What Are Porter's Five Forces? Video

Welcome to our video series on historical management theories that changed the world.

Today we are going to be looking at Michael Porter's famous Five Forces model. But first, what's your company's position in the market? Not sure? Well, that's a problem, because if you don't know where you stand now you won't set the right strategies for the future. You'll be blind to dangers and you won't make all the profit you could.

So, let me introduce you to Michael Porter. He's the Harvard Business School professor who gave his name to Porter's Five Forces, one of the most popular and powerful business tools. It helps you see where your company is now so that you do all the right things from here on out.

Porter highlighted five things that can put pressure or force on any business. "To make savvy decisions," he said, "you need to be aware of them all."

First is competitive rivalry. How many competitors have you got and how much do they threaten you? If you are in a really competitive market maybe you'll need to beat your rivals on price or improve on their products to ensure your market share. And if you've already got the market sewn up make the most of it. But think carefully before changing anything.

Next is supplier power. Can you choose who supplies you with goods and services? Negotiate prices? Make flexible deals? Switch suppliers if you need to? Or are you limited about who to buy from so they have all the power?

Porter's third force is buyer power. How many potential customers do you have and how much choice do they have about where to spend their cash? If you are their only option, you're in a strong position. But if there are plenty of other places they could go and switching's easy, well, guess what, they're the powerful ones. You'll have to work hard to win their business and keep it.

Threat of substitutions means how replaceable you are. You may have a great solution to people's problems but could they find an easier or cheaper option or just do it themselves? What can you do to make yourself irreplaceable in people's lives?

Finally, force five is threat of new entry. How easy would it be for another company to enter your market and change your position there overnight? And what could you start doing now to protect yourself from such threats?

Let's recap.

Since Porter first published it in 1979, the Five Forces model has remained one of the most popular tools organizations use to evaluate their position in the market and their strategy. By considering all of the five forces together, you'll be in a much better position to seize opportunities, head off threats, and set the right strategies to secure success. To discover more historical management theories that changed the world, check out our other videos in the series.

You can find out more about Porter's Five Forces, including how to carry out an in-depth analysis, in our article   .