Porter’s analysis of the 5 forces is one of the most famous of business analysis.
It was created by Professor Michael Porter in 1979 and it is studied in the first year of a business administration degree and any student knows it.
Unfortunately, by many, it is seen as a very scholastic analysis and for this reason, it is not used by most managers and entrepreneurs. This is a mistake because it can also be very useful for small and medium-sized enterprises.
Porter’s 5 forces analysis
To explain Porter’s analysis of the 5 forces, it is sufficient to look at the famous graph that I have reported below.
At first glance it seems an almost trivial and very scholastic analysis, most managers and entrepreneurs think they can complete the analysis in a few minutes. This is a mistake. I’ll tell you how I rediscovered the usefulness of this analysis in my company.
I worked for a few years in a multinational company where I dealt with marketing and product management for some Eastern European markets. One day the head of our department brought to me and my colleagues the printed sheets of Porter’s analysis and asked us to compile the analysis for each market that we’re dealing with (I made it for eastern Europe, my other colleagues for Africa, the Middle East, etc ).
We thought we had to fill it out in 10-15 minutes, instead, our boss told us to do all the necessary analysis and set up a meeting a week later to discuss the results.
Obviously, I have not worked only on that for a week, but I have dedicated some hours to do it and I have had the time to send emails and hear customers’ feedbacks.
It was very useful to do this analysis because it was a moment to analyze the market without the haste dictated by short-term daily activities. I took my time to do all the necessary analysis, without worrying too much about the short term, but trying to better understand the dynamics taking place in the market in the medium and long term.
My boss had given the assignment not only to me and to my marketing colleagues, but also the area managers (sales). When we met a week later, we each presented our analysis. The analysis had many points in common, but also some different aspects and points of view. Everyone in the meeting had the opportunity to understand better the competitive environment and problems/opportunities of our business.
I would say that the analysis of Porter’s 5 forces is useful, but only if it is done in-depth. Otherwise, there is the risk of writing only of the things already known, and that does not add any value.
My suggestion, based on my personal experience:
- Take some time to carry out the analysis (one week): immediately on the first day try to understand if you need to ask for information from suppliers, customers, other offices, etc. Send emails immediately and fix telephone interviews. Like you know, it is not always easy to get feedback in 1-2 days.
- If you have employees, they should do it: try not to influence them, you need their point of view. Don’t involve only salespeople or marketers, it can also be useful to have the point of view also by people that work in other fields. ATTENTION: you must make it clear to employees that the analysis is very important and that it must be done very carefully. If you transmit a message like “fill this sheet in your spare time”, you will have a useless analysis.
- Set up a final meeting where each person who did the analysis attends and exposes its point of view and discuss it.
- Analyze any issues that have emerged from the analysis. For example, when I analyzed the East of Europe markets, I discovered that a competitor was making very high discounts not only in the markets I managed but in many others where my company did not sell directly. I did an in-depth analysis of that competitor.
- In my opinion, this analysis should be done once a year. If you do it too often (for example once a month), the risk is the analysis will be perceived as a routine task with a focus on the short term. The analysis of Porter’s 5 forces must be a moment in which you should look at the company and the market with a little detachment, without being too involved in daily activities. It must be a moment of reflection.
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