Five Forces Model By Porter

These factors, when studied together, shape up an overall context for an organization in an industry. To determine strategy for existence and profitability of an organization, the management should analyze the industry and its structure and how they change with the changing environment. Michael E. Porter, 1980, wrote a book named “Competitive Strategy: Techniques for Analyzing Industries and Competitors”. In this book he developed a model that is famous with the name of “Porter’s Five Forces Model” to analyze the industry structure. With the help of five forces model, Porter suggested that an industry structure can be analyzed with the help of five factors. Or, in other words, the profitability of any industry can be determined by a careful examination of five forces that exist within and or for an industry. “The five forces are competitive factors which include: suppliers, rivalry within an industry, substitute products, customers or buyers, and new entrants.

After a detailed analysis of all the five competitive forces of an industry, the development of the corporate strategy can be done in accordance to exploit the structure and variables of an industry so as to decide about the entry an exit to any market, choose between products and services to offer, maximization of profitability, growth and market share.

The porter’s five forces model is a very useful tool to provide a first hand knowledge to management about an industry and its variables which forms the basis for further analysis. But at the same time, management also needs to consider the dynamics of environment, effects of globalization and legislations and regulations imposed by government to the industrial sector while using the information gained by using the model.