In this post, I will briefly explain about the famed business strategy called “Five Forces Model Analysis,” originally due to Michael E. Porter.
According Mr. Porter, there are five elements that will contribute to the outcome of your business. Specifically, before you go ahead and implement your business plan, you need to consider these things first: the bargaining power of customers, suppliers, the threat of new entrants and the threat of substitute products. These forces will tell the outcome of the fifth force: the level of competition in the industry.
Before you go ahead and start your business, you need to ask yourselves these basic questions based on the model of Porter: do you have enough customers? Do you have enough supplies? Any problems to start the business? Will there be any cheap products that will get us out of business. After answering these, you will know if there would be any competitions at all in your business.
Most of the time, we often just jump in the business because we see a niche. But you will soon realize why the service is not exactly offered: it might be that supplies are hard to come by or there are alternatives to the product that you offer. Unfortunately, you might even be banned by the local government because of certain local laws.
There are so many critics of this theory saying that these are not the only forces that a businessman should consider. There’s even the 6th Force, sometimes referred to as the “implementors” proposed by former CEO of Intel Corp, Andrew Grove. But this could all be psychological as this will go down to the owner or manager of the business. Nevertheless, this is an important strategy that you can also consider. For some businessmen the 6th Force just comes really naturally. Those gifted are born to be successful. In reality, even though we put more than 100% of our effort to make the business work, some of the businesses are really doomed to failure.
That makes us go back to the Five Force Model of Porter. Combining our knowledge and effort to the industry with the careful planning and evaluation of the market, you can easily reach your goal of creating a successful model. It will also arm you with the knowledge that not all businesses will be a successful one and you can adapt to the environment until your get to the point of success.
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Hi,
This is Dr Peter Teiman from Norway. I have the greatest respect for Professor Porter, but surely the most fundamental question for any business large or small is to find a need and fill it better than any competitor?
Dr Peter Teiman
Comment by Dr Peter Teiman — September 15, 2007 @ 4:16 pm