3M Business Planning Methodology: Toolkit

Phase: External Evaluation

Tool 2B-11: Five Forces Analysis
Analisis de datos
Click to Update Titles
Competidor 1 Competidor 2
Porter's
Worst Case Case 1 Case 2
Intensidad de la rivalidad competitiva: High Low High Low Match High Low Match
Numero de comperidores X X 0
Diversidad del tamaño de los competidores X X 0
Tasa de crecimiento de la industria X X 1
Costos fijos X X 1
Costos de almacenamiento X X 1
Diferenciación de productos X X 1
Costos de cambio X X 0
Barreras de salida X X 1
Estrategias X X 1
Subtotal 67% 0%
Porter's
Worst Case Case 1 Case 2
Amenaza de nuevos entrantes High Low High Low Match High Low Match
Economia de escala X X 0
Diferenciación de productos X X 1
Requisitos de capital X X 0
Costos de cambio X X 0
Control de los principales canales de distribución X X 0
Dueño de la propiedad intelectual X X 1
Dueño de la materia prima X X 1
Beneficiario de las acciones de subsidio del gobierno X X 1
Subtotal 50% 0%
Porter's
Worst Case Case 1 Case 2
 3M Business Planning Methodology: Toolkit
Phase: External Evaluation
Tool 2B-11: Five Forces Analysis
Amenaza de productos sustitutos High Low High Low Match High Low Match
Tasa de mejora precio/calidad de los sustitutos X X 0
Rentabilidad de la industria de los sutitutos X X 0
Costos del cambio para un comprador X X 0
Subtotal 0% 0%
Porter
Worst Case Case 1 Case 2
Poder de los compradores High Low High Low Match High Low Match
Concentración de los compradores con relación a los
proveedores X X 0
Volumen de compra X X 1
Diferenciación de producto de los proveedores X X 1
Amenza de migración hacia atrás de los compradores X X 0
Conocimiento del comprador sobre la estructura de costos
del proveedor X X 1
Extensión de los beneficios del comprador generado por la
entrada proveedores X X 1
Ahorro de costos en los productos del proveedor X X 1
Importancia de la participación del proveedor en la calidad
del producto final del comprador X X 1
Porcentaje del coste total del comprador empleado en los
productos de proveedor X X 0
Subtotal 67% 0%
Porter's
Worst Case Case 1 Case 2
Poder de los proveedores High Low High Low Match High Low Match
Concentración de proveedores con relación a los
compradores X X 0
 3M Business Planning Methodology: Toolkit
Phase: External Evaluation
Tool 2B-11: Five Forces Analysis
Disponibilidad de produtos sustitutos X X 1
Importancia del cliente para el proveedor X X 1

Diferenciación de los productos y servicios del proveedor X X 0

Costo de cambio del comprador X X 0

Amenaza de integración hacia adelante por el proveedor X X 0

Subtotal 33% 0%

Average Force 43% 0%

 3M Business Planning Methodology: Toolkit
Phase: External Evaluation
Tool 2B-11: Five Forces Analysis

Competidor 3

Case 3
High Low Match

0%

Case 3
High Low Match

0%

Case 3
 3M Business Planning Methodology: Toolkit
Phase: External Evaluation
Tool 2B-11: Five Forces Analysis
High Low Match

0%

Case 3
High Low Match

0%

Case 3
High Low Match
 3M Business Planning Methodology: Toolkit
Phase: External Evaluation
Tool 2B-11: Five Forces Analysis

0%

0%

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 Porter's Five Force Analysis
(Insert Project Name)
Case 1 Case 2 Case 3

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Intensity of competitive Threat of new entrant Threat of substitute Power of buyers Power of suppliers
rivalry product
 Porters Five Force Analysis Case 1
Intensity of competitive rivalry

100%

50%

Power of suppliers Threat of new entrant

0%

Power of buyers Threat of substitute product

 Porters Five Force Analysis Case 2
Intensity of competitive rivalry

100%

50%

Power of suppliers Threat of new entrant

0%

Power of buyers Threat of substitute product

 Porters Five Force Analysis Case 3
Intensity of competitive rivalry

100%

50%

Power of suppliers Threat of new entrant

0%

Power of buyers Threat of substitute product

 Porters Five Force Analysis Porters Five Force Analysis
Case 1

Intensity of competitive rivalry Intensity of competitive rivalry

100% 100%

50% 50%
Power of suppliers Threat of new entrant Power of suppliers Threat of

0% 0%

Power of buyers Threat of substitute product

Power of buyers Threat of substitu
ters Five Force Analysis Porters Five Force Analysis
Case 2 Case 3

ntensity of competitive rivalry Intensity of competitive rivalry

100% 100%

50% 50%
Threat of new entrant Power of suppliers Threat of new entrant

0% 0%

rs Threat of substitute product Power of buyers Threat of substitute product

 Porters Average Force by Scenario
(Insert Project Name)

100%

90%

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1 2 3
Output only, do not input here.

