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Said another way what barriers to entry are there in your industry in terms of (1) economies of scale (2) capital
requirements (3) ease and access to distribution channels (4) market experience or cost competitiveness (5)
technology and Intellectual Property protection (6) the likelihood of retaliation from those entrenched in the market
and (7) the degree of legislation and / or government regulation, to keep competitors out?
Porter considers the 5-Forces determine competitive intensity and the relative attractiveness of a market i.e. the
profitability of the industry youre in.
We regularly use 5-Forces to assess that and the qualitative elements of client businesses (provided they operate in
one market where similar or closely related products are soldotherwise more than one analysis maybe needed).
Using the framework:
1.
Consider each of the 5-Forces individually, and summarise the key factors, which emerge.
2.
Allocate a rudimentary weighting e.g. A,B,C to indicate the scale of importance to each factor. Consider
which way that force might operate.
3.
Assess various scenarios, and how such might change or impact your business and other market players.
4.
Consider how elements of that force might be leveraged for your business?
Potential pitfalls:
1.
Many consider it not practicable to evaluate industry attractiveness without considering the resources that a
firm can harness. A resource-based analysis should also be considered before reaching conclusions.
2.
Some criticism has been levelled at Porters assumptions and some commentators feel that there is an
additional, 6th force which has been ignored, which variously includes complementors (the rationale behind
strategic alliances), Government (national and regional) and Pressure Groups. Think about those elements too.
Conclusion
You cant fatten the pig on market day (John Howard) reminds us that it requires careful preparation and
execution to achieve success.
Understanding whos who in the zoo gives you a clearer picture of where the market power lies and properly used,
5-Forces will clarify your strategic options for:
1.
2.
avoiding introducing new products/services (or building a business) in markets which arent likely to be
profitable
3.
Like SWOT and the other models discussed, 5-Forces is not all encompassing and it should ideally form but one
element of a suite of strategic models.
Have you used porters 5 forces in your business and what insights did it provide you? More importantly what did you
do about it?
For additional information or assistance on strategic planning visit us at www.latticecapital.com.au.
Join us next week when well take a look at one more well known strategy tool in the armoury, PEST analysis.
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