DTU ProjectLab - User contributions [en-gb]

Stakeholder Identification and Categorization

2022-03-28T16:44:18Z

Ziwei Chen: /* Introduction */

== Abstract ==

‘Stakeholders’ generally means any group or individual who can affect or is affected by the achievement of the organization’s objectives. <ref>R. Edward, Freeman, and Mcvea John. [https://www.researchgate.net/publication/228320877_A_Stakeholder_Approach_to_Strategic_Management ''a Stakeholder Approach to Strategic Management.''],ResearchGate, Jan. 2001, SSRN Electronic. </ref>
Stakeholder analysis is an essential part of project management, which can help recognize the people related to the project, so that project managers can analyze the impacts of different stakeholders, get more support and resources to facilitate the project. It is important to analyze stakeholders early in the project because it can provide a guide to decide the direction for a project.

This article explains how to identify and categorize the stakeholders by introducing the definition, purposes, applications, and limitations, aiming to provide readers with a guide to apply the methods.

== Definition ==

Stakeholder is a group, corporate, organization, member, or system that affects or can be affected by an organization's actions. <ref> Wikipedia Contributors. . Wikipedia, Wikimedia Foundation, 9 Oct. 2018, en.wikipedia.org/wiki/Stakeholder. Accessed 11 Dec. 2018. </ref>.
Stakeholders can also be deﬁned as actors who have an interest in the issue under consideration, who are affected by the issue, or who – because of their position – have or could have an active or passive inﬂuence on the decision-making and implementation processes<ref>Varvasovszky, Z. [https://academic.oup.com/heapol/article/15/3/338/573312?login=true ''A Stakeholder Analysis'']., Health Policy and Planning, vol. 15, no. 3, 1 Sept. 2000, pp. 338–345</ref>.

Stakeholder analysis comprises different methods, processes and has developed a lot of tools utilized in different industrials and business structure.
Whatever approach is used, there are three essential steps in stakeholder analysis: <br/>
1) Identifying the key stakeholders and their interests. <br/>
2) Assessing the influence of, importance of, and level of impact upon each stakeholder; <br/>
3) Identifying how best to engage stakeholders
<ref>Golder, B, and Gawler, M. [https://awsassets.panda.org/downloads/1_1_stakeholder_analysis_11_01_05.pdf Cross-Cutting Tool Stakeholder Analysis]. World Wildlife Fund, 1 Oct. 2005.</ref>.

The processes of stakeholder identification and categorization mainly belongs to the first two steps.

== Purpose ==

Stakeholder analysis has many benefits for projects, not only in improving the satisfaction of those involved with or related to the project, but also in the progress and outcomes of the project.

On the one hand, stakeholder engagement can achieve mutual understanding and trust between the organization and the stakeholders in order to achieve a comfortable relationship of coexistence and mutual success.
<ref name="ref5"> Mcphee, Wayne, and Sabrina M Dias. [https://www.wiley.com/en-us/Integrating+Sustainability+Into+Major+Projects%3A+Best+Practices+and+Tools+for+Project+Teams-p-9781119557890 ''Integrating Sustainability into Major Projects: Best Practices and Tools for Project Teams. Hoboken''], Nj, John Wiley & Sons, Inc, 2020</ref>
Considering the expectation and concerns from people related to the project is important to increase the reputation of the project and influence the process. Meanwhile, some stakeholders have veto power to some key decisions, which can also impact the execution and results. So, it is essential to figure out the key stakeholders, the impacts from different stakeholders, the purpose of engaging them, and their expectations.

On another hand, it can provide project managers with more comprehensive views to estimate risks that could happen in the future. Firstly, transitions between phases of a project have significant impacts on stakeholders. For example, project ramp-up from scoping to construction is particularly dramatic. There is usually a sharp increase in employees, construction activity, traffic, dust, noise, and other impacts. The reverse is true for transition from construction to operations where there could be job losses and a decrease in the local economy.<ref name="ref5"> </ref>
In order to avoid unnecessary concerns and manage project impacts, it is essential to get key stakeholders ready for project transitions. Secondly, getting information from stakeholders has a great impact on defining the scope of a project because project managers can more accurately understand economic planning, the needs of users and communities, the impact assessment, and find opportunities to optimize the project.

