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PortersFiveForcesWorksheet

Porter's Five Forces is a tool used to assess the competitive power in a business situation by analyzing five key forces: Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution, and Threat of New Entry. Understanding these forces helps businesses identify their competitive position, leverage strengths, and address weaknesses. This analysis is crucial for strategic planning and evaluating the potential profitability of new products or services.

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2 views

PortersFiveForcesWorksheet

Porter's Five Forces is a tool used to assess the competitive power in a business situation by analyzing five key forces: Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution, and Threat of New Entry. Understanding these forces helps businesses identify their competitive position, leverage strengths, and address weaknesses. This analysis is crucial for strategic planning and evaluating the potential profitability of new products or services.

Uploaded by

mbasa22kobeni
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Assessing the Balance of Power in a Business Situation

The Porter's Five Forces tool is a simple but powerful tool for understanding where power lies in a business
situation. This is useful, because it helps you understand both the strength of your current competitive position,
and the strength of a position you're considering moving into.

With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve
a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit.

Conventionally, the tool is used to identify whether new products, services or businesses have the potential to
be profitable. However it can be very illuminating when used to understand the balance of power in other
situations.

Understanding the Tool


Five Forces Analysis assumes that there are five important forces that determine competitive power in a
business situation. These are:

1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the
number of suppliers of each key input, the uniqueness of their product or service, their strength and
control over you, the cost of switching from one to another, and so on. The fewer the supplier choices
you have, and the more you need suppliers' help, the more powerful your suppliers are.
2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is
driven by the number of buyers, the importance of each individual buyer to your business, the cost to
them of switching from your products and services to those of someone else, and so on. If you deal with
few, powerful buyers, then they are often able to dictate terms to you.
3. Competitive Rivalry: What is important here is the number and capability of your competitors. If you
have many competitors, and they offer equally attractive products and services, then you'll most likely
have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good
deal from you. On the other hand, if no-one else can do what you do, then you can often have
tremendous strength.
4. Threat of Substitution: This is affected by the ability of your customers to find a different way of
doing what you do – for example, if you supply a unique software product that automates an important
process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy
and substitution is viable, then this weakens your power.
5. Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs
little in time or money to enter your market and compete effectively, if there are few economies of scale
in place, or if you have little protection for your key technologies, then new competitors can quickly
enter your market and weaken your position. If you have strong and durable barriers to entry, then you
can preserve a favorable position and take fair advantage of it.
Porter's Five Forces Worksheet

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