How Does Porter's Five Forces Help Strategic Decisions?

Question

How can Porter’s Five Forces model aid in strategic decision making?

Answer

Porter’s five forces model includes:

1. Risk of entry
2. Bargaining power of buyers
3. Bargaining power of suppliers
4. Threats of substitutes
5. Rivalry among established firm in industry
6. Power of complement providers.

The Porter’s Five Forces model helps companies to see broader view on industry’s condition.  As each of the force grow the ability for established companies to raise prices will decrease. The changes in forces will give rise to opportunities and threats which will help in strategic decision making. Model helps to develop an understand the power in industry. It helps manager in understanding current competition position of the company. This will help to know the weakness and strength and helps move company to desired position in industry.

The analysis of competition plays very important role for strategy planning. It is important to consider all forces when performing industry analysis. By constantly analyzing market using forces model will help to gain more profit and stay on top of the industry.