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Porter's Five Forces Analysis

Brief Description

The Five Forces Model is a tool that can be used to analyze the opportunities and overall competitive advantage of you, your organization, or your project. It is comprised of five forces that can assist in determining the competitive intensity and potential attractiveness within a specific area. This can be developed to assist in analyzing a specific project and the strategic opportunities for this project, as well as the strategic opportunities, effectiveness and profitability of your organization as a whole.

Within the Five Forces Model the following forces are identified:
  1. Competition
  2. New entrants
  3. End users/Buyers
  4. Suppliers
  5. Substitutes

History

The five forces were originally identified and developed by Michael E. Porter while working for the Harvard Business School and the Boston Consulting group. Both were looking for a new and updated version for developing strategies in the area of competitive advantage. He applied the principles of microeconomics and business strategy to analyze requirements in individual sectors. Developing the five forces in line with the business goals of utilizing an organizations / projects limited resources on its greatest potential opportunities.

In the 1990's after criticism the five forces model was augmented by several different individuals in order to include a sixth force effectively completing the model. The overall consensus was that the model was lacking an external factor, while exactly what factor has been extensively debated and discussed the three main possibilities are: Complementary products/ The government/ The public.

When to use

The Five Forces Model is important for organizations to develop concise evaluations within a specific area. This will allow you to analyze your organization or project by looking at the specific internal and external forces and how they can potentially affect effectiveness and attractiveness.

How to use

The first three of the forces are external factors while the last two are internal factors that could affect you, your organization and /or project. For each factor you must look at exactly who, what, why and how these factors could potentially effect you, your organization and/or your project.

1. Competition

  • Who is the current competition?
  • What is the possibility of new competitors in your sector field?
  • What are the abilities that they posses?
  • How could this affect you, your project and/or your organization?
  • Are there any barriers that you and/or they must over come?

2. New entrants
  • Is their any potential threat of substitution?
  • What are the factors that make them superior if any?
  • Is there any fear of them replacing existing product(s) or service(s)?

3. End users/Buyers
  • Determine who your organizations/ projects potential buyer could be.
  • How many potential buyers could there be? Internally? Externally?

4. Suppliers
  • Determine who your organizations/ projects potential suppliers could be.
  • How many potential suppliers could there be? Internally? Externally?

5. Substitutes
  • Is there any rivalry internally or externally regarding your organization or project?
  • How can you increase your strengths while diminishing theirs?
  • Aim to minimize the relative competitive strength of rivals.
It is commonly used as a starting point or "checklist" that one can then develop into a strategic plan in conjunction with other analysis tools such as: The Sixth Force (from the Six Forces Model), SWOT, PEST, SLEPT, STEER.


Tips and Lessons Learnt

Here are some questions to think about when developing your Five Forces analysis.

Before
  • What exactly are you aiming to achieve? Be clear about your expectations.
  • What is the scope of this analysis and who can potentially benefit from this?
  • Be open and honest in your answers, little will be achieved if the discussions do not dive into both the positive and the negative aspects.

During
  • Focus on the future, not on the past.
  • Do not play the "blame game" stay focused on what can be improved not what should have been improved in past projects.
  • Remember to analyze both the positive and the negatives.
  • Be objective and open to new ideas.

After
  • What are the lessons learnt from this and how can we use them in the future?
  • Document everything including the good, bad and the ugly. What good practices and recommendations could be applied?
  • How has this analysis assisted you, your project and/or organization?
  • Have you been able to implement any of the recommendations?
  • Remember to utilize the analysis in future projects when applicable.

Examples & Stories

(add your story)

Who can tell me more?

  • Nohea Reveley-Mahan (nohea.reveleymahan[at] fao.org)

Related Methods / Tools / Practices


Resources


Tags:

Development, SWOT, Change, Project, evaluation, problem solving, strategic planning, method, analysis

Photo or image credits:

http://www.vectorstudy.com/management_theories/porters_five_forces.htm

Page Authors

Nohea Reveley-Mahan (nohea.reveleymahan[at] fao.org)