What are the common pitfalls and challenges of applying Porter's five forces model to your industry analysis?

?? Step 1: Define Industry ?? Key Factors: ? ?? Scope ? ?? Boundaries ? ?? Segments ? ??? Products/Services ? ???? Customers ?? Pitfall: ? ?? Too Broad/Narrow ??? Restaurant Industry Example: ?? Fast Food ?? Casual Dining ?? Fine Dining ?? Others ?? Differentiate segments to avoid: ? ?? Inaccurate Results ? ?? Incomplete Analysis ? ?? Better Strategies & Competitive Forces Insights

Before applying Porter's five forces model, it's crucial to clearly define the industry you're analyzing. This means understanding the boundaries of your industry and identifying key players, products, and services.

The initial step in addressing the strategy formulation process is to clarify and make decisions about the industry. Personal experience reveals that this step is occasionally overlooked due to its inherent complexity. However, it remains an essential stage for accurately determining the benchmark, both during SF(strategy formulation) and SI(strategy implementation) (While considering other factors, such as the type of opportunity, it remains pivotal to establish this benchmark).

In my experience, I see a main barrier of entry to be vendor support. Without establishing proper vendor relations prior to entering a market or industry, a business may struggle to supply competitive pricing and acquire adequate inventory levels to support their business & end customer base.

When assessing the five forces that shape an industry, it's crucial to recognize that not all forces have equal weight. Each force—whether it's the threat of new entrants, the bargaining power of suppliers and buyers, the threat of substitutes, or the intensity of rivalry—can significantly influence industry attractiveness and profitability. However, these forces are dynamic and interconnected. For instance, the threat of new entrants often hinges on entry barriers, competitor reactions, and buyer preferences. Understanding this interplay helps in crafting a more informed and effective strategy. Keep evaluating these forces regularly to stay ahead in the game.

?? Step 2: Assess 5 Forces ?? Industry-shaping Forces: ?? Threat of New Entrants ?? Bargaining Power of Suppliers ??? Bargaining Power of Buyers ?? Threat of Substitutes ?? Rivalry Intensity ?? Impact on Industry: ? ? Positive/Negative ? ?? Attractiveness/Profitability ?? Mistakes: ? ? Assuming Equal Importance ? ? Ignoring Dynamic/Interrelated Nature ??? Example: Threat of New Entrants ? ?? Barriers to Entry ? ?? Competitors' Reaction ? ???? Buyer Preferences ?? Understand Interdependencies for: ? ?? Accurate Assessment ? ?? Strategic Decision-making

Once you've defined the industry, assess each of Porter's five forces: competitive rivalry, supplier power, buyer power, threat of substitutes, and threat of new entrants. Look at factors like market concentration, switching costs, and industry growth rates to understand the dynamics at play.

A good way to work with Porter's Five Forces in a business is to use a series of assumptions for each of the forces, developing a weighted analysis with different weights for each assumption (according to the reality of the market being studied). This is the method I use in my consulting services and one of the most effective ways to understand the major risks without losing touch with reality.

?? Step 3: Evaluate Industry Attractiveness ?? Analysis: 5 Forces ? ?? Weigh Opportunities/Threats ? ?? Strengths/Weaknesses ? ?? Advantages/Disadvantages ?? Difficulties: ? ?? Quantify/Compare Forces ? ?? Uncertainty/Variability ??? Example: Timeframes ?? Short-term Attractiveness ?? Long-term Decline ?? Regional/Segment Variation: ? ?? Attractive for Some ? ?? Less Appealing for Others ?? Considerations: ? ?? Short-term vs Long-term Prospects ? ?? Segment/Regional Differences ?? Goal: ? ?? Informed Strategic Decisions ? ?? Optimal Business Positioning

After assessing each force, evaluate the overall attractiveness of the industry. Consider factors like profitability, growth potential, and competitive intensity to determine how favorable the industry is for existing and potential players.

?? Step 4: Strategic Implications ?? From Industry Analysis to Business: ? ?? Insights ? ?? Recommendations ? ?? Actions ?? Challenges: ? ?? Translate Analysis ?? Strategies ? ?? Align with Vision, Mission, Goals ?? Example: Strategies from Analysis ?? Differentiate Products/Services ?? Lower Costs ?? Increase Market Share ?? Exit Industry ?? Tips: ? ?? Develop Actionable Strategies ? ?? Align with Business Objectives ?? Outcome: ? ?? Competitive Edge ? ?? Sustainable Growth

Industry analysis (Porter's 5 Forces) is invaluable. What is the landscape? How has the leverage? What's the profitability outlook? Where should we be positioned? How to create an unfair advantage for ourselves. Yet, it's a framework AND all frameworks are (over)simplifications: 1) Assumes stasis 2) industries overlap 3) companies compete in many industries 4) industries are converging 5) doesn't factor in government, technology, or rapid growth 6) doesn't tell you what to do 7) doesn't explain specific company winners / losers

Based on your analysis, identify the strategic implications for your business. This could involve identifying opportunities to strengthen your competitive position, mitigate risks, or capitalize on emerging trends.

?? Step 5: Review & Update ?? Periodic Analysis: ? ? Industry Conditions Change ? ?? Five Forces Evolve ?? Monitor: ? ?? Trends ? ?? Developments ? ?? Events ?? Adjust: ? ?? Analysis ? ?? Strategies ?? Errors: ? ?? Outdated/Obsolete Data ? ? Ignoring Feedback/Results ?? Example: Revise Analysis ?? New Entrants ?? New Regulations ?? New Technologies ?? New Customer Preferences ?? Importance: ? ?? Stay Relevant ? ?? Adapt to Changing Landscape

Professor Porter was a business mentor from afar throughout my career. The Five Forces are applicable for every industry and every era. Ignoring competitors known, and unknown have befuddled giants like Borders, Blockbuster, Sports Authority and more. How many small business' on Main Street have fallen victim to competitors they ignored until it was too late?

Finally, remember that industry dynamics can change rapidly. It's essential to regularly review and update your analysis to account for changes in the competitive landscape, market conditions, and other external factors.