Porter's Five Forces Model for Industry Analysis Essay

3921 Words Mar 26th, 2013 16 Pages
This essay is an attempt to apply the Five Forces Model for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979 that draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Within the ambit of Porter’s typology, this essay aims to analyze the attractiveness of industries for investment and seeks to identify their potential for change or adaptability within the context of the inherent constraints and opportunities which exist in any given organizational environment.
To achieve the above, a thorough introductory outline of the Five Forces Model will be laid out, citing its content
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the latter consists of those forces close to the organization that affect its ability to serve its customers while the former includes larger forces of politics, economics, technology, and social forces and it is these we will deal with first. Most scholars of organizational behavior usually consider this external or ‘macro’ environment through a form of analysis known as PEST, an abbreviation of political, economic, social, and technological factors (Rollinson, Broadfield, Edwards, 1988; Handy, 1993). These can be best viewed as factors beyond the control of the organization and are termed as uncontrollable variables.
One way of illustrating the relationship between an organization and its macro environment is to consider the former as a system, which takes inputs from the latter (such as raw materials, labor, etcetera) and uses them to produce outputs in the form of goods and services that are in turn fed back into the environment. Therefore, an understanding of the macro environment is very crucial to the functions of the organization.
To start with, according to Lancaster and Reynolds (1998), the political environment can be influenced by three factors namely: the ideology of the government towards business activity, the legal controls on business and the ethics of business practice.
Ideology of government is very important as it affects the profitability of many organizations. Policies on corporate taxes and

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