Five Forces Porter Essay

These five forces are empirically derived, e.g. by observation of real companies in real merchandises, rather than the result of economic analysis. porters beers five forces is a engrossful generic structure for thinking about the nature of industries. The understanding of the structure of an industry is the basis for formulation of belligerent strategy. The work of Porter provides an analytical material for the analysis of the structural factors that condition competition within an industry and suggests several generic competitive strategies. An industry is not a closed system, competitors exit and enter, and suppliers and buyers have a major effect on the prospects and profitability of the industry.However, Porter points out that the structure of an industry will not change in the short term. Industry structure is something that irrespective of the general economic climate or short term fluctuations in demand basically affects return on investment. Structural change is slow a nd often associated with political and labour conflict. Structural factors are often cited as holding back tuition and in some cases governments make funds available to mitigate social problems caused by structural change.By understanding this Porters five forces framework that used to analyse industrys competitive forces and to shape organizations strategy, we can apply it in our company by developing the followers steps below1.Gather the information on each of the five forcesIn this step, managers / strategists should gather information about their industry and to check it against each of the factors influencing the force.2.Analyze the results and display them on a diagram / matrix In this step, managers / strategists should analyze the gathered information and determine how each force is affecting an industry. For example, if there are many companies of exist size operating in the slow growth industry, it means that rivalry between existing companies is strong. The thing that must be remembered is five forces affect dissimilar industries differently, so dont use the same results of analysis for even similar industries.3.Formulate strategies based on the conclusionsAt this step, managers / strategists should formulate firms strategies utilisethe results of the analysis. For example, if it is hard to achieve economies of scale in the market, the company should pursue cost leadership strategy. Product development strategy should be used if the current market growth is slow and the market is saturated.In the end, even though Five Forces is a great tool to analyze industrys structure and use the results to formulate firms strategy, it has its limitations and requires further analysis to be completed such as SWOT, PEST, or Value Chain analysis.