Phil Gorman, Ph.D.
BUS 497: ANALYZING THE
INDUSTRY ENVIRONMENT
Porter 5 forces model of
‘industry attractiveness’
 Each of the 5 forces is comprised of a number
of factors
 There is no mathematical formula; judgment
is needed
 A snapshot of how attractive the industry is
for incumbents
“Industry attractiveness”:
Porter 5 forces
Threat of potential
entrants
Entry barriers
Supplier
power
Rivalry
Threat of
substitutes
Buyer
power
“Industry attractiveness”:
Porter 5 forces
Example: discount retail sales
•Wal-Mart and Target are rivals
•Procter & Gamble (toothpaste) is a supplier
•You and I are buyers
Supplier
power
Rivalry
Buyer
power
“Industry attractiveness”:
Porter 5 forces
Discount retail sales
•Wal-Mart and Target are rivals
•Procter & Gamble (toothpaste) is a supplier
•You and I are buyers
Supplier
power
Rivalry
Buyer
power
Example: toothpaste
•Procter & Gamble and Colgate Palmolive are rivals
•People who supply the raw ingredients,
and the tubes, are suppliers
•Wal-Mart is a buyer
“Industry attractiveness”:
Porter 5 forces
Threat of potential
entrants
Entry barriers
Supplier
power
Rivalry
Threat of
substitutes
Buyer
power
“Industry attractiveness”:
Porter 5 forces
Threat of potential
entrants
Entry barriers
Supplier
power
Rivalry
Threat of
substitutes
Buyer
power
“Industry attractiveness”:
Porter 5 forces
Threat of potential
entrants
Entry barriers
Supplier
power
Rivalry
Threat of
substitutes
Buyer
power
“Industry attractiveness”:
Porter 5 forces
Threat of potential
entrants
Entry barriers
Supplier
power
Rivalry
Threat of
substitutes
Buyer
power
“Industry attractiveness”:
Porter 5 forces
Threat of potential
entrants
Entry barriers
Supplier
power
Rivalry
Threat of
substitutes
Buyer
power
Porter 5 forces: notes
 It is a snapshot; need to turn it into a moving
picture
 Depends on how you draw the boundaries of
the playing field
 There is no mathematical formula that allows
you to simply sum the tallies of the various
factors within each of the 5 forces
 In the end you make a judgment call
Porter 5 forces: notes
 It is a snapshot; need to turn it into a moving
picture
 Depends on how you draw the boundaries of
the playing field
 There is no mathematical formula that allows
you to simply sum the tallies of the various
factors within each of the 5 forces
 In the end you make a judgment call
Porter 5 forces: notes
 It is a snapshot; need to turn it into a moving
picture
 Depends on how you draw the boundaries of
the playing field
 There is no mathematical formula that allows
you to simply sum the tallies of the various
factors within each of the 5 forces
 In the end you make a judgment call
Porter 5 forces: notes
 It is a snapshot; need to turn it into a moving
picture
 Depends on how you draw the boundaries of
the playing field
 There is no mathematical formula that allows
you to simply sum the tallies of the various
factors within each of the 5 forces
 In the end you make a judgment call
Industry life cycle
 As the industry evolves, so does the list of
things a company needs to pay attention to
Industry life cycle
 Infancy: Sales are sparse; when the great majority of
consumers don’t really know how or why they would
use the product (but some ‘lead users’ will buy the
product anyway)
 Growth: Demand is increasing quickly; this is when
consumers increasingly can see how and why they
would use the product
 Maturity: when consumers know exactly what the
product is about; demand is leveling off
 Decline: When the product is no longer important
due to the introduction of some product that does
the same job but better/cheaper
Industry life cycle
 Infancy: Sales are sparse; when the great majority of
consumers don’t really know how or why they would
use the product (but some ‘lead users’ will buy the
product anyway)
 Growth: Demand is increasing quickly; this is when
consumers increasingly can see how and why they
would use the product
 Maturity: when consumers know exactly what the
product is about; demand is leveling off
 Decline: When the product is no longer important
due to the introduction of some product that does
the same job but better/cheaper
Industry life cycle
 Infancy: Sales are sparse; when the great majority of
consumers don’t really know how or why they would
use the product (but some ‘lead users’ will buy the
product anyway)
 Growth: Demand is increasing quickly; this is when
consumers increasingly can see how and why they
would use the product
 Maturity: when consumers know exactly what the
product is about; demand is leveling off
 Decline: When the product is no longer important
due to the introduction of some product that does
the same job but better/cheaper
Industry life cycle
 Infancy: Sales are sparse; when the great majority of
consumers don’t really know how or why they would
use the product (but some ‘lead users’ will buy the
product anyway)
 Growth: Demand is increasing quickly; this is when
consumers increasingly can see how and why they
would use the product
 Maturity: when consumers know exactly what the
product is about; demand is leveling off
 Decline: When the product is no longer important
due to the introduction of some product that does
the same job but better/cheaper
Industry life cycle
 Infancy: Sales are sparse; when the great majority of
consumers don’t really know how or why they would
use the product (but some ‘lead users’ will buy the
product anyway)
 Growth: Demand is increasing quickly; this is when
consumers increasingly can see how and why they
would use the product
 Maturity: when consumers know exactly what the
product is about; demand is leveling off
 Decline: When the product is no longer important
due to the introduction of some product that does
the same job but better/cheaper
Summary
 Porter 5 forces: industry attractiveness
 It is a snapshot
 Must also assess the trajectory (“moving picture”)
 Industry life cycle
 Industries generally move in a predictable
direction
 But the timing is not know ahead of time (15 years
to maturity? 100 years to maturity?)