Tools for Analysis
Michael Porter’s 5 Forces Model is a useful tool when applied for understanding the forces in an industries environment that can affect your profitability. When you understand these forces, you can adjust your strategy accordingly. Porter’s Forces Model is a business strategy tool from the perspective of being an outsider, on the outside looking in, this is used to make an analysis of the value of an industry structure. Five fundamental forces that are identified are: entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and the rivalry among the existing players. The threat of new entrants refers to how easy or difficult it may be for new companies to enter the industry. The easier it is for new entrants, the more cut throat the competition will be. Power of suppliers refers to the amount of pressure that suppliers can put upon a business. If a supplier has a large enough impact to affect a company’s margins, then they have significant power. The power of buyers refers to the amount of pressure that customers can place on a business. If a customer has a big impact on a company’s margin’s then they are holding significant power. The availability of substitutes refers to the possibility that someone will switch to a competitor’s product or service. Last, competitive rivalry refers to how intense the competition is among existing competitors in the industry. (Mind Tools Content Team, n.d.).
Porter’s Five Forces works well in association with the SWOT analysis. The SWOT analysis is a useful tool for analyzing the internal and external factors that can affect your business. The SWOT analysis is useful when strategic planning. You will get a more valued outcome when you conduct the analysis with a specific question in mind. This analysis will allow you to identify strengths, weaknesses, opportunities, and threats for your company. Strengths will tell you what areas are performing well, weaknesses will tell you what factors are putting your company at a disadvantage. The SWOT will help you to identify opportunities that your company should take advantage of. And the external factors, threats that can be a problem for your business. (The State of Queensland, 2017).
Why are these the best tools for analysis?
Porter has successfully identified the forces that will shape every industry and market. These forces set the bar for competition and profitability. The main objective of Ferrer’s strategy should be to modify these forces to improve the position of the company. Management and leaders can strategize on ways...