Industry Attractiveness
BARRIERS TO ENTRY
BARGAINING POWER OF SUPPLIERS
INDUSTRY RIVALRY
BARGAINING POWER OF BUYERS
THREAT OF SUBSTITUTES
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For more information refer to Porter, Michael E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press.
A Business Planning Reference Guide for Social Enterprises
Strategic implication— how certain information impacts or influences a strategy or plan to meet specific goals or objectives.
Strategic Frameworks
EXHIBIT 4E: FIVE FORCES MODEL
Industry—a group of firms offering the same products and services, or ones that are close substitutes of one another, and the supply and distribution systems supporting such companies.
Chapter 4
Rationale: Attractiveness of an industry is a critical piece of the market research puzzle when planning your social enterprise. An industry is attractive if it offers above-average potential for healthy long-term profitability and sustainable comparative advantage. Determining industry attractiveness requires analyzing trends in the business environment and the likely behavior of competitors. Structural characteristics of the industry define the business environment in which social enterprises and companies compete and to which each competitor must adapt. The most influential and widely used structural analysis method is Michael Porter’s “five forces” model.1 According to Porter, a Harvard Business School professor, five forces shape industry structure: barriers to entry, buyer power, supplier power, the threat of substitutes, and industry rivalry. These forces set limits on prices, costs, and investment requirements—the basic factors determining the profitability and hence the viability of your social enterprise. Thus, if you understand the forces that constrain these basic factors, you can determine whether the business environment will be hospitable or hostile to your social enterprise. Also important is to understand the strategic implications of these forces for the design of your enterprise.
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Copyright ©2000 Sutia Kim Alter. This work is licensed under the Creative Commons Attribution-Share Alike 3.0 License (http://creativecommons.org/licenses/by-sa/3.0/)