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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.
Porter's five Forces is a popular business analysis tool. It is used for INDUSTRY ANALYSIS, say, 'the UAE Telecom Industry'. Analysts use this method to study how easy it is for a company to make above average profits in its industry.
In this technique the 5 forces identified by Michael Porter are listed: {Threat of new entrants; Supplier power; Buyer power; Substitute power; Existing Rivalry}
Then, the STRENGTH of each force is studied and labelled as High, Medium or Low.
The overall strength is then determined.
In this process, opportunities and threats in the industry are usually identified.
The next step is usually a SWOT analysis, where the Company's individual strengths and weaknesses are listed and matched with the above identified Opportunities and Threats.
This result is used to develop a strategy for the company.
