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The Five Forces Model, also called Porter’s Five Forces Framework, is a tool for analyzing a business’ competition and competitive environment. The model looks at five forces within any industry to determine the state of the competitive the environment and as a result, the implications for how profitable the industry could be and business strategies for driving success.
Description of Porter's Five Forces Model
The Five Forces Model was originally developed by Michael Porter of Harvard University and was first published in the Harvard Business Review in 1979. The Five Forces Model uses the following factors in determining the level of competition an industry sector will face:
- Industry rivalry: When there are many competitors in an industry, firms have to compete aggressively for market share and as a result, profits decline.
- Threat of entry: When there are few barriers to entry in a profitable industry, more competition arises and profits decline. Existing organizations will try to make entry more difficult in order to deter potential competitors.
- Bargaining power of suppliers: If the bargaining power of suppliers is high, buyers are required to pay more or buy lower quality of raw materials, which directly impacts profits.
- Bargaining power of buyers: When their bargaining power is strong, buyers can demand lower prices or higher quality for their products. Lower prices and/or stronger demand for high quality products translates to lower profits for producers.
- Threat of substitutes: If buyers can easily find a replacement product for a better price, or switch from one similar product to another, this force can be especially threatening.
While the Five Forces model primarily focused on traditional product-based industries, as a general framework, the tool can be applied to information technology and services industries as well.
Praxie's Five Forces Tools & Templates
Strategy teams often look for ways to analyze competition of a business. The competitive influences on a business which the Five Forces Model looks at are: 1) the threat of new entrants, 2) bargaining power of buyers, 3) threat of substitute products, 4) bargaining power of suppliers, and 5) rivalry amongst existing competitors. When using the new online Five Forces Model Template from Praxie, business leaders and strategy teams can gather the most pertinent, industry-specific information on each force, analyzing the results and then mapping them out on a diagram. The five forces are most typically presented visually, with the “industry rivalry” summary in the middle and the four other forces positioned around it, each summarizing how specific dynamics contribute to the overall competitive environment.
Get started with our Five Forces Strategy & Planning template.
How to use it:
- Review the template and reflect on the dimensions.
- Enter your analysis for each dimension of the model.
- Create an action plan for completing your Five Forces Framework, including any research and input needed from key stakeholders or your team.
Unlike most traditional Five Forces strategy techniques, Praxie’s online Five Forces Strategy & Planning collaboration tools allow any team or organization to instantly begin working with our web templates and input forms. Our digital platform goes far beyond other software tools by including progress dashboards, data integration from existing documents or other SaaS software, elegant intuitive designs, and full access on any desktop or mobile device.