Five Forces Analysis, developed by Michael Porter, is a framework for analyzing the competitive forces that shape every industry. It is used to assess the competitive intensity and therefore the attractiveness and profitability of an industry. The framework helps businesses identify the strengths and weaknesses in their industry environment, guiding strategic decision-making.
Identify competitors: Analyze the current competitive rivalry within the industry. | Assess potential new entrants: Evaluate the threat posed by new companies entering the market. | Evaluate substitute products: Determine the threat of products or services that can replace existing offerings. | Analyze bargaining power of suppliers: Assess how much power suppliers to the industry hold. | Analyze bargaining power of customers: Determine the impact of customers' bargaining power on the industry.
Regularly update the analysis to reflect market changes | Combine with other strategic tools for comprehensive insights | Ensure accurate and current data for reliable analysis
Provides a thorough understanding of industry structure | Helps in strategic planning and market positioning | Facilitates the assessment of profitability in competitive environments
May oversimplify the complexities of some industries | Can be time-consuming to gather all necessary data | Relies heavily on the availability and accuracy of industry data
When entering a new market | When considering new investments or business expansion
In rapidly changing industries where data quickly becomes outdated | When insufficient industry data is available