How Michael Porter’s five forces framework can take your business to the next level

800px-porters_five_forcesAs promised in the previous post, this is an  article derived from the knowledge I have gained doing my MBA. I plan to share similar nuggets and what I have learnt from these concepts here on BizDharma.

The idea is to post such articles once every week (lets have it every Monday to call it a “MBA Mondays post”)

So let’s get the ball rolling. I would like to introduce you to a framework provided by Michael Porter and while you are reading this post try to envisage your current business or a potential business that you want to get into. The intention is that by the time you complete this post you should have enough action points and learning taken from this framework.

Who is Michael Porter? And what is the Porter’s Five Forces Framework?

First mentioned in the book “Competitive Strategy: Techniques for Analyzing Industries and Competitors”, Porters Five Forces is a framework that helps any Marketer or a Strategy team analyze various businesses or even industries. It’s kind of an analysis which helps you plan strategies for your business. At times it is even carried along with SWOT analysis.

To put things straight Porter with this framework, explains that every business across industries is been driven by five forces. These five forces and a business’s stance towards them decide where the business stands in the industry. If you want to develop an edge over your rivals in the market, this framework helps analyze your business with the industry context it operates in.

You can definitely read more about this framework from this Wikipedia post.  Know all the components of the framework and some more information.

25 questions every Entrepreneur must answer.

What I intend to present here is 25 straight questions that any Entrepreneur should have an answer for to take his business to the next level of growth. These 25 questions are based on the 5 components of Porter’s framework and logically cover various aspects of any business or an industry.  I have purposely used active voice in these questions to give a feel to the reader that he is questioning himself. Read the questions and try to answer them with respect to your business context. So here we go.

Supplier Power

  1. Am I depending too much on a particular Supplier or group of suppliers? There unavailability or quality can harm your business drastically
  2. Is my sourcing equal across various suppliers
  3. What are the substitutes to the raw materials that these Suppliers provide
  4. What is the cost of switching suppliers in terms of both time and money
  5. Is the competition between my suppliers healthy enough to bring me advantages?

Buyer Power

  1. Am I completely aware of all the attributes of my customer? Do I know their buying preference, volumes, nature etc?
  2. How much sensitive are buyers to my attributes, like price, quality, availability, frills etc?
  3. What are the substitutes available to buyers? What is the probability of me getting substituted and why?
  4. Backward integration. Can my buyers start producing products I provide to reduce their costs? Ex Pepsi starts producing its own bottles (rather than outsourcing the bottling business) to reduce risk and costs related to the same, that’s backward integration.
  5. How do buyers identify my products? How much Brand recognition do I have? What perception does my product have in an ordinary buyer’s mind?

Threat of new Entrant

  1. What does it cost and what time is required to get into my industry?
  2. Have I developed an edge over new entrants across my operations? Do I have any specialized knowledge or resource pool that a new entrant doesn’t?
  3. Have I secured my Intellectual Property? Do I hold rights over my IP or anyone can freely mimic my strategy?
  4. Have I achieved the economies of scale which a new entrant cant? Ex it will take less amount of effort for Nokia to develop a new handset compared to a new entrant who has just started his R&D?
  5. What role does the government and the economy plays for new entrants. Regulations can be a big reason why a new entrant might not get into your industry?

Competitive Rivalry

  1. Am I aware of the competitor attributes? How much they earn, from What and how they earn it? Am I aware of where the industry is heading and from where new revenue streams will pop up?
  2. What are the basic differences between me and the competitor? How does that affect my business and what can I do about it?
  3. How much time, effort and money does it take to switch to a competitor? Is it easy?
  4. How Innovative am I versus the competition? Are our approaches similar?
  5. What areas do I need to target so that I can just change the rules of the competition rather than fighting the bloody war? (inspired by Blue Ocean Strategy)

Threat of substitution

  1. What benefits does a customer see when he substitutes me? Price, quality any other? What can be done about it?
  2. Is my product substituted by a rival product or the customer is doing backward integration?
  3. What level of substitution is available for the product and what probability it has?
  4. What are the areas we are least bothered which might end up substituting us?
  5. What is our action plan once we get substituted by a rival product?

With this we complete the list of top 25 questions that I derived from Michael Porter’s five forces framework. This was part of my MBA studies and I thought it would add value to share what I learnt and the questions that I derived learning the same.

You can probably save or email this post for future references whenever you want to analyse any business or any industry.

Hope it helped you. Have any doubts? directly comment on this post and I will get back to you.

Img Src: Wikipedia

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{ 8 comments }

Aniket May 12, 2010 at 10:23 am

Great post. I believe these questions are a must for every business man. BTW didnt even knew about this SWOT.

Nita May 23, 2011 at 9:56 am

Thank you so much..It was quite helpful

Himanshu Chanda May 24, 2011 at 3:28 pm

Thanks for the comment Nita. I hope other articles too will be of great interest to you.

imran khan sadri August 16, 2011 at 5:02 pm

thts cool but you should write it considering yourself a customer, that would be much better to understand. Its gud, i m satisified. thnx

yacqub November 20, 2011 at 4:41 pm

My teacher in entrepreneurship gave me everything about business , , he was perfectly explaining me the five forces competitive market to effect in the business ,,, cool

Tale Ndonje December 26, 2011 at 10:39 am

The analysis is very helpful as it gives a though understanding on how Porters five forces is applied in a particular industry. please go on delivering other issues about this topic.

Himanshu Chanda January 2, 2012 at 4:45 am

Sure Tale. I am happy that you liked the post.

Shubha July 26, 2012 at 9:43 am

Thanks for sharing the concept with so much clarity. Once we have answered these 25 qns, what is the next step as in how do we realy analyse the current state of business. are we expected to come up with action points after answering each question?

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