Definition of Porter’s Five Forces
While running a business it is necessary that you analyse your company’s strengths and weaknesses. You should also know your industry’s position against the competition. The porter’s five forces model helps to identify the company’s status and determine its strategy by analysing five competitive forces.
This model is relatively simple but a very useful and powerful tool to understand the competitiveness of your business and what strategy helps your company to achieve the goals that you have set for it.
Once you understand your company’s current standing, you can modify your strategy accordingly and make more strategies that will lead your company towards profit.
What is Porter’s Five Forces model?
Porter’s five forces model helps to determine the strengths and weaknesses of your business and also helps to form the right strategies to lead your business towards profit. This also prevents you from taking the wrong steps in the future.
This model was created by Harvard Business School professor Michael Porter in 1979. Since then it has become one of the most popular tools in the business world as it not only allows businesses to look into their own structure but it also helps to keep a track of your competitors and where your company stands against your rivals.
Porter model takes five competitive forces into consideration, these are the forces that play an important part in forming an industry and its position in the market.
These five forces are:
Competition-
Analysing the competition of your business is the first force of the Porter’s five forces model. This focuses on the strengths of your rivals, the quality of their products and the services that they provide.
Power of suppliers-
This focuses on the number of suppliers you have and how conveniently they can change the prices of their supplies. In the competitive sense, it is always better to have more suppliers.
New entrants in the business-
This is an important factor as the entry of new businesses will affect your position in the market.
Customer power-
This tells you the nature of your customers and how easy it is for them to buy your products. This also tells the power your customers have over your services.
Threat of substitution-
This tells you the likelihood of your customers opting another business for the similar products and services that you provide.
