Business Modeling - Michael Porter
Overview
Michael Porters work stands as one of the fundamental pillars of business strategy. Porter analyzed industries to
try to determine what makes an industry profitable. His analysis identified five forces that shape an industry.
The second factor that affects a company's profitabitity is its relative place within its industry.
The Five Forces
As part of his analysis of the determinant of industry profitability, Porter identified five forces which shape an industry and its
competition.
- Threat of New Entrants - the ability of competitors to quickly and easily begin to compete with an established player
drives down the prices that those established players can charge. Likewise, barriers to entry
(such as large
fixed costs
) can help established companies to maintain high prices.
- Threat of Substitutes - when consumers can move away from a company's products to products that
the same or at least similar, that company must keep its prices and profits low to retain its
customer base.
- Bargaining Power of Customers
- Bargaining Power of Suppliers
- Competitive Rivalry - the presence of other competitive firms in an industry keeps profits low
as company's seek to have a price advantage over their competitors.
