Porter's five forces analysis

They consist of those forces close to a company that affects its ability to serve its customers and make a profit.

Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average.

[2] A few carriers – Richard Branson's Virgin Atlantic is one – have tried, with limited success, to use sources of differentiation in order to increase profitability.

Porter developed his five forces framework in reaction to the then-popular SWOT analysis, which he found both lacking in rigor and ad hoc.

This in turn puts pressure on prices, costs, and the rate of investment needed to sustain a business within the industry.

[6][7] Michael E. Porter differentiates two factors that can have an effect on how much of a threat new entrants may pose:[8] A substitute product uses a different technology to try to solve the same economic need.

Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on.

Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

[11] While Blockbuster was thriving and expanding rapidly, its key pitfall was ignoring its competitors and focusing on its growth in the industry.

[12] For example, quite commonly websites with menus and online booking options attract customers to a restaurant.

[9] For instance, Similar to the government above, complementary products/services cannot be a standalone factor because it's not necessarily bad or good for the industry's profitability.

[9] Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position.

For instance, Kevin P. Coyne and Somu Subramaniam claim that three dubious assumptions underlie the five forces: An important extension to Porter's work came from Adam Brandenburger and Barry Nalebuff of Yale School of Management in the mid-1990s.

Using game theory, they added the concept of complementors (also called "the 6th force") to try to explain the reasoning behind strategic alliances.

Martyn Richard Jones, while consulting at Groupe Bull, developed an augmented five forces model in Scotland in 1993.

It is based on Porter's Framework and includes Government (national and regional) as well as pressure groups as the notional 6th force.

This model was the result of work carried out as part of Groupe Bull's Knowledge Asset Management Organisation initiative.

It is thus argued (Wernerfelt 1984)[17] that this theory be combined with the resource-based view (RBV) in order for the firm to develop a sounder framework.