== Application ==
The identification and classification processes are important steps in stakeholder analysis, and stakeholder engagement is a complex process that needs to determine the scope, impact, and workload. That should be comprehensive and flexible so that subsequent cooperation and communication can be smoothly advanced. It is necessary to use some tools to analyze.
The purpose of these tools is not limited to representing or communicating, these visualization tools can also work as “conversation facilitators”, they can be used collaboratively to trigger discussion in a management process. In this way, they may support the collaboration of different people in multiple ways. <ref>Gaver, Dunne and Pacenti, 1999; Eriksen et al., 2014; Sangiorgi, Patricio and Fisk, 2017, cited in Mcphee, Wayne, and Sabrina M Dias. [https://www.wiley.com/en-us/Integrating+Sustainability+Into+Major+Projects%3A+Best+Practices+and+Tools+for+Project+Teams-p-9781119557890''Integrating Sustainability into Major Projects: Best Practices and Tools for Project Teams'']. Hoboken, Nj, John Wiley & Sons, Inc, 2020.</ref>

This article focuses on three tools to mine and sort out stakeholders and find their influence on the project, including stakeholder map (circle style), interest/influence matrix, and system map.

=== Stakeholder map (circle style) ===
==== Introduction ====
Stakeholder map is a representation of all the stakeholder involved in a project, aimed at clarifying roles and relationships<ref name="ref7"> Giordano Fanny, Morelli Nicola, De Götzen Amalia, Hunziker Judith.[https://www.servdes.org/wp/wp-content/uploads/2018/07/48.pdf ''The stakeholder map: A conversation tool for designing people-led public services''], 2018</ref>.
In addition to identifying stakeholders, stakeholder maps are frequently used to estimate or forecast their influence. People from different organizations could use the stakeholder map as a discussion tool during early project meetings to express their points of view and to gain mutual understanding.

==== Application ====
A public institution dealing with migrants in Geneva, Switzerland wanted to improve their service offering by a design team. As a result of the stakeholder map, a new form of dialogue between the public institution and stakeholders was developed.

The problem of previous phase is that designers are difficult to access and involve end-users, so the project team created a mini workshop using the stakeholder map to establish a mutual understanding by the conversation and define a new direction for phase two. The purposes were that having stakeholders engage in a dialogue about this issue, clarifying the organizational structure, and making the the public institution to paticipate in the dialogue about stakeholders.
They envisioned an ecosystem with a user/people/citizen-centred perspective where all newcomers - recipient of the public institution and others - would have the most central role together with local citizens.<ref name="ref7"/>
It is likely that small, local organizations that already offer numerous programs and services will be crucial to communicating information, facilitating communication, and coordinating activities. Even though designers are already in the second circle, they'd be close to the center when they're designing the program, evaluating it, and engaging local residents. By placing the card next to the designer‘s card, this suggests an advisory role rather than a leadership role, enabling direct contact between designers and citizens.
This is a way of positioning actors that could facilitate the practice of a people-centred approach<ref name="ref7"/>.

[[File:Stakeholder map1.png|thumb|center|300px|Stakeholder map of a future vision done by the design team before the workshop''<ref name="ref7"/>'']]

Following this, a decision was made that the head of the communication department would firstly select its position on the stakeholder map. Other stakeholders would do the same, resulting in a current and future stakeholder map. After that, the focus of the map shifted to service recipients, migrants, and local residents instead of public institutions.

The details unearthed from these stakeholder maps are

1) The project team tends to mix up who should actually benefit the project with who funded and facilitated it.<ref name="ref7"/>

2) The public employees expressed a desire for more solidarity, exchanges, and equality among themselves.

3) The project was open to people other than the public institution, and the ambassador was able to moderate communication between the recipients and other migrants as well as locals.

[[File:Stakeholder map22.png|thumb|center|600px|Present situation, future vision, and final future vision ''<ref name="ref7"/>'']]

In light of stakeholder maps, the project team concluded that the communication department chief was primarily concerned about public institutions and other government entities. The project manager played a significant role in the participatory process, while the communication chief monitored the project remotely. It is important that public servants stay abreast of developments outside the public sector. They was obviously trying to balance out the worry that insufficient resources and effort would be put into migrant projects compared to other projects. Considering this, it may be possible to extend the use of this method to other groups of social applicants who may be eligible for such assistance. Meanwhile, the public institution wished to lessen its monopolistic position in serving migrants and to establish closer ties with other smaller organizations.

===Interest / Influence matrix===
====Introduction====
Interest/influence matrix is a tool to categorize stakeholder. Interest is the positive or negative concern or interest that stakeholders have with you, your teams and/or your products/services. A stakeholders’ interest is typically classified as high or low. Knowing the interests that your stakeholders have, helps to build a better relationship and to manage them more effectively<ref name="Sch">Schuurman, Robbin. [https://medium.com/the-value-maximizers/creating-a-stakeholder-analysis-how-do-you-do-that-b2b8198ca6c ''Creating a Stakeholder Analysis: How Do You Do That?''], Medium, 7 Nov. 2019, medium.com/the-value-maximizers/creating-a-stakeholder-analysis-how-do-you-do-that-b2b8198ca6c.</ref>.
Influence can be distinguished into formal influence and informal influence.
Formal influence is based on a stakeholders’ formal, hierarchical position, which gives them formal power/influence. Informal influence is the power or influence that a person has without a formal position, but it was obtained through inspiring leadership or knowledge authority.<ref name="Sch"/>

Most useful supporters or most dangerous opponents are likely to be those with more power. In general, the Stakeholder Interest/influence matrix assists project managers in prioritizing stakeholder segments to focus on. It is one of the best ways for project managers to understand the support and opposition they could expect for recommendations.

