Porter’s Five Forces

Porters Five Forces

While doing Enterprise Analysis, BA might do different types of analysis, Porter’s Five Forces Model is one of the them. Porters Five Forces was developed by Michael E. Porter to help companies assess industries competitiveness and build strategies. Its simple but very powerful tool to analyze and understand the business situation and industry dynamics.

Five Forces

The Five Forces are

Competitive Rivalry—Gauging the competition between the existing companies in the specified industry. If there is stiff competition with quality products then rivalry companies may take the profit share and can reduce revenues

Threat of new entrants—One of most common threat to companies is new entrants, threat may not only be from existing players but also from new entrants because as the industry grows at faster pace tends to attracts new entrants in business which reduces the margin of existing business. To prevent this happening companies should have some patents or high switching cost etc.

Threat of substitutes—Is substitute product from different industry which may be used for the purpose the larger the substitutes available the lower the profit.

Bargaining power of buyers—In some industries buyers may have tremendous bargain power, if they are small in number. However we need to check how powerful the buyers are and can they get cost down.

Bargaining power of suppliers—We can identify suppliers have strong bargaining power, if they are able to increase cost without affecting their sales. Supplier may enjoy greater power if they are small in number difficult for buyers to switch.


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