“Porter's 5 forces analysis is a framework for industry analysis and business strategy development developed by Michael E. Porter in 1979 of Harvard Business School….It uses…5 forces to determine the competitive intensity and therefore attractiveness of a market…They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace…Strategy consultants use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position..”
Porter's Five Forces include the following:
Three forces from 'horizontal' competition -
- threat of substitute products
- the threat of established rivals
- the threat of new entrants
and two forces from 'vertical' competition -
- the bargaining power of suppliers
- bargaining power of customers
(Adapted from Wikipedia)
“The definition of your industry and competition is not a ‘mechanical task’, but requires objectivity and imagination. Strategic planning is not only about today’s customer needs and today’s competitors, but also about future needs and future competitors.”
Porter’s Five Forces Model helps identify industry forces and market attractiveness. Combining the Five Forces (“microenvironmental factors”) with other factors like technological change, growth and volatility of the market, and government and regulatory intervention (“macroenvironmental factors”) is a powerful tool for market analysis and strategy development.
(Adapted from American Management Association)
The Five Forces Model is a terrific tool to understand your industry and decide whether you have a competitive advantage (cost, technological…) that will enable you to serve your customers and do it profitably.Analyzing the Five Forces helps EA practitioners to understand their organization’s competition—and decide whether the enterprise can deliver their value proposition more effectively than their competitors and successfully defend against them. EA is not only about technology differentiation, but also about general planning and governing for the organization's success and longevity.Furthermore, the competitive environment is constantly changing. So the enterprise can never feel “fat and happy” and ignore micro- and macroeconomic factors. The successful strategy in today’s marketplace may be a failing strategy in tomorrow’s. Therefore, EA must constantly monitor the environment and adapt its strategy accordingly.