Management Strategy/Five Forces

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Michael Porter, one of the leading researchers in the field of business and a professor at Harvard Business School, has identified five key forces which affect the strategy of any industry. These forces are:

  1. Threat of New Entrants
  2. Threat of Substitutes
  3. Industry Competition
  4. Bargaining Power of Suppliers
  5. Bargaining Power of Buyers

Managers use the Five Forces model to help identify opportunities or evaluate decisions in the context of the environment. Often, the Five Forces are mapped against a SWOT analysis to develop a corporate strategy.

To complete a Five Forces analysis, it is often best to build a grid on a piece of paper and label each section--keeping Industry Competition separate. Fill-in each section and to develop a view of the industry. Then, think about if the industry is truly competitive or if the industry is a monopoly or oligopoly. What makes your company able to compete in this environment?