Porters five competitive forces: key internal interdependencies.
importance. Also, where a force can be split into sub-forces (discussed in the next subsec- tion) it can depict these sub-forces easily.
Figure 5 gives an example of this format within the funeral industry. Here the funeral business is depicted as being relatively attrac- tive, particularly through the low bargaining power of buyers and less threat of substitutes. Immediately, using this visual picture, one can challenge the judgements supporting these outputs. Most importantly, its overall visual balance gives immediate interpretation of the industry’s overall attractiveness more effec- tively than by simply adding together the ticks as in Porter’s approach. Figure 5 thus enables the user to choose which of the five forces is most important, both in isolation and also in terms of its effects on the system. The forces here are depicted as vector lines, whose
length depends on perceived importance and favourability.
How each force relates to the others can now be examined, as explored in Figure 6.The first permutation looks at the bargaining power of the buyers in the centre of the framework.
In Figure 6 the bargaining power of the buyers at the centre is increased by competi- tive rivalry, the availability of substitutes, low entry barriers and low supplier power. The bargaining power of the buyers is thus not a separate element to consider when using the five forces, but needs thinking through in rela- tion to the others.
In Figure 7, the threat of substitutes (at the centre) is now increased by buyers keen to shop around and by low rivalry amongst existing competitors. Entrants may choose to enter via offering substitutes and once again
Porter’s five forces model 219
Copyright © 2006 John Wiley & Sons, Ltd. Strategic Change, August 2006 DOI: 10.1002/jsc
Favourable
Unfavourable
Very Low Buying Power Psychological
entry barriers
Few substitutes
Low supplier power
Gentlemanly competition
Fragmented competition
Low real entry barriers
Figure 5. Funerals case: sample outputs (3); five competitive forces.
ENTRY BARRIERS
SUPPLIER POWER
BARGAINING POWER OF BUYERS
SUBSTITUTES
RIVALRY
Figure 6. Porter’s five competitive forces: bargaining power.
ENTRY BARRIERS
SUPPLIER POWER
BARGAINING POWER OF BUYERS
SUBSTITUTES
RIVALRY
Figure 7. Porter’s five competitive forces: substitutes.
220 Tony Grundy
suppliers might seek to leap-frog existing competitors via the route of substitutes.
In Figure 8, with entry barriers at the centre, buyers may reduce entry barriers or encourage substitutes by their search for better value. Rivalry will of course discourage entrants and supplier power may do the same. Besides being novel in structure (the five forces model is always presented in the stan- dard Porter format), Figures 6–8 give managers far greater flexibility in their use of the model and hopefully more insights. In short, there are many interdependencies both external and internal to Porter’s five competitive forces, and these are unlikely to be taught at the present time to practising managers, let alone used by them. This means that they are likely to strug- gle to get deep insights about the structure and dynamics of their external environment purely by using the conventional model and its associated analysis.
The next subsection attempts to examine the forces within forces. This is more helpful and easier to remember for managers than the relatively ad-hoc qualitative considerations in the conventional texts.