Michael Porter's FIVE FORCE model?

Syringer

Lifer
Aug 2, 2001
19,333
3
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Hey, what's up guys... I have this assignment regarding the PORTER's FIVE FORCE model

I've found this online:

(I'm completely oblivious to it - professor won't explain it, must find w/ help from peers).


Text

Was wondering if you guys can explain what it's all about? Like if I were to find a company, how would I FIVE FORCE analyze it? I don't really understand that page, thanks :)
 

Syringer

Lifer
Aug 2, 2001
19,333
3
71
FORD would be a choice on my list, because I had just written a summary of an article regarding their write-off of Paladium in the Wall Street Journal
 

linuxboy

Elite Member
Oct 9, 1999
2,577
6
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Ah yes, Michael is an interesting guy.

what you have to recall about the five forces idea is that it provides an alternative to SWOT. Namely, it focuses on the vital reltionships businesses have with their environments.

The influencing factors, according to this idea are:

new entrants to the marketplace
Buyers
sellers/suppliers
substitutes
and of course existing industry competition.

just go through all of these and get data for all five areas.

essentially pick a company and look at it. Ask, what are the existing firms? Who are the leaders? How do they compete, what is the industry like and what's the competition like? What are the typical cultures, how old is the industry, etc. Then look at power that buyers and suppliers have. Can the firm bargain or to suppliers dictate pricing? Is it a push or pull relationship?

Just look at it and evaluate the company and the industry. Find things and fit them into one of these forces and then bullet point your findings and make cinclusions about strategy and success.


Cheers ! :)
 

cyberia

Platinum Member
Oct 22, 1999
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OK, I am going to try. But do not expect it to be an exhaustive analysis. I can't even guarantee it will be a correct analysis. This is just something to give you a jump start.


The five major forces that influence Ford's business environment are:

1) Buyers. Buyers demand better cars (safer, aestetically appealing, with more features, etc. [insert your own requirements of a car]). At the same time they do not want to spend money. They also have a choice of buing Japanese, European, GM or Chrysler. They also want good financing deals. Problem: how do you satisfy all the requirements when there is a limited ability (if any at all) to increase prices.

2) Suppliers. Modern cars contain thousands of parts from plastic caps to screws to microprocessors. Suppliers try to get top dollar for their products. Suppliers that offer high quality and unique products cannot be replaced by cheaper Chinese or Mexican (for example) suppliers since those do not manufacture the same kind of parts. Sometimes suppliers become controlled by competitors who can attempt to drive prices up and/or can create parts shortage. Also, there is always a danger of getting low quality parts (Firestone tires, for example). Problem: So, suppliers try to raise prices. Therefore, Ford needs to raise prices on cars. Consumers do not want to pay extra. See 1) above.

3) Potential entrants. There is always a danger of new competitors entering the market. Huyndai, Kia, Daewoo are examples. Problem: Consumer get more choices, car prices are pressured down. Suppliers have new customers, so they get into a better negotiating position.

4) Substitutes. Public transportation, bicycles, scooters, electric cars are examples of substitutes. Problem: Based on different political and economical conditions, these can provide a viable alternative to cars.

5) Industry competitors. Japanese, European manufacturers and GM offer competing products, often at better prices, better looking, with more features. There is always a possibility of price wars. Some manufacturers compete on prices, so again you have pricing pressure. Some have outright better cars at comparable prices. etc. etc. etc.


How is this for a jump start? If you decide to use it in your paper, make sure you make a reference.
 

iamwiz82

Lifer
Jan 10, 2001
30,772
13
81


<< 2) Suppliers. Modern cars contain thousands of parts from plastic caps to screws to microprocessors. Suppliers try to get top dollar for their products. Suppliers that offer high quality and unique products cannot be replaced by cheaper Chinese or Mexican (for example) suppliers since those do not manufacture the same kind of parts. Sometimes suppliers become controlled by competitors who can attempt to drive prices up and/or can create parts shortage. Also, there is always a danger of getting low quality parts (Firestone tires, for example). Problem: So, suppliers try to raise prices. Therefore, Ford needs to raise prices on cars. Consumers do not want to pay extra. See 1) above. >>



I work for a Ford tier I/II supplier and thats a joke. We cant raise prices on them, because they will walk. They actually try to get us to lower the price.
 

cyberia

Platinum Member
Oct 22, 1999
2,535
0
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Syringer,

Linuxboy gave you a great general methodology on how to approach your analysis. I gave you some hints on how to answer some of the questions he raised. Just spend a couple of hours to review current business periodicals/databases, and then another 90 minutes to put your findings on paper, and you'll get an A+ in three hors flat. :)

Good luck anyway.
 

fastz28

Golden Member
Mar 27, 2001
1,794
0
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<< I work for a Ford tier I/II supplier and thats a joke. We cant raise prices on them, because they will walk. They actually try to get us to lower the price. >>



This means the bargaining power of the buyers is high.
 

cyberia

Platinum Member
Oct 22, 1999
2,535
0
0
When I was in business school, I never thought that Anandtech forums out of all places will be an invaluable source for BUSINESS students.