Five Forces Analysis

A well$-$known model that helps managers focus on the five most important competitive forces, or potential threats, in the external environment is Michael Porter's five forces model. Porter identified five factors as major threats because they affect how much profit organizations competing within the same industry can expect to make. It is important for all managers to be able to analyze the effects of the forces when making decisions about entering, exiting, or staying in a given industry.

When you have completed this exercise, you should be able to understand the basic elements of Michael Porter$$s five forces model and perform a basic five forces analysis.

Instructions: For each description, select the appropriate aspect of Porter$$s Five Forces; examples can be either high or low.

$1.$ Sam $-$ Sam is thinking of opening a steak house. He has noticed that new restaurants always seem to be opening in his area.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products

$2.$ Ten Medium$-$Sized Companies $-$ They banded together to order their raw materials from one supplier. This enables them to order in bulk and get a better price.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products

$3.$ Time Warner Cable $-$ The cable industry is made up of very few companies, ensuring that each makes a large profit.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products

$4.$ G$\text{'}$s Gems $-$ This company is able to sell its jewelry at much higher prices than its competitors because of the high quality and workmanship in the products.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products

$5.$ McLaughlin Electric $-$ This company is able to buy electrical wire cheaply in many stores. There is always more than one place to buy, and therefore the company can easily find the lowest prices.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products

$6.$ Talia $-$ Talia has worked diligently to cut costs at her company in order to sell her products at lower prices than her competitors can afford to sell theirs.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products

$7.$ Pentium $-$ You can't run a computer without a computer chip! Without the chip, you can't have a computer. There is just nothing else you can use to do the same job.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products

$8.$ CB Homes $-$ CB Homes constructs hundreds of homes each year and buys very large amounts of materials from its suppliers.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products

$9.$ Auto Manufacturers $-$ They saw sales drop as more people started riding bicycles when the price of gasoline increased to unprecedented levels.

a$)$ threat of new entrants to the industry b$)$ Power of suppliers c$)$ Power of customers d$)$Level$/$type of rivalry e$)$ Threat of substitute products