- Welcome to our video series on historical management theories that changed the

world. Today we are going to be looking at Michael Porter's famous Five Forces
model. But first, what's your company's position in the market? Not sure? Well,
that's a problem, because if you don't know where you stand now you won't set the
right strategies for the future. You'll be blind to dangers and you won't make all
the profit you could. So let me introduce you to Michael Porter. He's the Harvard
Business School professor who gave his name to Porter's Five Forces, one of the
most popular and powerful business tools. It helps you see where your company is
now so that you do all the right things from here on out. Porter highlighted five
things that can put pressure or force on any business. "To make savvy decisions,"
he said, "you need to be aware of them all." First is competitive rivalry. How many
competitors have you got and how much do they threaten you? If you are in a really
competitive market maybe you'll need to beat your rivals on price or improve on
their products to ensure your market share. And if you've already got the market
sewn up make the most of it. But think carefully before changing anything. Next is
supplier power. Can you choose who supplies you with goods and services? Negotiate
prices? Make flexible deals? Switch suppliers if you need to? Or are you limited
about who to buy from so they have all the power? Porter's third force is buyer
power. How many potential customers do you have and how much choice do they have
about where to spend their cash? If you are their only option, you're in a strong
position. But if there are plenty of other places they could go and switching's
easy, well, guess what, they're the powerful ones. You'll have to work hard to win
their business and keep it. Threat of substitutions means how replaceable you are.
You may have a great solution to people's problems but could they find an easier or
cheaper option or just do it themselves? What can you do to make yourself
irreplaceable in people's lives? Finally, force five is threat of new entry. How
easy would it be for another company to enter your market and change your position
there overnight? And what could you start doing now to protect yourself from such
threats? Let's recap. Since Porter first published it in 1979, the Five Forces
model has remained one of the most popular tools organizations use to evaluate
their position in the market and their strategy. By considering all of the five
forces together, you'll be in a much better position to seize opportunities, head
off threats, and set the right strategies to secure success. To discover more
historical management theories that changed the world, check out our other videos
in the series. © Mind Tools Ltd