Competitive jockeying and market maneuvering among industry rivals

Strategy Tool Exercise Two

5 Force Model

Student Name: __________________________

Company/Industry: ________________________

Companies must understand the external environment they operate in. This macroenvironment includes all factors and influences outside the company’s boundaries that are important enough to have a bearing on the decisions the company ultimately makes about its direction, objectives, strategy, and business model. See Figure 3.2

The state of competition in an industry is a composite of competitive pressures operating in five areas of the overall market:

1. Competitive pressures associated with the market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the industry.

2. Competitive pressures associated with the threat of new entrants into the market.

3. Competitive pressures coming from the attempts of companies in other industries to win buyers over to their own substitute products.

4. Competitive pressures stemming from supplier bargaining power and supplier–seller collaboration.

5. Competitive pressures stemming from buyer bargaining power and seller–buyer collaboration.

These 5 Forces help explain a company’s competitive strategy. Your job is to understand the 5 Force Model well enough to apply it to any company you are analyzing. See Figure 3.3

Use the following questions to guide you through the analysis:

1. Identify the specific competitive pressures associated with each of the five forces. See Figures 3.4 to 3.8

2. Evaluate how strong the pressures comprising each competitive force are (fierce, strong, moderate to normal, or weak?).

3. Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits