What is the Porter’s Five Forces template?
The Porter’s Five Forces template is a comprehensive framework for business analysts and strategists that helps evaluate an industry’s competitive dynamics. By examining five factors, businesses can uncover potential risks, identify market opportunities, and make better decisions about the service/product future. The exercise empowers organizations to position themselves strategically within their industry, anticipate challenges, and seize advantages to foster long-term success.
The Porter’s Five Forces model helps break down the competition into five forces:
- Threat of New Entry — It determines how easy (or difficult) it is for your competitors to enter the market and how potential rivals can affect your position.
- Threat of Substitution — It determines the likelihood of your customers/users finding a different way of doing what they’re doing with a better, cheaper, or more reliable solution than yours.
- Supplier Power — It determines how heavily you rely on external suppliers. The more suppliers you have to choose from, the easier it will be for you to switch between alternatives. However, if you are dependent on only one supplier, the stronger their position will be; hence they will be able to charge you more for their services.
- Buyer Power — It determines how easily your customers can switch to cheaper solutions if they find your product/service too expensive.
- Competitive Rivalry — It determines who your competitors are, how many of them there are on the market, and how the quality of their product/service compares to yours.
What are the benefits of the Porter’s Five Forces template?
Thanks to the Porter’s Five Forces template, you can:
- Get a deeper understanding and insights into the current market dynamics and the competitive landscape.
- Identify potential threats and risks in the market and make better-informed decisions.
- Formulate effective strategies by analyzing industry attractiveness and competitive rivalry.
- Allocate your resources more wisely and strategically based on the intensity of competitive forces.
- Encourage innovation in your product or service to counter competitive pressures and enhance market position.
How to use the Porter’s Five Forces template in a few steps?
- Open the Porter’s Five Forces template on a new whiteboard or add it to an already existing one.
- Start a video call and add your camera stream to the board to see and talk to your team members if you want to conduct the analysis with them.
- Start the exercise by writing down your answers on sticky notes. Color-code them to be able to differentiate various topic clusters at a glance. The forces are as follows:
- Threat of New Entry — How easily can others enter the market and gain a competitive advantage over your company? Who are your new competitors? Will it be costly for competitors to enter the market?
- Threat of Substitution — How great is the likelihood that your customers will choose your competitors over your product or service? Are the substitutes on the market more viable than you? What are the costs of replacing your product/solution with the one from your competitors?
- Supplier Power — What would you do if your suppliers increased the prices for their services? How likely is it to happen? How easy would it be for you to change to a different supplier if it happened?
- Buyer Power — How many buyers do you have at the moment? If it were possible, would your buyers switch suppliers? How many buyers would need to change their supplier so it impacts your business?
- Competitive Rivalry — Who are your current competitors? How do their products/services compare to yours? What factors set your companies apart? Would it be costly for your customers to switch to your competitor?
4. Once you identify the forces, conduct a voting session to distinguish possible scenarios. Annotate which situations get the most votes by placing a unique shape next to them, commenting, or changing the background color of the sticky notes (it’s up to you). Do the same with sticky notes with the least votes.
5. Turn selected sticky notes into actionable Jira or GitHub items to start working on improving your competitive position right away.