Porters Five Forces - Free eBook in PDF Format

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Porters Five Forces eBook  

Book Description - ISBN 978-1-62620-999-2 (33 Pages)
This eBook describes Porter's Five Forces Framework, a technique that provides a model for industry analysis and business strategy development.

Chapter 1 - What is Porter's Five Forces Analysis?
Porter's Five Forces model is regarded as a credible and practical alternative to the widely used SWOT Analysis. The five key factors the model uses to identify and evaluate potential opportunities and risks are: competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of customers.

Chapter 2 - What is Competitive Rivalry in Porter's Five Forces Analysis?
One of the keys to success for organizations is their ability to understand their competitors' actions and marketing strategies. The degree to which rivalry exists among competitors varies between industries and the market sectors within them. Regardless of the number of key competitors your organization faces it is vital for its longevity that you understand the differences between your rivals.

Chapter 3 - What is the Threat of New Entrants in Porter's Five Forces Analysis?
The number of potential new entrants into a market varies considerably and is a key factor you need to quantify. Sectors that require high levels of investment and expertise are much harder for new organizations to break into and challenge the existing providers, which protects the profit levels of the existing players.

Chapter 4 - What is the Threat of Substitutes in Porter's Five Forces Analysis?
'Threat of substitutes' means the availability of a product that the consumer can purchase instead of the industry's product. The availability of close substitute products can make an industry more competitive and decrease profit potential for the firms in the industry. It shapes the competitive structure of an industry and influences an organization's ability to achieve profitability.

Chapter 5 - What is the Bargaining Power of Suppliers in Porter's Five Forces Analysis?
Any organization needs raw materials and this creates buyer-seller relationships between the market and the suppliers. The distribution of power within such relationships varies, but if it lies with the supplier then they can use this influence to dictate prices and availability. You need to assess the balance of power within your own market as part of using Porter's model.

Chapter 6 - What is the Bargaining Power of Customers in Porter's Five Forces Analysis?
Customers also have significant bargaining power in markets where it is easy for them to transfer between different products without suffering any transfer costs. A good example of this is the washing powder market, which without brand loyalty has no financial impact if you swap between products. This power decreases if the customer has to spend more time or effort in switching between products or services.

Chapter 7 - What are the advantages and disadvantages of Porter's Five Forces Analysis?
Porters Five Forces model was developed in an environment that was quite different to the one organizations find themselves operating in today. The followings considerations should be kept in mind when using the model: the pace of change is now more rapid, market structures were seen as relatively static, the model provides you with only a snapshot of your environment, it can be difficult to define the industry, the model does not consider non-market forces, it is most applicable for analysis of simple market structures, the model is based on the idea of competition.

You will learn:
  • The five key factors the model uses to identify and evaluate potential opportunities and risks
  • The importance of defining your market accurately and how this can affect the usefulness of the results you obtain
  • How to measure competitive rivalry using the Concentration Ratio and the Herfindahl-Hirschman Index
  • How the availability of close substitute products can make an industry more competitive and decrease profit potential for the firms in the industry
  • The limitations of this model, which was developed in an environment quite different to the one organizations find themselves operating in today

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Really Helped Me Gain Knowledge
Strategy has always been my weak spot as a manager. I always wanted to learn more about it, but I did not have time to go back to school. I needed something that I could learn on my time off. I am a full time manager and I have a family so extra time is not something that I have. These books were recommended to me by my supervisor. He thought this would give me the information that I needed to enhance my skills as a manager. I was able to read these on my lunch hour at work. I was able to take what I learned from this book and really apply it during meetings with my bosses and other managers.

I have read the other books from the "strategy skills" so I was able to skip the introduction, since the books from this series all start the same. I thought that it was interesting that Porters Five Forces takes into account your competitors actions. It is important to define your market for what it really is and by not being too narrow. I thought it was helpful to read the Coca Cola example that was used to demonstrate how "marketing myopia" can affect your analysis.

Porter's analysis tool is known as being a better tool than SWOT because it considers your competitors actions. The five factors that Porter considers is competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of customers. Porter's five factors are not meant to be used on a wide range of products. A new analysis must be used on different products. This book then breaks down each factor discussing each factor individually.

Competitive rivalry made a lot of sense to me. It does seem important to study and truly understand your competitors if you want to beat them. The two indexes used are (CRx) Concentration Ratio and (HHI) Herfindahl Hirschman Index. Both of these were new to me, so I was glad the book thoroughly explained them both. CRx shows how much of the market a certain number (x) of the largest firms control. It is followed by a percentage of the number that the largest firms control of the market. The book puts this into really simplified terms and also gives an example that is easy to understand. The HHI uses a scale from "0-1" It is a more complex tool than the CRx. Competitive rivalry can be increased by having a large number of firms, slow market growth, high fixed costs, high storage costs, low switching costs, low levels of product differentiation, and high exit barriers.

The threat of new entrants is always a problem. There is always the possibility for new companies to form and their growth rate needs to be accounted for. The threat of a substitute also needs to be accounted for or it can come as a shock if you are not prepared. I liked the example that was used about the newspaper. It helped me see exactly what the book was explaining. I think it is important to look outside of your market while looking for substitutes, like the book states. Bargaining the power of suppliers is important because they can dictate the price for the entire market. Suppliers can also determine the quantity of the product that they send out, which can be devastating to your company.

The last factor to take into consideration is the bargaining power of the customer. Customers can dictate, to some extent, prices and the quality of goods in a market. It is a must to understand how much power the customer really has. I like that this book laid out exactly what the factors were that increased a customer's bargaining power. The automotive industry example that was given in the book helped clear up exactly what the book was discussing in terms of bargaining power of the customer.

I even found that the summary was helpful. It was a great review of this book that is full of information. This book really helped me gain knowledge that I was able to use in my career. I feel like reading this book, along with the other books from this series, really gave me the edge I needed to be a more effective leader and helped me with my decision making. If you are in a similar situation as I was, where time is very valuable to you, then I would download this book today. You can read it on your lunch hour like I did, and you will be able to contribute to your team like me. I also highly recommend following up this book with the others from the "strategy skills" series, if you found this book useful to you.
Derrick Schultz

Using the Boston Matrix - The Boston Matrix was developed to help organizations allocate their investments across its product range and divisions. However, it is sometimes used as part of brand level decision-making - something it was never designed for. Many of the misconceptions associated with the Boston matrix come from the nature of the economic climate that existed at the time of its inception. These fundamental assumptions were incorporated into its design and are not always applicable in today's global fast-paced market.

SWOT Analysis: A Quick and Easy Way to Assess your Competition - Do you know how you stand when compared to the competition? If not, you need a quick and easy way to analyze your competition. The SWOT analysis is the ideal tool as it quickly and easily identifies Strengths, Weaknesses, Opportunities and Threats (SWOT).

Using the SWOT Analysis - As a manager, your role in any strategic planning is likely to involve providing operational data to help assess the internal capabilities, and (depending on your job function) you may also be asked to provide market intelligence. The completion of a SWOT analysis should help you to decide which market segments offer you the best opportunities for success and profitable growth over the life cycle of your product or service.

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