Porters Five Forces and Generic Strategies

Abstract

Competition is what keeps organizations and industries alive. Harvard Business School Professor, Michael Porter, was keen to understand the drivers of success in commercial organizations. His research indicated that industry structure mattered more than individual firm behaviour and his Five Forces model (1979) offers his explanation of the sources of competition at industry level. The model is based on the theory of determining the competitive intensity and attractiveness of a market. The five forces within the model include: competitive rivalry, threat of new entry, supplier power, buyer power, and threat of substitution. The model has been widely used by firms to analyse the external environment and specific external forces like competition, government policies, and social and cultural forces (Vining, 2011). Furthermore, to overcome such fierce competition created by the Five Forces model, and to ensure successful survival, Porter (1985) also introduced competitive strategies to gain a competitive advantage. By combining price and market type, Porter suggests these competitive strategies: cost leadership, differentiation, and market segmentation (or focus) to enable a competitive environment to prosper. This chapter concentrates on establishing and understanding the Five Forces model and the generic strategies.