Porter's Worst
Case Case 1 Case 2 Case 3
Intensity of competitive rivalry 100% 67% 0% 0%
Threat of new entrant 100% 50% 0% 0%
Threat of substitute product 100% 0% 0% 0%
Power of buyers 100% 67% 0% 0%
Power of suppliers 100% 33% 0% 0%

Average Force 43% 0% 0%

The Intensity of Competitive Rivalry within the Industry
Rivalry among existing competitors take the familiar form of firms jockeying for position-using tactics like price competition, advertising, new product introductions, increased customer service
or enhanced programs to distribution to improve their position in the industry. The intensity of the rivalry for “in-kind” products and services is influenced by many factors-some orderly and
helpful to the industry overall (increased advertising of any firm increases the awareness of the category for all firms) and some (price competition) may leave the industry less attractive for all
existing competitors.

The Intensity of
Competitive Rivalry
is strong when… Description Notes
Number of competitors is A larger number of firms increases rivalry because more firms must BCG founder Bruce Henderson generalized this observation as the Rule of Three and
high or equally balanced compete for the same customers and resources. A large number of firms Four: a stable market will not have more than three significant competitors, and the largest
also increases the likelihood of the presence of “mavericks” who may competitor will have no more than four times the market share of the smallest. If this rule
introduce instability. Even when there are relatively few firms, if they is true, it implies that:
are relatively balanced in terms of size and perceived resources, it
creates instability because they may be prone to fight each other and the
resources for sustained and vigorous retaliation. When the industry is
highly concentrated or dominated by one or a few firms, it tends to be
more stable and there is little mistaking relative strength of the leaders. ,
The leader or leaders can impose discipline as well as play a a)       If there is a larger number of competitors, a shakeout is inevitable
coordinative role in the industry through devices like price leadership. b)       Surviving rivals will have to grow faster than the market,
c)       Eventual losers will have a negative cash flow if they attempt to grow,
d)       All except the two largest rivals will be losers
Diversity of competitors is The rivalry intensifies if the firms have diverse strategies, origins, and Companies who specialize in equipment and don’t participate in consumable supplies have
large personalities. These differences cause the firms to respond very very different business models, goals, objectives and strategies than a competitor who
differently to the actions of other firms within in the industry and may specializes in consumable supplies, but also participates in hardware.
make it difficult for the firms to agree to “the rules of the game”.
Strategic choices that are right for one competitor will be wrong for
others. This leads to an increased risk of instability and decreased
profitability.

Industry growth rate is slow Slow market growth causes firms to fight more intensely for share of the
existing market. Share growth is often gained through price-cutting,
which leads to lower profitability. In a growing market, firms are able to
improve revenues simply because of the expanding market.

Fixed costs are high When total costs are mostly fixed costs, the firm must produce near Industries where capacity must be added in large increments (new plants, highly
capacity to attain the lowest unit costs. Strong pressure is felt by all specialized, long lead time equipment) are more likely to experience strong competitive
firms to fill capacity that often leads to rapidly escalating price-cutting rivalry. The large additions of capacity can be chronically disruptive to the supply/demand
when excess supply is present. Since the firm must sell this large balance creating periods of extreme over capacity and subsequent price-cutting. The
quantity of product, high levels of production lead to a fight for market Semiconductor industry is an example of an industry where capacity is augmented in large
share and results in increased rivalry and the risk of decreased increments.
profitability.

Storage costs are high High storage costs or highly perishable products cause a producer to sell Fresh produce is an example of an industry with high storage costs.
goods as soon as possible. If other producers are attempting to unload at
the same time, competition for customers intensifies and price-cutting
often occurs leading to lower profitability.

