing campaigns
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20. Banking
• Increased financial security
• Increased overall client retention
• Ensure success against other competing banks
• Lower costs for customers
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21. Manufacturing
• Imposing safer manufacturing processes and
procedures
• Increasing employee satisfaction
• Creating high-quality products
• Keeping production costs low without affecting
quality
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