A simple quadrant diagram can be constructed with two axes (degree of influence and interest) depending on the specifics.

[[File:Stakeholder interest influence matrix.png|thumb|center|600px|Stakeholder interest influence matrix ''<ref> [https://www.jisc.ac.uk/guides/change-management/stakeholder-engagement ''Stakeholder Engagement.''] Jisc, 30 Jan. 2014, www.jisc.ac.uk/guides/change-management/stakeholder-engagement.</ref>'']]

====Application====
Low interest and low influence people are generally not important, but keeping in touch with them in writing is a good idea.

As long as people with high interest and low influence do not derail the change, it is easy to ignore them. They may, however, gain influence if sufficiently upset to resist change. In addition, their higher level of interest enables them to provide more useful information for the project. This makes active consultation a suitable decision.

Stakeholders with low interest and high influence may become formidable opponents if they oppose. To maintain their interest, it is crucial to keep them well-informed.

It is particularly important to involve those people who have a high level of interest and influence in the project. It is imperative for them to understand the program and be able to take ownership of it. This requires more direct communication with them in person.

=== System map ===
==== Introduction ====
A system map is a synthetic representation that shows in one single frame all the different actors involved in a service delivery, and their mutual links. The system map clarifies how the different service components and roles are connected one to the other, highlighting the values they exchange. Connect the components in loops: there is always an input and output under each exchange<ref name="Nicola">Nicola Morelli, [https://vbn.aau.dk/ws/files/12648391/representation_techniques_for_design_in_a_systemic_perspective ''New representation techniques for designing in a systemic perspective, paper presented at Design Inquires''], Stokholm, 2007.</ref>.

System map gives an overall picture of the network of actors and components in the system<ref name="Nicola"/>.
Roles, groups, and relationships are the key topics. As part of the technique, each participant is grouped according to their role.

As a result of different points of view, different maps can be created. As a system map focuses on users, for example, it is possible to visualize products, services, and interactions between users and other actors. While a user-centered representation of a system may be representative of the viewpoint of the user, this type of representation is not necessarily user-centered. In fact, it may not be appropriate for communicating with users.

Using a System Map, you can represent an existing system or create models of a new one.
In this case actor interactions could be mapped, in order to represent different possible configurations of the new system and analyze the interaction between the actors in each configuration<ref name="Nicola"/>.

==== Application ====
This case is a public welfare reading project I have worked on in Xuzhou, China, which developed a service platform for encouraging users to borrow books and share reading resources. By integrating the reading resources scattered around the city, the product tries to break the traditional barriers of physical book borrowing, so as to achieve the goal of knowledge flow.

The library needed to improve the circulation rate of libraries and the readers needed a more efficient lending platform and wanted to share their own books. After the identification of the need list of key stakeholders, the project team made a system map in order to visualize the final design concept and show the relationship between stakeholders of the project.

The stakeholders in the diagram be connected by three ways, material flow, information flow and capital flows, which illustrates what kind of value is exchanged between them. Since users have different needs, such as borrowing and donating books, the project designers should pay increased attention to identifying and categorizing the needs of users. The businesses in the community and the users formed a close bond, so the project team should establish a closer connection with the businesses in the community during the subsequent phase.

[[File:System map of urban decentralized library system.jpg|thumb|center|600px|System map of urban decentralized library system]]

== Limitations ==
The method of analyzing stakeholder also has some limitations.

Involving stakeholders and soliciting their feedback are important, however, they may not always be beneficial since they may change the stakeholder's position, which will reduce the value of the analysis.
Due to the large number of stakeholders, each has a different impact on the project, both in terms of size and scope. In addition, stakeholders may engage with the company on an individual basis, as well as engage in dialogue together, which allows for a more flow of information between them and influences each other's views.
Feedback of outputs may also be inappropriate if the stakeholders are in a position to inﬂuence or control the outcome of the analysis, where a preliminary assessment is not favorable to them. In addition, the premature use of tools to analyzing stakeholders may lead to the neglect of important issues and the premature<ref>Varvasovszky, Z. [https://academic.oup.com/heapol/issue/15/3 ''A Stakeholder Analysis''], Health Policy and Planning, vol. 15, no. 3, 1 Sept. 2000, pp. 338–345</ref>.
Rather than test a variety of hypotheses, it is imperative to identify the most important issues and actors. In order to avoid a premature assumption regarding the direction of the analysis in the future, it is necessary to exercise careful judgment.