Product differentiation is Low levels of product differentiation are associated with higher levels of Office paper (for copiers and printers) and bulk chemicals are examples of industries with
low rivalry. If the incumbent firms lack discernable advantages in features low product differentiation.
(that are important to the customer) or do not enjoy a strong brand
position, choices by the buyers will be largely based on price leading to
increased probability of lower operating margins.
Switching costs are low Low switching costs increases rivalry. When a customer can freely Retail gasoline purchases have low switching costs. Customers selecting Super America as
switch from one product to another there is a greater struggle to capture their gas provider on Monday can freely choose BP on Friday.
customers, often by reductions in price.
Exit barriers are high High exit barriers place a high cost on abandoning the product. The firm Litton Industries' acquisition of Ingalls Shipbuilding facilities illustrates this concept.
must compete. High exit barriers cause a firm to remain in an industry, Litton was successful in the 1960's with its contracts to build Navy ships. But when the
even when the venture is not profitable. A common exit barrier is asset Vietnam war ended, defense spending declined and Litton saw a sudden decline in its
specificity. When the plant and equipment required for manufacturing a earnings. As the firm restructured, divesting from the shipbuilding plant was not feasible
product is highly specialized, these assets cannot easily be sold to other since such a large and highly specialized investment could not be sold easily, and Litton
buyers in another industry. Other factors that contribute to high exit was forced to stay in a declining shipbuilding market.
costs include fixed costs associated with labor agreements, maintaining
capabilities for spare parts or strategic interrelationships that would
create unacceptable hardships in other parts of the companies business.

Strategic stakes are high Rivalry in an industry becomes even more volatile if a number of firms A foreign competitor whose success is highly dependent on significant participation in
have high stakes in achieving success there. If a firms success in the non-domestic markets may be willing to sacrifice profitability in an industry as a necessary
industry is a requirement for strategic success in other more important investment to establish a base of business to enable expansion.
industries, it may be willing to accept financial losses.
The Threat of a New Entrant

New entrants to an industry bring new capacity, the desire to gain market share and often, substantial resources. Prices can be bid down or incumbents’ costs inflated as a result, reducing
profitability. The threat of a new entry into an industry depends on the barriers to entry that are present, coupled with the reaction from existing competitors that the entrant can expect. If
barriers are high and/or the newcomer can expect sharp retaliation from the entrenched competitors, the threat of entry is low.

The Threat of a New

Entrant is strong
when… Description Notes
Economies of scale are low Low economies of scale make it easier for a new firm to enter the Economies of scale deter entry by forcing the new entrant to come in at a large scale and
market. A new entrant is not currently participating in the market, but risk strong reaction from existing firms or come in at small scale and accept a cost
may have some potential synergies that would allow them to enter disadvantage for a period of time. Both conditions lead to lower profitability for the new
(channel, manufacturing equipment, related expertise). entrant and make it less desirable (and less probable) that a new “in-kind” competitor
would find it attractive to enter the industry.
Product differentiation is The new entrant will not have to have significant investment in either Product differentiation may include criteria beyond the physical product. Established firms
low R&D or marketing to build awareness or induce trial of a product with with high brand identification and customer loyalties established by either past marketing
unique features or attributes. efforts or simply by being first in the market create “non-feature” differentiation.
Differentiation creates a barrier to entry by forcing entrants to spend heavily to overcome
existing customer loyalties. This effort usually involves start-up losses and often takes an
extended period of time. Such investments in building a brand name are particularly risky
since the have no salvage value if the entry fails.

Capital requirements are The new entrant will not be forced to make significant capital
low investments to participate in the market. When an industry requires
highly specialized technology or plants and equipment, potential
entrants are reluctant to commit to acquiring specialized assets that
cannot be sold or converted into other uses if the venture fails. When
firms already hold specialized assets they fiercely resist efforts by others
to take their market share. New entrants can anticipate an aggressive
response from the incumbents.

Switching costs are low The new entrant will not meet resistance from the incumbent’s
customers due to prohibitive switching costs.
Incumbent’s control of When the incumbent’s control of distribution is low, a distributor can A manufacturer of a new food product must persuade the retailers to give it special pace on
distribution channels are easily accept a product/service from a new entrant and not significantly the fiercely competitive supermarket shelf. Many incumbents sell many products to the
low risk their existing business. same retailers and both supplier and buyer enjoy benefits of this scale. The new entrant
must engage in intense selling efforts, high promotional spending and convince the retailer
that the new offering will have higher velocity that the product that currently occupies the
shelf.

