Porter'S Five Forces: A Simple Overview: Jamileh Omaisse, Ali Darwish, and Prof. Hussin Jose Hejase

PORTER’S FIVE FORCES: A SIMPLE OVERVIEW
WHY ?
Jamileh Omaisse, Ali Darwish, and

Prof. Hussin Jose Hejase
Al Maaref University – Lecture Series

August 06, 2019
Omaisse, Darwish & Hejase ... Porter's 5 Forces ... Aug 2019
2 OUTLINE
• Definition
• Pillars
• Process
• Advantages
• Disadvantages
• Example
• Conclusion
• Lesson learned
• References
3 MICHAEL PORTER
• The founder of the modern strategy field

• One of the world’s most influential thinkers on
management and competitiveness.
• The author of 19 books and over 130 articles
• Professor at Harvard Business School
• The director of the school’s Institute for Strategy and
Competitiveness.( Harvard Business School, 2019)
4 DIFINITION
• A model introduced in 1979 by Michael Porter

• Used by companies for industry analysis and corporate strategy development.
• The five forces include competition, supplier strength, customer power, the potential for new
companies joining the industry, and the threat of substitute products. (Business Dictionary, 2018).
• Analysis tool that uses five industry forces to determine the intensity of competition in an industry and
its profitability level. (Jurevicious, 2013)
5
PILLARS
6 PILLARS
7 PILLARS
Threat of new entrants: [Watch for needed investments, government

regulations, technology, market shares, Know how, etc…]
 Few barriers to enter lead to intensified competition.
 When more organizations compete for the same market share,
profits start to fall.
8 PILLARS
Bargaining power of suppliers: To what extent are suppliers able to influence the
company’s profit margins?
Strong bargaining power allows suppliers to sell higher priced or low quality
raw materials to their buyers.
This directly affects the buying firms’ profits because it has to pay more for
materials.
9 PILLARS
Bargaining power of buyers: Are buyers able to enforce special terms on the company?
Buyers have the power to demand lower price or higher product quality from industry
producers.
Lower price means lower revenues for the producer, while higher quality products
usually raise production costs.
Both scenarios result in lower profits for producers.
10 PILLARS
Threat of substitutes: This force is especially threatening when:

Buyers can easily find substitute products with attractive prices
or better quality
Buyers can switch from one product or service to another with
little cost. For example, switching from car to bicycle.
11 PILLARS
Rivalry among existing competitors: [Most Threatening]

 In competitive industry, firms have to compete aggressively for
a market share, which results in low profits. (Jurevicius, 2013)
12 PROCESS
• Step 1. Gather the information on each of the five forces

• Step 2. Analyze the results
• Step 3. Formulate strategies based on the conclusions.
(Jurevicius, 2013)
13 ADVANTAGES
• Useful tool in the analysis of the external forces, especially in terms of competition.
• Helps organizations identifying opportunities in the external environment in order to exploit
them.
• Helps organizations predicting external imposed threats in order to absorb them and prepare
themselves to be proactive and to have a fast response.
• Provides important information to shape organization’s strategy. (Free- Management-
eBooks, 2018)
14 DISADVANTAGES
• Does not take into consideration the impact of technology by increasing

the pace of change.
• Market structures were seen as relatively static.
• Does not consider the non-market forces
• It necessitates the integration of other analytical tools in order to formulate
effective strategy. (Free- Management- eBooks, 2018)
15 EXAMPLE
The following is a Five Forces

analysis of The Coca-Cola
Company in relationship to its
Coca-Cola brand.
(Adamkasi, 2017)
16 THREAT OF NEW ENTRANTS: MEDIUM

PRESSURE
• Entry barriers are relatively low.
• There are new brands appearing in the market with similar
prices than Coke products.
• Coca-Cola is seen as a brand.
• It has a very significant market share and loyal customers.
17 THREAT OF SUBSTITUTE PRODUCTS:

MEDIUM PRESSURE
• There are many kinds of energy drink s/soda/juice
products in the market.
• Coca-Cola doesn’t really have an entirely unique flavor.
In a blind taste test, people can’t tell the difference
between Coca-Cola and Pepsi.
18 THE BARGAINING POWER OF BUYERS:

