Analysis of the External Environment

• What are Porter's Five Forces?

  1. Rivalry

  2. Buyer Power

  3. Supplier Power

  4. Threat of New Entrants

  5. Threat of Substitute Products
• Rivalry - Competition among firms within an industry. Typically this involves firms putting pressure on each other and limiting each other’s profit potential by attempting to gain profits and/or market share.
• Substitutes - A product that is fundamentally different yet serves the same function or purpose as another product.
• Threats - Conditions in the competitive environment that endanger the profitability of a firm.
• Opportunities - Ways of taking advantage of conditions in the environment to become more profitable.
• Attractiveness of the Industry - The degree to which an average firm in the industry can earn good profits.
• Switching Costs - Barriers that help keep buyers using the same supplier by imposing extra costs for switching suppliers.
• Suppliers - A firm that provides products that are inputs to another firm’s production process.
• Backward Integration - A firm purchases one or more of its suppliers in order to make a product itself rather than buying it from another firm.
• Forward Integration - A firm goes into the business of its former buyers, rather than continuing to sell to them.
• Barriers to Entry - The way organizations make it more difficult for potential entrants to get a foothold in the industry.
• Network Effects - Growth in demand for a firm’s product that results from a growth in the number of existing customers.
• PESTLE Analysis - involves Political, Economic, Social, Technological, Legal/Ethical, Environmental macrotrends.
• Complementary Products or Services - Products or services that can be used in tandem with those from another industry.