MGT Notes

Reference: Strategic Management (5e) – Frank T. Rothaermel (Pg 82)

Michael Porter developed the Five Forces model in order to understand the profit potential of firms in different industries and help entities position themselves appropriately. The five forces arise from two key insights:

1. It is important to view competition more broadly, limited to not only the closest competitors but also buyers, suppliers, new entrants and substitute products.
2. The profit potential of a firm in an industry is not random and is not only determined by industry specific factors. It is a function of five forces shaping the firm’s position: threat of entry, power of suppliers, power of buyers, threat of substitutes and rivalry among existing firms.