FIVE FORCES ANALYSIS Asssing the Balance of Power in the Business Situation
Five Forces Analysis
Asssing the Balance of Power in a Business Situation
The Porter's 5 Forces tool is a simple but powerful
tool for understanding where power lies in a business
situation. This is uful, becau it helps you understand
both the strength of your current competitive position, and
the strength of a position you're considering moving into.
With a clear understanding of where power lies,
you can take fair advantage of a situation of strength,
fossil
improve a situation of weakness, and avoid taking wrong
steps. This makes it an important part of your planning
toolkit.
a couple of
Conventionally, the tool is ud to identify whether new products, rvices or business have the potential to be profitable. However it can be very illuminating when ud to understand the balance of power in other situations.
Understanding the Tool:
Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. The are:
1. Supplier Power: Here you asss how easy it is for suppliers to drive up prices. This is
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driven by the number of suppliers of each key input, the uniqueness of their product or rvice, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.
2. Buyer Power: Here you ask yourlf how easy it is for buyers to drive prices down. Again,
this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and rvices to tho of someone el, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.
3. Competitive Rivalry: What is important here is the number and capability of your
competitors. If you have many competitors, and they offer equally attractive products and rvices, then you'll most likely have little power in the situation, becau suppliers and buyers will go elwhere if they don't get a good deal from you. On the other hand, if no-one el can do what you do, then you can often have tremendous strength.
delight4. Threat of Substitution: This is affected by the ability of your customers to find a different
way of doing what you do –for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. 5. Threat of New Entry: Power is also affected by the ability of people to enter your market. If it
costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can prerve a favourable position and take fair advantage of it.
vndThe forces can be neatly brought together in a diagram like the one below:
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初中半命题作文Example:
Martin Johnson is deciding whether to switch career and become a farmer –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:
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 rais prices, they'll be quickly undercut.
Inten competition puts strong downward pressure on prices.
∙Buyer Power is strong, again implying strong downward pressure on prices.
trouble is a friend中文歌词∙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 ctor of the market that's protected from some of the forces, or find a related business that's in a stronger position.
Key Points:
Porter's Five Forces Analysis is an important tool for asssing the potential for profitability in an ind
lingoesustry. With a little adaptation, it is also uful as a way of asssing the balance of power in more general situations.
英语校规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 rvices can be ud in place of your own.
∙The Threat of New Entry: The ea with which new competitors can enter the market if they e that you are making good profits (and then drive your prices down).
By thinking about how each force affects you, and by identifying the strength and direction of each force, you can quickly asss the strength of your 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.