Despite the importance of engaging stakeholders and receiving their feedback, it is not always positive as it can potentially change stakeholder opinions, which limits its usefulness. It would also be inappropriate for stakeholders to provide feedback on the outputs if they have the potential to influence or control the results, in which case an initial assessment would not be favorable to them. In addition, the premature use of tools to analyzing stakeholders could lead to the neglect of important issues. In the beginning, it is imperative to identify key issues and actors, rather than test various hypotheses. Prudence is required to prevent incorrect assumptions about the direction of the analysis in the future. It is dangerous to have an overly narrow focus that predetermines which questions and issues are important, and where agreement or disagreement need to be developed. A wide focus can cause chaos; stakeholders may not see any purpose or benefit for getting involved and spending time on it, and they may quit or refuse to commit to it.

== Conclusion ==

There are many facets to stakeholder engagement, not all of them can be considered and included. Understanding and using scientific theories and tools to identify and clarify stakeholders is critical to making the right decisions by listening to the "right" stakeholders in the appropriate manner. In particular, when it comes to the definition of project responsibility. A successful outcome for any project is the result of balancing the interests of stakeholders, identifying their types, and deciding how to interact with them.

== References ==

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:46:19Z

Ziwei Chen: /* The Model: Porter’s Five Forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:

1. Research the current business state and environment

2. A vision of an ideal state for the next three to five years

3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|350px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|500px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market.

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• ''The standard for project management''. (2021). Project Management Institute, Inc.'''

This book is the standard guide publication of the Project Management Institute. It covers project management standards, the project management body of knowledge. The fourth section of the book provides a summary and in-depth description of some of the practical and commonly used models and methods in project management, providing a valuable reference for teams. The Porter's Five Forces is an analytical model that uses data collection to analyze phenomena and thus develop strategies.

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:42:08Z

Ziwei Chen: /* The Context: Strategic Planning */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:

1. Research the current business state and environment

2. A vision of an ideal state for the next three to five years

3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|left|350px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|500px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market.

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• ''The standard for project management''. (2021). Project Management Institute, Inc.'''

This book is the standard guide publication of the Project Management Institute. It covers project management standards, the project management body of knowledge. The fourth section of the book provides a summary and in-depth description of some of the practical and commonly used models and methods in project management, providing a valuable reference for teams. The Porter's Five Forces is an analytical model that uses data collection to analyze phenomena and thus develop strategies.

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:41:36Z

Ziwei Chen: /* Vertical forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|left|350px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|500px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market.

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• ''The standard for project management''. (2021). Project Management Institute, Inc.'''

This book is the standard guide publication of the Project Management Institute. It covers project management standards, the project management body of knowledge. The fourth section of the book provides a summary and in-depth description of some of the practical and commonly used models and methods in project management, providing a valuable reference for teams. The Porter's Five Forces is an analytical model that uses data collection to analyze phenomena and thus develop strategies.

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:40:46Z

Ziwei Chen: /* Annotated Bibliography */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|left|350px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|500px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• ''The standard for project management''. (2021). Project Management Institute, Inc.'''

This book is the standard guide publication of the Project Management Institute. It covers project management standards, the project management body of knowledge. The fourth section of the book provides a summary and in-depth description of some of the practical and commonly used models and methods in project management, providing a valuable reference for teams. The Porter's Five Forces is an analytical model that uses data collection to analyze phenomena and thus develop strategies.

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:40:28Z

Ziwei Chen: /* Annotated Bibliography */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|left|350px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|500px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• ''The standard for project management''. (2021). Project Management Institute, Inc.'''

This book is the standard guide publication of the Project Management Institute. It covers project management standards, the project management body of knowledge. The fourth section of the book provides a summary and in-depth description of some of the practical and commonly used models and methods in project management, providing a valuable reference for teams. The Porter's Five Forces is an analytical model that uses data collection to analyze phenomena and thus develop strategies.

