AGROBIOSOLUTIONS
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Understanding the Tool:
Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are:
1. Supplier Power: To what extent your Business depends on its suppliers. How powerful are your suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on.
2.Buyer Power: How easy it is for your buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on.
3.Competitive Rivalry: What is the number and capability of your competitors. If you have many competitors, offering equally attractive products and services, the more you will be exposed to competition.
4.Threat of Substitution: The ability of your customers to find alternative supply of their needs. If substitution is easy and substitution is viable, then this weakens your power.
5.Threat of New Entry: The ability of others to enter your market. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
Porter’s Five Forces: Assessing the Balance of Power in a Business Situation
The Porter's Five Forces tool originally was created by Harvard Business School professor, Michael Porter, to analyze the attractiveness and likely-profitability of an industry. Since publication, it has become one of the most important business strategy tools. It 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.
Conventionally, the tool was used to identify whether new products, services or businesses have the potential to become profitable. However it can be very illuminating when used to understand the balance of power in other situations. 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.
How we use the Tool
We are using the tool for a better understanding of your situation, looking at each of these five forces one-by-one, carefully analysing our observations.
We will brainstorm relevant factors for your market or situation, and check them against the factors listed in the Five Forces Diagram. We will then mark the key factors on the diagram, and summarize their size and scale. For example, a single "+" sign for a force moderately in your favor, or "- -" for a force strongly against you.
The resulting 'scored' diagram will be evaluated on how it affects your business and what need to change to increase your power with respect to each force.
What’s more, if you find yourself in a structurally weak position, this tool helps you think about what you can do to move into a stronger one.
Porter's Five Forces Analysis