MODERATE PRESSURE
• The individual buyer has no pressure on Coca-Cola.
• Large retailers, like Wal-Mart, have bargaining power
because of the large order quantity, but the bargaining
power is lessened because of the end consumer brand
loyalty.
19 THE BARGAINING POWER OF SUPPLIERS:

LOW BARGAINING POWER
• The main ingredients for soft drink include carbonated

water, phosphoric acid, sweetener, and caffeine. The
suppliers are not concentrated or differentiated.
• Coca-Cola is likely a large, or the largest customer of any
of these suppliers.
20 RIVALRY AMONG EXISTING FIRMS:

MODERATE THREAT
• Currently, the main competitor is Pepsi.
• Both Coca-Cola and Pepsi are the predominant. Both are
committed heavily to sponsor outdoor events and activities.
• There are other soda brands in the market that become popular,
like Dr. Pepper, because of their unique flavors.
21 CONCLUSION
Although, Porter’s five forces is a great tool to analyze industry’s

structure and use the results to formulate firm’s strategy, it has its
limitations and requires further analysis to be done, either
externally such as SWOT, PEST Analysis or internally such as
using 7S Mckensey Model or Porter’s Value Chain Model.
22
LESSONS LEARNED
• In the 1970s, companies were competing with other companies to secure
their market share. Porter’s five forces Model was sufficient to some
extent due to the relative stability of the market.
• Companies had to worry about the factors that may affect each stage of the
value chain since the tiers of suppliers till the customers.
23 LESSONS LEARNED
• Today, the competition becomes between ecosystems rather than companies. The
suppliers, retailers, producers, and service providers are working together as one
strong unit to compete with other ecosystems and guarantee their market share.
• Industries have no clear boundaries. They are interrelated and wider, that’s why
beside applying the Porter’s Five Forces Model, we need to introduce new forces
and take into consideration the new identity of companies in a global market.
24 REFERENCES
Adamkasi (2017, June 1). Porter Analysis: Porter’s Five Forces of Coca Cola. Retrieved
August 6, 2019, from https://www.porteranalysis.com/porters-five-forces-of-coca-cola/
Free- Management- eBooks. (2018). Porter's Five Forces: Advantages and Disadvantages.
Retrieved August 6, 2019, from http://
www.free-management-ebooks.com/faqst/porter-07.htm
HBR. (2014, June 10). The Explainer: Porter's Five Forces [HBR Video]. Retrieved August
6, 2019, from https://hbr.org/video/3590615226001/the-explainer-porters-five-forces
25 REFERENCES
Jurevicius, O. (2013, May 27). Porter's Five Forces. Retrieved August 6, 2019, from https://
www.strategicmanagementinsight.com/tools/porters-five-forces.html
Porter's 5 forces. (2018). In BusinessDictionary.com. Retrieved July 26, 2019, from http://
www.businessdictionary.com/definition/Porter-s-5-forces.html
UKESSAYS. (2017, December 5). Porter’s Five Analysis: Advantages and Disadvantages.
Retrieved July 19, 2019, from https://
www.ukessays.com/essays/business/the-porters-five-competitive-forces.php
26 THE END

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PORTER’S FIVE FORCES: A SIMPLE OVERVIEW

Jamileh Omaisse, Ali Darwish, and

Al Maaref University – Lecture Series

• The founder of the modern strategy field

• A model introduced in 1979 by Michael Porter

Threat of new entrants: [Watch for needed investments, government

Threat of substitutes: This force is especially threatening when:

Rivalry among existing competitors: [Most Threatening]

• Step 1. Gather the information on each of the five forces

• Does not take into consideration the impact of technology by increasing

The following is a Five Forces

16 THREAT OF NEW ENTRANTS: MEDIUM

17 THREAT OF SUBSTITUTE PRODUCTS:

18 THE BARGAINING POWER OF BUYERS:

19 THE BARGAINING POWER OF SUPPLIERS:

• The main ingredients for soft drink include carbonated

20 RIVALRY AMONG EXISTING FIRMS:

Although, Porter’s five forces is a great tool to analyze industry’s

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