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Sunday, May 23, 2010

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

The possibility of new firms entering a market can pose a threat to an company and there are also barriers to entry that can prevent additional firms from easily competing.  The following are a few barriers:
  • Government creates barriers - the utility industry would be an example where as it is regulated.
  • Patents and proprietary knowledge serve to restrict entry into an industry 
  • Asset specificity inhibits entry into an industry - high specialization is needed in an industry
  • Organization economies of scale - a market share is required to profitability produce
Easy to enter a market:
  • Common technology
  • Little brand franchise
  • Access to distribution channels
  • Low scale threshold
Difficult to enter a market:
  • Patent or proprietary know-how
  • Difficult in brand switching
  • Restricted distribution channels
  • High scale threshold
      “In the current landscape, many industry players are going after a slice of the potential mobile e-mail market. Nokia is going after the full 650 million corporate e-mail inboxes. We want to knock down the barriers to mobilizing the entire corporate e-mail market.” - Mary McDowell

Reference additional Strategic writings: