This Porters Five Forces Analysis template enables you to record the relevant details of how the five forces of your competitive business environment relates to your organization. You will use this analysis tool to assess how external pressures affect a range of products or services, rather than individual ones.
Porter's five forces analysis is a commonly used tool to assess the business environment and to help make decisions. There are a seemingly endless number of variables that play into any business decision, and using the five forces can help to distill them down and focus your thinking. If you have a good understanding of how Porter's forces contribute to the growth plans you have for your business, you can potentially avoid mistakes and take a clearer path to success.
The amount of influence that each of the five forces has over your business depends of the type of business you are in, your location, and several other factors. When reviewing the five forces below, keep in mind your own situation and how each might affect decisions you make on a daily basis.
The first force is the power that your suppliers have over the operation of your business. The inputs that you need for your business (raw materials, consumer goods, etc.) are likely purchased from other businesses in one manner or another. If you purchase from an industry that has very few players in the market, your suppliers have a lot of power over your operation. If they raise prices suddenly, you might not have another viable option and would have to eat the cost. However, if you buy from an industry with many players and high competition, you are insulated from supplier power and are pretty well safe from price increases.
This is the same as supplier power, except reversed. If you are in a business where you sell to countless numbers of buyers, you can protect the cost of your product and retain your margins. However, if you only have a few buyers (or even just one), that buyer could pressure you quite easily into a lower price. The fewer number of buyers for your product, the larger influence they have over your business.
This is the one aspect that is most commonly thought about when business prospects are considered. How many other players are in the same market as you, and how capable are they of doing the same things you are doing. In a situation where you are the only 'fish in the sea', you can control prices and dictate terms. However, if there are many other companies with equal capabilities to yours, the power is in the hands of the market as a whole.
Threat of Substitution
Can other product or service be substituted for yours? If your customers grow tired of paying your prices, can they reasonably turn to another method to accomplish the same goal? If the answer is yes, you may not have as much power to control your growth as you would have liked. If you are the only way to accomplish a task, and the task cannot be outsourced, you are in excellent position to bargain and grow your business.
Threat of New Entrants
This is a concern if you are in an easy business to get into. Should others see that you are being profitable in your niche, they may decide to enter the market and become your competition. If your industry requires a lot of upfront investment and proprietary knowledge, you will be well insulated from new entries. Businesses that don't require large facilities or technical knowledge are ripe for new entry competition when they become known as a profitable industry.
Advantages and Disadvantages of Porter's Five Forces Analysis. Porter's five forces are a great way to assess if, and when, your company is ripe to grow. If the majority of the factors in this analysis look favorable for your market, there is no reason to think that you can't grow the business. However, if the analysis looks negative on your future outlook, you might want to carefully consider if your industry or niche is right for further investment. By taking Porter's forces under careful consideration, you can avoid pushing too hard into a losing market, and strike when the time is right in an area of business that is poised for profitability.