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?)