Some Theory

Porter’s five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developed in Industrial Organisation economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition".

Porter referred to five forces (see picture below) as the micro environment, to contrast it with the more general term macro environment. They are those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace.

Your Business

Your own enemies in your business are going to sit somewhere in Porter’s five areas. Know your enemies and your own business and you are much better equipped to prosper.

Some of the Questions to Ask Yourself

1. What need am I fulfilling for my customers?

   1. Who else might satisfy my customers?

      1. Businesses that look like mine?

      2. New market entrants dressed up to look like my business?

      3. Something completely different?

   2. Is this need static or is there some change in the needs that my business is serving?

2. What negotiation power do I have with my suppliers?

   1. What & of their business does my business represent?

      1. >30%?

      2. <0.001%?

3. Who are my buyers?

   1. What drives them?

   2. How important is my product or service to them?

4. Is my business correctly set up for the current market?

This was a guest post by Paul Fileman of SPS who are a national team of proven senior management professionals, passionate about working to help businesses achieve their next level of development and performance. Whether they are facing market changes, financial problems, people/skills issues, or are preparing a major project, they offer dedicated support from a multi-disciplined team of experts.

Free updates:
If you enjoyed this post and would like to be kept updated on future posts, then please click here to get updates by Email. Alternately you can follow the updates the Business Opportunities And Ideas Facebook page or follow me on Twitter.