Industry Structure

Michael Porter introduced the concept of five forces to an organization's position within their industry.

  1. The power of suppliers to increase prices.
  2. The power of buyers to reduce prices.
  3. The strength of competitors.
  4. The threat of new entrants.
  5. The threat of substitutes.

Applying the Model

  1. Define the industry: The process begins with a clear description of the industry, helping you to focus your analysis.
  2. Identify the key players: Specify and group the major actors in the sector into strategic categories based on relevant criteria.
  3. Assess strategic strengths: This means evaluating the firm and its industry to determine the better and worse strategies that can be applied.
  4. Analyze and understand the industry structure: This involves examining the overall structure of the industry, particularly the factors that influence how profitable it is.
  5. Evaluating the competitive forces: Only once you've done the above does Porter advise doing a detailed analysis of the five competitive forces, assessing their positive and negative effects, and then looking forward to any changes in these forces ahead.
  6. Identify the factors you have some control over: Pinpoint aspects of the industry structure that could be influenced by competitors, new market entrants, or your firm. In sum, what can be changed?

References