Page 53 - Introduction to strategic management

11- Porter’s Five Forces

Model of Competition

Michael Porter was a Harvard Business School Management Researcher. He
designed various vital frameworks for developing an organization’s strategy.
One of the most renowned model or framework used by managers making

strategic decisions is the ‘Porter’s Five Forces Model’ that determines industry
structure.

According to Porter, the nature of
competition in any industry depends
on five forces:

• Threat of new potential entrants

• Threat of substitute
product/services

• Bargaining power of suppliers

• Bargaining power of buyers

• Rivalry among current
competitors

These five forces should be used as a
conceptual background for identifying
an organization’s competitive
strengths and weaknesses and
threats to and opportunities for the
organization from its competitive
environment.

The Porter’s five forces mentioned are very significant from the point of view of
strategy formulation. The potential of these forces differs from industry to
industry. These forces jointly determine the profitability of an industry because

they shape the prices which can be charged, the costs which can be borne and
the investment required to compete in the industry.

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