BUS 497: ANALYZING THE INDUSTRY ENVIRONMENT
Phil Gorman, Ph.D.
Porter 5 forces model of ‘industry attractiveness’ Each of the 5 forces is comprised of a
number of factors There is no mathematical formula;
judgment is needed A snapshot of how attractive the
industry is for incumbents
“Industry attractiveness”: Porter 5 forces
RivalrySupplier power
Threat of substitutes
Buyer power
Threat of potential entrants
Entry barriers
“Industry attractiveness”: Porter 5 forces
RivalrySupplier power
Buyer power
Example: discount retail sales•Wal-Mart and Target are rivals•Procter & Gamble (toothpaste) is a supplier•You and I are buyers
“Industry attractiveness”: Porter 5 forces
RivalrySupplier power
Buyer power
Discount retail sales•Wal-Mart and Target are rivals•Procter & Gamble (toothpaste) is a supplier•You and I are buyers
Example: toothpaste•Procter & Gamble and Colgate Palmolive are rivals•People who supply the raw ingredients, and the tubes, are suppliers•Wal-Mart is a buyer
“Industry attractiveness”: Porter 5 forces
RivalrySupplier power
Threat of substitutes
Buyer power
Threat of potential entrants
Entry barriers
“Industry attractiveness”: Porter 5 forces
RivalrySupplier power
Threat of substitutes
Buyer power
Threat of potential entrants
Entry barriers
“Industry attractiveness”: Porter 5 forces
RivalrySupplier power
Threat of substitutes
Buyer power
Threat of potential entrants
Entry barriers
“Industry attractiveness”: Porter 5 forces
RivalrySupplier power
Threat of substitutes
Buyer power
Threat of potential entrants
Entry barriers
“Industry attractiveness”: Porter 5 forces
RivalrySupplier power
Threat of substitutes
Buyer power
Threat of potential entrants
Entry barriers
Porter 5 forces: notes
It is a snapshot; need to turn it into a moving picture
Depends on how you draw the boundaries of the playing field
There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces In the end you make a judgment call
Porter 5 forces: notes
It is a snapshot; need to turn it into a moving picture
Depends on how you draw the boundaries of the playing field
There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces In the end you make a judgment call
Porter 5 forces: notes
It is a snapshot; need to turn it into a moving picture
Depends on how you draw the boundaries of the playing field
There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces In the end you make a judgment call
Porter 5 forces: notes
It is a snapshot; need to turn it into a moving picture
Depends on how you draw the boundaries of the playing field
There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces In the end you make a judgment call
Industry life cycle
As the industry evolves, so does the list of things a company needs to pay attention to
Industry life cycle
Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)
Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product
Maturity: when consumers know exactly what the product is about; demand is leveling off
Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper
Industry life cycle
Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)
Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product
Maturity: when consumers know exactly what the product is about; demand is leveling off
Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper
Industry life cycle
Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)
Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product
Maturity: when consumers know exactly what the product is about; demand is leveling off
Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper
Industry life cycle
Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)
Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product
Maturity: when consumers know exactly what the product is about; demand is leveling off
Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper
Industry life cycle
Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)
Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product
Maturity: when consumers know exactly what the product is about; demand is leveling off
Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper
Summary
Porter 5 forces: industry attractiveness It is a snapshot Must also assess the trajectory (“moving
picture”) Industry life cycle
Industries generally move in a predictable direction
But the timing is not know ahead of time (15 years to maturity? 100 years to maturity?)