Porter's Five Forces Model: An Introduction

When one looks at a model of authentic competition one would expect to find that the risk adapted returns that are realized will be consistent between companies, business and industries. In reality it has been proven that different industries maintain different levels of profitability. These differences can in part be explained by the differences between industry structures.

Any successful marketing plan will have to take into account a number of product factors and their interaction as well as the dynamics of the industry and markets at which it is aimed, in order to effectively achieve the marketing objectives.

Utilizing a framework that was first introduced by Michael E. Porter in his book titled "Competitive Strategy: Techniques for Analyzing Industries and Competitors", an industry or industry sector can be analyzed using the five identified forces that influences any industry. Companies that wants to achieve a competitive advantage over competitors often uses the Porter five forces model to obtain a better understand of the prevailing industry situation.

Advantages of Utilizing the Porter Five Forces Model

Porter's five forces model (1980) is based on the premise that a competitive advantage can only be achieved once a capacity to generate a better than industry average return on investment can be maintained.

When the model is correctly implemented it can provide companies with a simple picture that can be used to assess and analyze the business or organization's competitive position and practical strengths that can be capitalized on to achieve the allusive sustainable competitive advantage.

In order to use the model, according to its designer, involves establishing the relationship between the five competitive forces that shape the industry and the market segment selected for the product. Analyzing the relationship between all potential competitors, suppliers and buyers provides a platform for generating alternative solutions to problems that need resolving for success.

Primary Dimensions of Porter's Five Forces Model

The primary dimensions of the competitive forces model consists of five forces that significantly impacts on an organization's behavior in a competitive market and should be consistent for a particular industry.

These include the rivalry between current vendors in the market, the muscle wielded by the customers in the market, the impact of suppliers on the trader, the impending threat of additional merchants entering the market and the threat of substitute products developing into a viable alternative in the market. According to Porter the intensity of competition is determined by the comparative strengths of these forces.

Conclusion

In order to understand the five forces model that Porter's recommends one need to establish and understand the relationship between the five forces first.

The primary objective of a successful corporate strategy that is based on the porter five forces model should be to identify and take advantage of the existing competitive forces in a manner that will enhance the competitive position of the company.

One of the main advantages of using the Porter five forces model as a basis of industry analysis is that the model provides an objective framework for conducting an analysis of the primary constrains and driving forces that may be present in the industry within which the company operates. The information that can be obtained by using the Five Forces Analysis model is normally utilized by the management team to determine how to manipulate or take advantage of identifiable characteristics of the industry being analyzed.

More detail on each of the forces is discussed in the next five articles on this subject.

©Carl Marx