Porter’s Five Forces – What they mean in practice for managers

If you are not familiar with Porter’s Five Forces visit http://en.wikipedia.org/wiki/Porter_five_forces_analysisJFK_2008

This may have relevance to you if you are:

  • Planning the introduction of a new product or service;
  • Controlling profitability and trying to increase it;
  • Concerned about how much competition you might be facing;
  • Looking for gaps in the market.

It strikes me that what this analysis means in practice for managers is:

  1. You reduce risk by doing a thorough industry analysis eg. the risk that your planned product or service will encounter just too much competition.
  2. You are more likely to spot profitable opportunities rather than those where the biggest winners will be either suppliers or buyers.
  3. You are less likely to make the easy mistake of believing in your own marketing hype because the model forces you to look at your industry from many  different standpoints.
  4. Gaps in your knowledge appear rapidly eg. not really understanding with whom you are competing.
  5. You are more likely to put resources into projects with a higher degree of success rather than squandering scarce resource on wild goose chases.
  6. You need to have a clear understanding of the value that you creating and whether or not you will be the recipient of that value as measured by profits.

Failure to do industry analysis is ultimately a planning failure.  Does it take long to do?  Well, that depends a little on how well you know your industry.  The more you know about competitors, suppliers and buyers as well as new technology trends for example the quicker your analysis will be.  Running through it with a group of staff may speed up the process and provide valuable insights into how well your team understand the dynamics of your industry or market.

In the last analysis, using Porter’s forces will test your knowledge of your market/industry and help you to find options that are more likely to be profitable.  Without this knowledge you are probably working in the dark.

david@davidshawfreelancemanagementconsultant.com

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