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:38:18Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|left|350px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|500px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:37:13Z

Ziwei Chen: /* The Model: Porter’s Five Forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|left|350px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|left|500px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:36:46Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|left|500px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:36:19Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|left|400px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:35:48Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|right|400px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:34:27Z

Ziwei Chen: /* The Process: The Five Forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:34:15Z

Ziwei Chen: /* Horizontal forces https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:33:58Z

Ziwei Chen:

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:31:29Z

Ziwei Chen: /* Horizontal forces https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A">https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces)</ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces <ref name=“A” /> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:30:27Z

Ziwei Chen:

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces <ref name=“A” /> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:27:33Z

Ziwei Chen: /* Vertical forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces <ref name=“A”/> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:26:14Z

Ziwei Chen: /* Vertical forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces <ref=“A” /> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:23:46Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework <ref> https://bscdesigner.com/competitive-strategy-five-forces.htm Five Forces Analysis for a Strategy Scorecard </ref>]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces </cite A> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:22:29Z

Ziwei Chen: /* Horizontal forces https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects <ref> https://learn.marsdd.com/article/barriers-to-entry-factors-preventing-startups-from-entering-a-market/ Barriers to entry: Factors preventing startups from entering a market </ref>：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces </cite A> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:21:27Z

Ziwei Chen: /* Vertical forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces </cite A> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:20:29Z

Ziwei Chen: /* Vertical forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces <ref/A> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:20:10Z

Ziwei Chen: /* Vertical forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces </ref=A> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:19:55Z

Ziwei Chen: /* Vertical forces https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces <ref/A> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:19:28Z

Ziwei Chen: /* Horizontal forces https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref name="A"> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces <ref> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:18:33Z

Ziwei Chen: /* Vertical forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces <ref> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:17:32Z

Ziwei Chen: /* Horizontal forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces <ref> https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/ Threat of Substitutes (one of Porter’s Five Forces) </ref> ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:16:01Z

Ziwei Chen: /* Limitations */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy <ref> Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 2006. 15(5): p. 213-229. </ref>, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:15:02Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project <ref> Ormanidhi, O. & Stringa, O. 2008. Porter's Model of Generic Competitive Strategies: Business Economics, Vol. 43, page. 55, 2008. </ref>.

Here is a case study:

James Rajasekar et al. <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref> use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:12:59Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model <ref> Rajasekar James, & Mueid Al Raee, 2013. "An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model", Competitiveness Review: An International Business Journal, Vol. 23 Issue. 3, pp. 234-259, 2013. </ref>:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:12:05Z

Ziwei Chen: /* The Model: Porter’s Five Forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980 <ref> Porter, M. E. (1980). Competitive strategy : techniques for analyzing industries and competitors (pp. XX, 396 S (unknown). Free Press. </ref>:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:11:11Z

Ziwei Chen: /* The Model: Porter’s Five Forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. As defined in the Project Management Standards book <ref> The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. </ref>, this model would be a planning model, where future strategic plans are developed based on an analysis of the current state of the market. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:09:55Z

Ziwei Chen: /* The Context: Strategic Planning */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan <ref> Kubiak, T. M., & Benbow, D. W. (2009). The certified six sigma black belt handbook. Certified Six Sigma Black Belt Handbook (2nd Edition) (pp. xxvii, 620 p (unknown). ASQ Quality Press. </ref>.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:08:04Z

Ziwei Chen: /* Abstract */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:07:48Z

Ziwei Chen: /* Abstract */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy </ref> "https://www.investopedia.com/terms/p/porter.asp Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:07:28Z

Ziwei Chen: /* Abstract */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy </ref> https://www.investopedia.com/terms/p/porter.asp "Porter's 5 Forces" </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:05:22Z

Ziwei Chen: /* Abstract */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref> Grundy, T. “Rethinking and Reinventing Michael Porter's Five Forces Model.” Strategic Change, vol. 15, no. 5, John Wiley & Sons, Ltd., 2006, pp. 213–29, doi:10.1002/jsc.764. </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:03:23Z

Ziwei Chen: /* The Context: Strategic Planning */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:03:08Z

Ziwei Chen: /* The Context: Strategic Planning */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:02:55Z

Ziwei Chen: /* The Context: Strategic Planning */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref> Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T21:02:11Z

Ziwei Chen: /* References */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:58:37Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Fiveforces3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:57:28Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

[[File:Picture 3.png|thumb|center|600px|Figure 3: Porter's Five Forces Model]]

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:56:11Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|500px|Figure 2: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:55:57Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframework.png|thumb|center|600px|Figure 1: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:55:46Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforceframework.png|thumb|center|600px|Figure 1: Porter's Five Forces Framework]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:54:31Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:fiveforceframe.png|thumb|center|600px|Figure 1: Porter's Five Forces Frame]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:53:31Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:Fiveforcesframe.png|thumb|center|600px|Figure 1: Porter's Five Forces Frame]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:53:21Z

Ziwei Chen: /* Application */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

[[File:fiveforcesframe.png|thumb|center|600px|Figure 1: Porter's Five Forces Frame]]