Incumbent’s proprietary Patents and proprietary knowledge serve to restrict entry into an Edwin Land introduced the Polaroid camera in 1947 and held a monopoly in the instant
knowledge is low industry. Ideas and knowledge that provide competitive advantages are photography industry. In 1975, Kodak attempted to enter the instant camera market and
treated as private property when patented, preventing others from using sold a comparable camera. Polaroid sued for patent infringement and won, keeping Kodak
the knowledge and thus creating a barrier to entry. out of the instant camera industry

Incumbent’s access to raw There is both access and supply of key raw materials that can be A favorable location might be considered a “key raw material”. If established firms have
materials is low obtained by the new entrant. secured the favorable locations (and the supply is limited) it will be difficult for the entrant
to succeed.
Incumbent’s access to Government may restrict competition through the granting of Industries such as utilities are considered natural monopolies because it has been more
government subsidies is low monopolies and through regulation or may create incentives for efficient to have one electric company provide power to a locality than to permit many
development of specific products/services to those already in the electric companies to compete in a local market. To restrain utilities from exploiting this
business. advantage, government permits a monopoly, but regulates the industry.
The Threat of a Substitute Product

All firms in an industry are competing with industries who have the potential to introduce substitute products. Substitute products limit the potential returns of an industry by placing a ceiling
on the prices firms in the industry can charge. As the substitute approaches improved price/performance compared to the incumbent, the more likely the threat of substitution becomes.

Threat of a Substitute
Product is strong
when… Description Notes
Rate of improvement in When the rate of price/value of substitute product is increasing faster As the economies of scale for solid-state storage technology became favorable, the
price/performance than the rate of the incumbent solution, the threat of substitution is high. price/performance ratio for digital photography improved at a rate exceeding conventional
relationship of substitute photography. As the capabilities of electronic alarm systems increased and the component
product is high and technology costs decreased, they became substitutes for security guards. The potential
for feature enhancement and cost decreases far exceed the potential improvements
available via a security guard.

Profitability of industry If the profitability of the substitute is high or higher than the industry Ink jet technology, with very high profit margin ink is often a threat to conventional
producing substitutes is that the substitute is currently participating in, the threat increases. imaging markets.
high
Switching costs for the If the switching costs for the buyer are low, the threat of substitution is Cell phones were able to displace pagers by ensuring that the switching costs for the buyer
buyer of a product is low higher. were low. Increasing capability and decreasing prices lead to a very rapid substitution.
The Power of Buyers

Buyers compete with the industry by forcing down prices, barraging for higher quality or more services, and playing competitors against each other-all at the expense of the industry
profitability. The power of each of the industry’s important buyer groups depends on a number of characteristics and on the relative importance of its purchases from the industry compared
with its overall business.
The Power of Buyers
is high when…
Description Notes
Concentration of buyers The industry is comprised of a large number of small firms selling to a Cattle ranchers selling to large processing companies would be an example of an industry
relative to industry firms is small number of large buyers. Large volume buyers are particularly where the buyers are highly concentrated.
high potent forces if the industry is characterized by heavy fixed costs.

Volume of purchase is high If a large portion of sales is purchased by a given buyer this raises the A firm selling components to General Motors where 80% of their sales are comprised of
importance of the buyer’s business in the overall results for the firm. business with GM deals with a very strong buyer.

Product differentiation The industry’s products are undifferentiated and can easily be replaced If buyers can easily find alternate suppliers, they are likely to play the suppliers against
among the industry firms is by alternate industry firms. one another and the result will likely be lower profitability.
low
Threat of backward There is the possibility for the customer integrating backwards or General Motors and Ford routinely practice “tapered integration” where they will produce
migration by buyers is high produce the product themselves with minimal investment. some fraction of their needs for a given component in-house and purchase the rest from
outside suppliers.
Buyer’s knowledge about If the buyer has a high level of understanding of the production costs of When 3M purchases film, it has the advantage of also being itself a film producer and
industry firms cost structure the product and the operating costs of the industry, the power of the understands the costs associated with being a supplier.
is high buyer is high.
The buyers industry If the buyer is part of a low profit industry, then the ability for the Low profit industries create great incentives to lower purchasing costs. Highly profitable
profitability is low supplying industry to retain high margins is reduced. buyers are less price sensitive as long as the item does not represent a large fraction of
their costs. These buyers may take a longer-term view toward preserving the health of their
suppliers and less likely to risk the potential issues associated with a financially strapped
supplier.
Cost savings from the Switching to an alternative product is viewed as relatively low risk Suppliers of standard 4” x 6” pressure sensitive shipping labels provide very small
industry’s products is low because the industry’s product has minimal impact on the potential for potential for cost savings to firms shipping high end electronic goods.
cost savings for the buyer.
Importance of the supplier’s The product that the industry is supplying is not of strategic importance Heavy equipment suppliers to the offshore oil drilling business provide a significant
input to the quality of for the customer so the customer has less risk aggressively driving for quality input to the buyers process. If the equipment fails, large losses can easily be
buyer’s final product is low lowering price. experienced in a short period of time.

