The Five Forces of Industry Competitive Advantage

This section provides an update to Porter's five forces model to account for the effect of technology on strategic management. Thoroughly read the material for this section, then exercises at the end of the section. How would you apply Porter's five forces model in the world today?

Key Framework: The Five Forces of Industry Competitive Advantage

Key Takeaways

  • Industry competition and attractiveness can be described by considering the following five forces: (1) the intensity of rivalry among existing competitors, (2) the potential for new entrants to challenge incumbents, (3) the threat posed by substitute products or services, (4) the power of buyers, and (5) the power of suppliers.
  • In markets where commodity products are sold, the Internet can increase buyer power by increasing price transparency.
  • The more differentiated and valuable an offering, the more the Internet shifts bargaining power to sellers. Highly differentiated sellers that can advertise their products to a wider customer base can demand higher prices.
  • A strategist must constantly refer to models that describe events impacting their industry, particularly as new technologies emerge.