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

<references />

Porter's 5 Forces - A strategic planning model

2022-03-22T20:52:33Z

Ziwei Chen: /* The Model: Porter’s Five Forces */

== Abstract ==

The Porter's Five Forces Model is a strategic analysis tool often used by companies to understand the profitability and structural underlying drivers of projects and to develop competitive strategies. These five forces are supplier power, buyer power, competitive rivalry, the threat of substitution, the threat of new entry <ref name=''[1]''>''link/title'' </ref>. The goal of the model is to help identify the strengths and weaknesses of a project and then determine the structure and strategy <ref name=''[2]''> ''link/title'' </ref>. In a certain sense, competitive strategy derives from a deep understanding of the project's competitive landscape. In any industry or project, whether it is producing products or providing services, the law of competition can be reflected through these five forces. For project managers and operators, it is easy to get confused in project operation because of unknown reasons. This is an effective tool to find what really makes the industry profitable. Analyzing exactly which trends will have a big impact on the project, where the constraints are, and if those constraints can be relaxed, it may allow the company to find a really strong competitive position.

The analysis of the five forces model requires a certain knowledge background, but it is relatively easy to practice and apply. This tool can be applied from small-scale projects to large-scale industries. For project management, it is an effective tool to develop a competitive strategy in the market.

This article will explore how to use Porter’s Five Forces model to find the fundamental factors of project profitability, analyze the practical application of the model, and discuss the limitations of the model with critical thinking.

== Big idea ==
=== The Context: Strategic Planning ===

Generally, project management can be regarded as the process of achieving the objectives of the strategic plan.
Strategic planning is the process of formulating and implementing policies for the future direction of an organization. <ref>Kerzner, H. (2019). Using the Project Management Maturity Model, 3rd Edition, Using the Project Management Maturity Model, Third Edition. Using the Project Management Maturity Model, 3rd Edition. John Wiley & Sons. </ref>.
A strategic plan is usually developed based on professional analysis and experience prior to the implementation of some activities and initiatives. It includes measures and systems to achieve the overall goal. Additionally, a line of sight must be created from strategy to tactics to operation for a successful strategic plan.
The things that must be done during a strategic planning processing:
1. Research the current business state and environment
2. A vision of an ideal state for the next three to five years
3. Develop a planned path for how to get from one place to another

=== The Model: Porter’s Five Forces ===
Known as the father of the competitive strategy, Michael Porter is an active advocate for thorough research and analysis of the nature of competition. The concept of Porter's five forces first appeared in his 1979 paper. For more than two decades, Porter's Five Forces Model has been one of the business concepts familiar to corporate strategists. Porter wrote in Competitive Strategies published in 1980:

"In any industry, whether domestically or internationally, whether it is a product or a service, the rules of competition lie in five competitive forces. The collective power of these five competitive forces determines a company's profitability. The strength of these five forces will vary across industries and will continue to change as the industry evolves."

The model, as shown in figure1, consists of five force groups: the bargaining power of suppliers and buyers, the threat of potential entrants, the threat of substitutes, and competition among peers. This analysis method belongs to the micro-analysis in the external environment analysis method, which shows the profit space of the enterprise in the project. The model is a measure of the industry situation, not a measure of firm capabilities. Usually, this analysis method can also be used for entrepreneurial ability analysis to reveal the profitability of a project in the entire industry.

[[File:Fiveforcesmodel.png|thumb|center|400px|Figure 1: Porter's Five Forces Model]]

The model is an easy-to-understand framework that facilitates companies to participate in market competition. For strategists, these five forces act as leverage when executing any strategy that could affect the competitive position of the business.

== Application ==

There are three basic steps in applying the Five Forces Model:

'''• Collection of information and data'''

Before applying these five forces for analysis, companies must gather as much information as possible about the industry. Like the example shown in Figure 2, finding what’s moving the industry?

'''• Analyze results with charts'''

After obtaining enough information, it is necessary to analyze and organize the information to identify the factors that affect the development of the industry. Because for different industries, the factors and problems affecting their development are different.

'''• Develop and articulate strategies based on results'''

Convert the result. From the analysis, several factors that affect the profitability of the industry are derived, and these are translated into improvement strategies that increase the benefit of the company.

The five forces model can not only be used before the project starts, but also for strategic analysis and maintenance in the middle and later stages of the project.

Here is a case study:

James Rajasekar et al. use Porter's Five Forces model to conduct a study of the Oman telecommunications industry, exploring the competitive forces that have the greatest impact on it. The data in the article was collected mainly from secondary sources, such as public interviews with the CEOs of companies and the collection of government reports. The data collected were collated and analyzed. As shown in the figure, the threat of new entrants was used as an example to assess the influence of each, and the same was done for the other four forces.

