2.02 – Acquiring information to 2.02 – Acquiring information to guide business decision makingguide business decision making

Michael Porter’s 5-Forces Michael Porter’s 5-Forces ModelModel

What is environmental scanning?What is environmental scanning?

Environmental scanning is the Environmental scanning is the acquisition and use of information acquisition and use of information about events, trends, and about events, trends, and relationships in an organization's relationships in an organization's external environment, the knowledge external environment, the knowledge of which would assist management in of which would assist management in planning the organization's future planning the organization's future course of action.  course of action. 

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Five Forces Analysis assumes that Five Forces Analysis assumes that there are five important forces that there are five important forces that determine competitive power in a determine competitive power in a

business situation. These are:business situation. These are: Supplier PowerSupplier Power Buyer PowerBuyer Power Competitive RivalryCompetitive Rivalry Threat of SubstitutionThreat of Substitution Threat of New EntryThreat of New Entry

Supplier PowerSupplier Power How easy it is for suppliers to drive How easy it is for suppliers to drive

up prices?up prices? How many suppliers are there?How many suppliers are there? What are their sizes?What are their sizes? What is the cost of switching from What is the cost of switching from

one to another one to another The fewer the supplier choices you The fewer the supplier choices you

have, the more powerful your have, the more powerful your suppliers are. suppliers are.

Buyer PowerBuyer Power How easy it is for buyers to drive How easy it is for buyers to drive

prices down?prices down? How many? How large? Can they How many? How large? Can they

switch away from you?switch away from you? If you deal with few, powerful buyers, If you deal with few, powerful buyers,

then they are often able to dictate then they are often able to dictate terms to you. terms to you.

Competitive RivalryCompetitive Rivalry How many and how capable are your How many and how capable are your

competitors (direct and indirect)?competitors (direct and indirect)? Is your product or service a Is your product or service a

commodity, or are you the only one commodity, or are you the only one who has/does what you do?who has/does what you do?

The ease with which your customers The ease with which your customers can switch to a competitor puts can switch to a competitor puts pressure on your business.pressure on your business.

Threat of substitutionThreat of substitution How easily can your customers find How easily can your customers find

another way of doing what you do for another way of doing what you do for them?them?

If you own a hamburger restaurant, If you own a hamburger restaurant, how likely is it that people will how likely is it that people will change their minds and buy chicken?change their minds and buy chicken?

Threat of New EntryThreat of New Entry How easily can new competitors start How easily can new competitors start

to do what you do?to do what you do? Is it expensive to get started? Is it expensive to get started? Is the business equipment or Is the business equipment or

machinery heavy?machinery heavy?