Ever wondered why some companies stay in business for years while others cave? The success of a business is not about how big it is, but rather, how profitable it remains. Porter’s Five Forces, published in Michael E. Porter’s book, “Competitive Strategy: Techniques for Analyzing Industries and Competitors”. The framework helps determine weaknesses and strengths in certain industries. The model can be applied to any industry in order to search for its profitability and attractiveness. It analyzes the industry structure of a company and corporate strategy –the forces that that play a part in shaping global industry. The forces frequently measured include:
Competition (the number of competitors in the same industry and their ability to undercut it by offering better deals); new entrants into the industry (the position of a company is weakened by the ease of entry into that market by potential competitors); suppliers (the law of supply and demand drives cost amongst suppliers); substitutes (companies that offer unique products have more power to increase prices, but when close substitutes are looming, customers have options, therefore weakening the company’s power); customers (client base is important to ensure profitability. A smaller client base is powerful in its ability to drive prices down or get better deals). A company can adjust its business strategy to better use its resources and generate higher earnings for its investors if they apply Porter’s Five Forces.