The results of the study show that the greatest competitive forces in the industry stem from the threat of substitutes and competition between competitors. While buyer power and the threat of entry also have a significant impact, suppliers have limited influence. This result has strategic implications for the company and brings new insights and provides strategic indications for competition in the telecommunications industry in Oman. This tool can effectively help strategy makers in the industry to develop and update effective strategies in the face of constant change in the telecoms service industry.

=== The Process: The Five Forces ===

==== Horizontal forces ====

'''1. Threat of New Entrants'''

New entrants here refer to new businesses entering the industry. Competitors don't just refer to mainstream companies that already exist in the market. When an industry becomes profitable and has a certain influence in the market, new companies will be attracted. If the barriers to entry are low, it is easy for new companies to enter the market, and the dynamics of the industry will change with it. Therefore, managers must improve market strategies through long-term data analysis. Barriers to entry can come from the following seven aspects：

'''• Economies of scale'''

The unit cost of a product decreases as the absolute quantity increases. If new entrants enter the country in large numbers, existing companies will react strongly. If they enter on a small scale, they are forced to put themselves at a cost disadvantage.

'''• Government policies'''

Governments can block entry into industries through restrictions such as licensing requirements. In some highly regulated industries, businesses that are already in the market adjust their business in response to regulation.

'''• Access to distribution channels'''

Incumbents lock-in distribution channels may become a kind of barrier.

'''• Switching costs'''

Buyers may face many additional costs when selecting new entrants, such as new technology support, purchase of new equipment, retraining of employees, etc.

'''• Capital requirements'''

Refers to the purchase of some infrastructure, research and development, publicity, and other financial resources needed. Some startups can avoid some capital requirements by partnering with third-party investment firms.

'''• Product differentiation'''

Customer loyalty can get in the way. If the existing enterprise has high brand awareness and customer loyalty, the new entrant will need to spend the high costs to reduce the original customer loyalty. Start-up companies, should have clear goals when launching new products and accurately convey the advantages of the products to customers. Rich marketing resources keep startups at an edge.

'''• Cost disadvantages'''

Existing enterprises may have obtained some cost advantages such as government financial support, proprietary technology, and raw material channels, which are difficult for new entrants to obtain.

'''2. Threat of Substitutes'''

Substitutes do not refer to the same products in the industry. It can come from other industries and have similar features to products that already exist, giving consumers similar advantages. The low threat of substitute products makes an industry more attractive and also increases the profit potential of firms in that industry. In contrast, a highly threatening substitute product makes an industry less attractive and also reduces the profit potential of firms in that industry. These points below indicate that the threat of alternatives is low：

'''• High consumer switching cost'''

If consumer switching costs are high, which means that these factors will deter consumers from buying alternatives, then the threat of alternative products is low.

'''• The level and situation of substitutes'''

If the quality of the substitute product is not as superior as that of the industry product, or substitutes are more expensive than the industry product, raising the price ceiling of the industry product, the threat posed by this substitute is relatively small. Similarly, if the functionality of the substitute is not comparable to that of the industry product, or if there are no very close substitutes for the product in the sector, the threat is also small.

'''3. Competitive Rivalry'''

Different levels of competition have different effects on industries. Low-intensity competition makes an industry more attractive and increases the potential profit potential of firms already competing within that industry. In contrast, intense competition makes an industry less attractive and reduces the potential profit potential of companies already competing within that industry. The intensity of competition is high if any of the following occurs.

'''• The level of competitors'''

A large number of competitors, competitors of comparable size, equal market share with competitors, competitors who are very diverse in their strategies, etc. All of the above factors lead to the industry being under high competitive intensity.

In addition, factors such as low brand loyalty (low consumer switching costs), overcapacity and production capacity, high costs and losses due to industry shutdowns, and non-differentiation of products all contribute to increased competitive intensity.

==== Vertical forces ====

'''1. Bargaining power of suppliers'''

The role of the company is that of a buyer before the supplier. The bargaining power of the supplier has a direct impact on the competitive environment in which the buyer finds itself and affects the buyer's profitability. There are many ways in which a strong supplier can exert pressure on the buyer. For example by increasing prices, reducing the quality and availability of products, etc. These represent costs to the buyer. Such suppliers increase the competitiveness of the industry and reduce the profit margins and potential of buyers. Conversely, weak suppliers are largely controlled by the buyer in terms of price and quality, and the industry becomes less competitive while the buyer's profit potential increases. The power of the suppliers is high in the following situations：

'''• Suppliers are more concentrated or easily backward integrated'''

High supplier entitlement if there are few suppliers and many buyers, or if suppliers can easily integrate or start producing the buyer's products themselves.

'''• High switching costs or low knowledge on the part of the buyer'''

High bargaining power of the supplier if it is costly for the buyer to switch from one supplier's product to another or if the buyer is product insensitive and uneducated.

