- Business and Employment
Porter´s Five Forces Model
Porter's Five Forces Model
What Is Porter´s Five Forces Model?
Porter's Five Forces Model consist of an strategy created by Michael E. Porter of Havard Business School in late 70's.
The Model consist of distinct principles developed to assist business owners or entreprenuers in general to assess their businesses or their competition strategies. The model also helps investigate the industry that your business is part of or that you are planning to start a business in.
The five principles that consist the Porter's Five Forces Model are:
1 - Threat of New Entrants to the Market.
2 - Bargaining Power of Suppliers.
3 - Bargaining Power of Customers.
4 - Threat of Substitute Products.
5 - Competitive Rivalry Within an Industry.
An analysis of each of the principles should be examined with the following questions:
Why, Who, What and How they could affect mine or your organization?
Porter's 5 Forces Model vs. SWOT Analysis
Porter's 5 Forces Model or SWOT Analysis, what are the differences and similarities? Do I need to use both models or one overlap the other?
It is clear that Porter's Five Forces Model is a dinstict strategic business model when comparing to any other model available in the market today and in order to answer the above questions. I will attempt to make a clear distinction betweeen the two models.
The Porter's Five Forces Model:
The Poter's model works in determining the competitive intensity and attactiveness of the market. An unattractive industry is one in which combination of the five Poter's principles act to drive down overal profitability.
Three of the five principles is focused on the competition from external sources while that other two principles focused on the internal threats.
Poter's model is divided and focused in two main systematic methods. The first one is known as horizontal competition, which uses three of the five forces and they are: threat of substitute products, the threat of established rivals, and the threat of new entrants.
The other systematic method is known as vertical competition which involved the bargaining power of suppliers and the bargaining power of customers.
Poter's five force model is based on industrial performance to help companies solve their administration problems and become more profitable.
SWOT Analysis works as a matrix and its main purpose is to focus on the business structure and to evaluate the Strenghts , Weaknesses, Opportunities and Threats present at any business environment.
SWOT Analysis methodology works for all business at any stage of its operation, in fact, the method is so popular that even before an entrepreneur decides to start his (her) business up, he must conduct a SWOT Analysis of his business idea, industry, marketing trends, the risks and challenges that he or she might encounter in the market.
While Porter's Five Force Model focused more in business performance and profitability, SWOT Analysis is a more comprehensive methodology and englobes all aspects of a given business or industry.
Both methods are highly recommended by the professional. So, if you are planning to start up a new business or you already have a business in operation. I would recommend you to perform a SWOT Analysis and use Porter's Five Forces Model to determine your current performances or how is going to be.
Both methods are highly sophisticated, so, if you are not familiar to either one of them, I would recommend you to hire a professional to perform a professional analysis of your current businsess or of the business that you're planning to have.
By implementing either one of the metodologies, you will have a clear idea of your business and its industry current condition, you will find out your strenghts, weaknesses, opportunities and threats. You will maximize your opportunities and you will surely profit more.
I hope you've enjoyed this short article, please, leave your comments, they are welcomed.