Michael Porter’s Five Force Model is one of today’s leading models on how certain forces that arise within industries creates change in both a negative and positive aspects. Many executives use his model to analyze the different industries and see where there may be a potential star performers and utilize their current company’s capabilities and resources to enter that new industry in a successful manner (Daft, 2007). His model can also help companies move into other market segments and help prevent others from joining in afterwards. The strength of the five forces varies from industry to industry, and can change as an industry evolves (Hill & Jones, 2008). The Five Forces are composed of: Risk of Entry by Potential Competitors, The Bargaining Power of Buyers, The Bargaining Power of Suppliers, The Threat of Substitute products, and Rivalry Among Established Companies (Hill & Jones, 2008). Each of these forces in some shape or form has a unique impact within the market segment being analyzed. Porter once said, “Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack (Porter, harvardbusinessonline.hbsp.harvard.edu, 2008). Let us take a closer look at each of these forces and see what negative and positive aspects each one has. The Risk of Entry by Potential Competitors is any industry that may be worried about more competitors entering their market and leeching sales away from their bottom line. If a company has a low risk of new entries this is a very good thing because the company can charge premium pricing since there are not that many suppliers of that product. However, if a company has a high risk of new entries this could be construed as very bad thing because the more sellers you have the more competition which would eventually lower prices to the market average. New competitors can not just enter most established...
Cited: Daft, R. L. (2007). Organization Theory and Design. Mason: Thomson South-Western.
Hill, C. W., & Jones, G. R. (2008). Strategic Management. Boston: Houghton Mifflin .
Porter, M. E. (2008, Janaury). Retrieved January 16, 2008, from harvardbusinessonline.hbsp.harvard.edu: http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?value=BR0801&ml_subscriber=true&ml_action=get-article&ml_issueid=BR0801&articleID=R0801E&pageNumber=1
Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press.
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