Porter 5 Forces Framework Worksheet

ABOUT THIS CONTENT

Porter five forces analysis is a framework for industry analysis and business strategy development. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market.

Competition in an industry is rooted in its underlying economics determined by the competitive forces existing in the industry. The state of competition is the key to determine the competitive rules, the strategies potentially available to the firm and the profit potential that can be exploited. Use this worksheet to perform strategic analysis for case or real-world work.

SUMMARY OF CASE FACTS AND PRIMARY ISSUES
COMPANY

INDUSTRY COMPETITION – RIVALRY
A rivalry in an industry is considered intense when the following exist:

  1. Numerous or equally balanced competitors
  2. Competition is a market share game
  3. High fixed or storage costs
  4. Lack of differentiation
  5. Switching costs exist
  6. Capacity augmented in large increments (intermittent over-capacity)
  7. Diverse competitors
  8. High strategic stakes
  9. High exit barriers

Also consider: brand identity, industry growth, informational complexity.

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THREAT OF NEW ENTRY
Major sources of barriers to entry, which serve to limit the threat of new entry are:

  1. Economies of scale/vertical integration
  2. Product differentiation
  3. Brand identity
  4. Capital requirements
  5. Switching costs
  6. Access to distribution channels
  7. Access to necessary inputs
  8. Cost advantages or disadvantages independent of scale
  9. Government policy
  10. Expected retaliation by existing firms
  11. An entry deterring price
  12. Experience (learning) curves
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BARGAINING POWER OF BUYERS
Buyers can force down prices, bargain for better quality or service, or play competitors against one another. A buyer has power when the following exist:

  1. Concentrated or purchases large volumes relative to seller sales
  2. Products purchased from the industry represent a significant fraction of the buyer’s costs or purchases
  3. Products purchased from the industry are standard or undifferentiated
  4. Few switching costs
  5. Buyers are knowledgeable and/or have access to pertinent information
  6. Earns low profits
  7. Backward integration is a threat
  8. Purchases can impact quality/performance
  9. Buyer firms concentrated

Also consider: brand identity (of seller and buyer), pull through, price sensitivity, buyer profit levels, decision-makers’ incentives, other forms of bargaining leverage.

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THREAT OF SUBSTITUTES
Substitutes limit potential returns because they place a ceiling on prices. Substitute products that deserve the most attention are:

  1. Those subject to improving the price-performance tradeoff with the industry’s product
  2. Those produced by industries earning high profits

Also consider: relative price performance of substitutes, switching costs, and buyer propensity to substitute.

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BARGAINING POWER OF SUPPLIERS
Suppliers can exert influence on a firm by threatening to raise prices or reduce quality or service and can squeeze profit out of an industry. LABOR IS AN INPUT, supplied by employees. Suppliers have power when:

  1. The suppliers dominate the industry and are more concentrated than the industry it is selling to
  2. It is not obligated to contend with other substituted products for sale to the industry
  3. Industry not an important customer
  4. Volume represented by buyer is not of high importance to supplier
  5. Supplier’s product is an important part of the buyer’s business
  6. The supplier’s products are differentiated or it has built up switching costs
  7. Forward integration is a threat

Also consider: cost relative to total purchases in the industry, impact of inputs on cost or differentiation (labor is an input supplied by employees).

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