Percentage of total buyer’s Buyers will be more apt to look for alternatives and options for the high Triacetate, dyes, gelatin and silver are the highest cost raw materials in 35mm
cost spent on the supplier’s cost component. photographic film. Kodak will be much more interested in managing costs associated with
input is high these components than they will the costs of the top of the film canister. For the major
35mm film manufactures, all key raw materials have been backward integrated.
The Power of Suppliers

Suppliers can exert bargaining power over industry participants by threatening to raise prices or reduce the quality of purchased goods and services. Powerful suppliers of key raw materials
can squeeze profitability out of an industry that is unable to recover cost increase in its own prices. The conditions making suppliers powerful tend to be similar to those that make buyers
strong.
The Power of
Suppliers is high
when… Description Notes
Concentration of suppliers When a few large suppliers of key raw materials dominate the market Suppliers selling to more fragmented buyers will usually be able to exert considerable
relative to buyer industry is and the raw material supplying industry is more concentrated than the influence in prices, quality and terms.
high purchasing industry, the power of the suppliers is high.

Availability of substitute There are no or few substitutes for the particular input the supplier The power of even large suppliers is reduced if there are viable substitute products
products is low provides. available. As an example, suppliers producing alternative sweeteners compete sharply for
many applications even though individual supplying firms are large relative to individual
buying firms.
Importance of the buyer to The suppliers customers are fragmented so the buyers bargaining power The importance of an individual consumer purchasing office supply paper is not as
the supplier is low is low. important to the supplier as the magazine printing company.
Differentiation of the The suppliers product is specialized and differentiated and cannot be Pernambuco wood from Brazil has unique characteristics for violin bows and cannot easily
supplier’s products and replaces by substitutes. be replaced with alternatives.
services is high
Switching costs of the buyer If the buyer’s key processes are linked to a specific suppliers raw
are high material, the switching costs will be high. If the supplier provides a raw
material that cannot be easily stored or stockpiled, the supply exerts
power over the buyer.
Threat of forward There is the possibility of the supplier integrating forwards in order to Matsushita Electric Components Company manufactures CD drive mechanisms for a
integration by the supplier is obtain higher prices and margins. This threat is especially high when the variety of OEM companies but also sells products under the Panasonic brand name. The
high buying industry has a higher profitability than the supplying industry or threat of forward integration by this supplier could be considered high.
forward integration provides economies of scale for the supplier. The
relationship to powerful suppliers can potentially reduce strategic
options for the organization.
Growth High is growth CAGR > 5%

The intensity of competition in an industry is rooted in its underlying economic structure and goes well beyond the
Porter’s 5 Forces
behavior of current competitors. The state of competition depends on five basic competitive forces shown below.
These factors affect the elasticity of the demand curve, though some effect the long run vs. the short run. That is,
potential entrants affect the long run demand curve in that they may change the industry structure from being more
like an oligopoly versus perfect competition

1. Threat of new entrants

2. Bargaining power of buyers
3. Threat of substitute products of services
4. Bargaining power of suppliers
5. Rivalry among existing firms

Threat of new entry

Barriers of entry

a. economies of scale
b. product differentiation
c. capital requirements
d. switching costs
e. access to distribution channels
f. cost disadvantages independent of scales

proprietary
favorable access to raw materials
favorable locations
government subsidies
learning curve

    g.  government policy

Intensity of rivalry among existing competitors

a. numerous or equally balanced competitors

b. slow industry growth
c. high fixed or storage costs
d. lack of differentiation or switching costs
e. capacity augmented in large increments
f. diverse competitors
g. high strategic states
h. high exit barriers

Bargaining power of buyers

1. Buyer purchases large volumes relative to the seller sales

2. Buyer purchases are a significant portion of the buyer’s total costs
3. The product it purchases from the industry are standard or undifferentiated
 4. Face few switching costs
5. Product is unimportant to the quality of the buyers’ products or services
6. Buyer has full information

Supplier power

a. few suppliers
b. not obliged to contend with other substituted products
c. industry is not an important customer of the supplier group
d. suppliers product is an important input to the buyers business
e. the supplier groups products are differentiated or it has built up switching costs
f. the supplier group poses a credible threat of forward integration

Three Generic Strategies

1. Overall cost leadership

2. Differentiation
3. Focus
d goes well beyond the
e forces shown below.
the short run. That is,
ucture from being more