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Sunday, May 16, 2010

Strategic Planning - Porter's 5 Forces - Industry Analysis (Part 4 of 5)

Michael Porter provides a framework that industry is being influenced by five forces. A Strategic Financial Leader can utilize this model to better understand industry and develop an edge over the competition.

"The competition is alive and hungry - continue to relentlessly move the business forward!"

The five forces are the following:

 I. Rivalry
II. Threat of Substitutes
III. Buyer Power
IV. Supplier Power
V. Barriers to Entry / Threat of Entry

Suppliers have power on a producing industry that requires raw materials, labor, components, and other supplies.  Powerful suppliers can exert influence on the producing industry, such as selling raw materials at a high price to capture some of the industry's profits.  The following outlines the factors:

Suppliers are powerful:
  • Credible forward integration threat of suppliers 
  • Suppliers are concentrated
  • Significant costs to switch suppliers
  • Customer powerful
An example of a strong supplier would be Microsoft to computer manufacturers.

      "Software suppliers are trying to make their software packages more 'user-friendly' Their best approach, so far, has been to take all the old brochures, and stamp the words, 'user-friendly' on the cover" - Bill Gates

Suppliers are weak:
  • Many competitive suppliers - product is standardized
  • Purchase commodity products
  • Credible backward integration threat by purchasers
  • Concentrated purchasers
  • Customers weak
An example of a weak supplier is the auto parts industry.

Reference additional Strategic writings:
Strategic Planning - Porter's 5 Forces - Industry Analysis (Part 3 of 5)
Strategic Planning - Porter's 5 Forces - Industry Analysis (Part 2 of 5)
Strategic Planning - Porter's 5 Forces - Industry Analysis (Part 1 of 5)
Strategic Planning - 3 components of a Mission Statement (Part 3 of 3)
Strategic Planning - 3 components of a Mission Statement (Part 2 of 3)
Strategic Planning - 3 components of a Mission Statement (Part 1 of 3)
Strategic Plan - Set the Future!
Strategic Planning - PEST Analysis