'''• High product differentiation or no substitution'''

The bargaining power of a supplier is high if the supplier's products are highly differentiated compared to the market or if there are few substitutes in the market..

'''2. Bargaining power of buyers'''

In this part of the analysis, the company switches from its previous role as the buyer to seller, and the buyer is the customer. In the industry, the bargaining power of the buyer also affects the competitive environment in which the seller finds itself, as well as its ability to make a profit. A strong buyer will put pressure on the seller in many ways. For example, they demand higher product quality, lower prices, additional and better services, etc. These are all directly related to the seller's costs, increasing the competitiveness of the industry and reducing the profit potential of the seller. Conversely, if buyers are in a weaker position, both quality and price depend on the seller, making the industry less competitive and the seller's profit potential more profitable. The power of the buyers is high in the following situations：

'''• The advantage of buyers'''

The power of the buyer is high if there is a greater concentration of buyers than sellers, in other words, if there are fewer buyers and more sellers. If the cost of switching from one seller's product to another is low, or if the buyer is very price-sensitive, then the buyer's bargaining power is high. The bargaining power of the buyer is high if the customer buys a large number of standardized products from the seller and the majority of the seller's sales come from the same buyer.

'''• Easy backward integration'''

The bargaining power of the customer is high if the buyer can easily integrate backward or start producing the seller's products themselves.

'''• Substitutes are available'''

Buyer power is high if there are substitutes available in the market.

== Limitations ==

Porter’s five forces framework, as a powerful tool in analyzing the competitiveness of business models, has been successfully applied in many fields. However, the drawbacks of Porter’s five forces framework are inevitable as well.

To begin with, Porter’s five forces framework is a short-term static model. Although Porter described the competitive analysis as a dynamic process, the five forces framework cannot achieve it, unless doing it many times. In this rapidly changing era, any change may affect the accuracy of the five forces model.

Secondly, the results of Porter’s five force framework represent an industry, instead of a company. When companies conduct a strategic analysis, they usually use SWOT analysis and use the results of the five forces framework as data input. This feature restricts the development of Poster’s five forces model. Moreover, Poster’s model cannot deal with the non-profit industry. The key factor of the five forces model is interest. That is how competitors and threats come. Thus, it is not applicable to a non-profit organization.

Besides, according to Tony Grundy, the industry value chains are oversimplified by Porter’s framework. In the actual value chain, the position of the company is more complicated, and it is difficult to really distinguish the supplier, consumer or competitor.

In addition, none of the above factors relating to Porter's Five Forces may be applicable when analyzing a given industry. In the case of buyer bargaining power, for example, some of the factors listed above may indicate high buyer bargaining power and others may indicate low buyer bargaining power. The results are not always straightforward to understand. Therefore, when using these data to assess the competitive structure and profit potential of a market, it is necessary to consider the subtleties of the analysis and the circumstances of companies and industries.

== Annotated Bibliography ==

'''• Kerzner, Harold. 2019. ''Using the Project Management Maturity Model, 3rd Edition'', chapter 1'''

The core of the book emphasizes the importance and methods of project management and the benefits and value it can bring to a business or industry. In the introductory section, questions relating to project management are answered. The book not only details current views but also illustrates some misconceptions and past views. In chapter 1, the concept and process of strategic planning is introduced and its necessity is highlighted. The reasons for the failure of some strategic plans in project management are also analyzed, contributing to a comprehensive understanding of the concept and importance of strategic planning.

'''• Porter, Michael E. 1980. Competitive Strategy: ''Techniques for Analyzing Industries and Competitors''. Free Press.'''

Written by Porter himself, the book opens with an introduction to comprehensive methods and techniques for analyzing industries and competitors. And goes on to analyze competitive strategies in fragmented, emerging, mature, declining and global industries one by one. The book concludes with an introduction to the analytical techniques required when companies face major strategic decisions: vertical integration, expansion of business capabilities, abandonment of communications to enter new business areas, etc. It helps managers to anticipate and plan strategically for sudden moves by competitors, new entrants in their own industry, and transformations in industry structure.

'''• Rajasekar James, & Mueid Al Raee, 2013. ''"An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter's competitive strategy model."'''''

This article is an example of the application of Porter's Five Forces model, which is used to identify the greatest competitive forces affecting the telecommunications industry in Oman. So, in this article, you can see the steps and results of the analysis of the application of Porter's five forces model. The model has important strategic implications for all the players in the business and develops effective strategies for the players in the industry in the face of the changing dynamics of that business.

== References ==
[1] Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213–229. https://doi.org/10.1002/jsc.764

[2] THE INVESTOPEDIA TEAM. (2020, Feb 21). Porter's 5 Forces. From Investopedia: https://www.investopedia.com/terms/p/porter.asp

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