Porter’s 5 Forces and Information Technology   Leave a comment

Let’s start with defining Porter’s Five Forces.

Michael Porter’s framework for analysing an industry’s competitiveness and for developing business strategy is commonly called “Porter’s Five Forces”.

And these 5 forces are:

  1. the threat of new entrants
  2. the threat of substitutes
  3. the bargaining power of suppliers
  4. the bargaining power of buyers
  5. the intensity of industry rivalry

To explain, let’s use the example of a corner pizza shop. With respect to the threat of new entrants, how easy is it for another pizza shop to open up just down the road? With respect to the threat of substitutes, if we see pizza as a take-away food what other products can substitute as take-away food? With respect to the bargaining power of suppliers, how much influence does say the landlord, those giving permission for the shop to setup, and the pizza ingredient suppliers have with the pizza shop owner? With respect to the bargaining power of buyers, how much influence do the pizza shop customers have? Are they loyal, can they handle price changes? And finally, with respect to industry rivalry how intense is the competition? How much advertising needs to be done, what does it take to remain sustainably competitive, how many competitors are in the market?

You can see from this list of five forces that information technology can play a significant part in each.

New entrants: Improving productivity and reducing costs are one focus of IT. But what about applying IT to the task of gathering competitor intelligence through the analysis of social media and news alerts?

Substitutes: What actually makes your product unique? Can IT be used to make it even more so? Again through collection and analysis of market intelligence can you strengthen your product’s position in the market?

Suppliers: Are you easy to deal with? Can you configure your IT systems so that you have a better level of integration with your suppliers? Do these same IT systems allow you to pay your creditors before time?

Buyers: Well, we all know who are customers are. But, can they easily complete that transaction? Do you analyse the gold that is your customer database and transaction history to shift the balance of power more in your favour?

Rivalry: Sustainable competitive advantage. Its the mantra for staying afloat and staying ahead in a competitive market. But are you smart with respect to your operational systems? Are you investing effectively when it comes to the production of profit?

There we have it. In summary, your IT systems are a critical resource when it comes to developing your business strategy, and they are a critical component in the analysis of your business environment. The effective and efficient use of Information Technology is a key resource in influencing the effect that each of Porter’s five forces has on your business.

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Posted March 14, 2016 by terop in Business Strategy, ICT Strategy, Innovation

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