Hampreston

The six forces model ( an expansion from the traditional Five forces by Michael Porter) is a strategic business tool used primarily as an industry model which assess the competiveness of a market. It is often used as in strategic management and it can also be used as an alternative to the SWOT model. It’s advantages over the SWOT model is that a bit more specific in it’s areas of analysis drilling down to the main drivers of a market.

As suggested by it’s name it analyzes six areas:

1/ Competition – is their a lot of competition in the market? Are there dominant players?
2/ New entrants – Is it easy for new entrants to enter the market and compete
3/ Buyers – How easy is it for buyers to affect the price, can they work together – how strong is their position
4/ Suppliers – What is the state of the supply base – is it a monopoly - are there many sellers?
5/ Substitutes – how easy can a product or service be substituted?
6/ Complementors – influence of complimentary products and services on the market.

What is the 6 forces model used for?

The primary use of the six forces model is to enable a detailed analysis of an organizations strategic position within the marketplace and calculate the market’s attractiveness with regard to competition and profitability. This assessment is a key step prior to investing resources and deploying strategy as if the market should prove ultra-competitive it may be more prudent to look at obtaining revenues from alternative markets.

The 6 forces model is not a one off activity, markets continually change and any changes in the model requires a re-assessment. As stated the model should form part of a regular strategic planning process and should be reviewed at least annually.

Differences between the 5 forces model and the 6 forces model.

As with all models - Porters original 5 forces model has been criticised for a number of reasons – primarily that elements of the market such as buyers and competitors do not collude. There have been some changes to the 5 forces model and the six forces model expands on the original by assessing complimentary areas of the market.

Related posts:

1. The Five forces model
2. Management Reporting – using common methods to get your message across.
3. Market Basics - what is a market?
4. Best Practice Benchmarking - using analytics and process to drive best practice
5. Using Market research when business planning