Six Forces Model
Definition
The Six Forces Model is an extension of Michael Porter's Five Forces Model, a strategic management tool used to analyze the competitive environment of an industry. Developed by Michael E. Raynor, the Six Forces Model adds a sixth force, "Complementors," to Porter's original five forces. The model helps organizations understand the factors affecting industry dynamics and competitive positioning, enabling them to formulate effective business strategies.
The Six Forces
- Rivalry among Existing Competitors: This force examines the intensity of competition between existing players in the industry. Factors such as the number of competitors, market growth rate, product differentiation, and exit barriers can influence the level of rivalry.
- Threat of New Entrants: This force evaluates the likelihood of new competitors entering the industry. Barriers to entry, such as economies of scale, capital requirements, access to distribution channels, and government regulations, can impact the threat of new entrants.
- Bargaining Power of Suppliers: This force assesses the power of suppliers to influence the industry's players. Factors such as supplier concentration, switching costs, and the availability of substitute inputs can affect the bargaining power of suppliers.
- Bargaining Power of Buyers: This force considers the power of customers to negotiate with industry players. Aspects such as buyer concentration, product differentiation, switching costs, and the availability of substitute products can influence the bargaining power of buyers.
- Threat of Substitute Products or Services: This force examines the potential for alternative products or services to replace the industry's offerings. The availability, relative price performance, and consumer preferences for substitute products can impact this threat.
- Complementors (The Sixth Force): This force, unique to the Six Forces Model, evaluates the influence of complementary products or services on the industry. Complementors are products or services that enhance the value of the primary product or service when used together, such as software applications for a specific hardware platform. The presence of strong Complementors can increase the overall demand for the primary product, while a lack of Complementors may hinder its adoption.
Benefits of the Six Forces Model
- Comprehensive Analysis: The Six Forces Model provides a more comprehensive analysis of an industry's competitive landscape by considering the impact of Complementors in addition to Porter's original five forces.
- Strategic Decision-Making: By understanding the various factors that affect industry dynamics, organizations can make more informed strategic decisions to maintain or improve their competitive positioning.
- Identification of Opportunities and Threats: The Six Forces Model helps organizations identify potential opportunities and threats in their industry, enabling them to adapt their strategies accordingly.
- Improved Resource Allocation: By understanding the industry's competitive forces, organizations can allocate resources more effectively, focusing on areas with the greatest potential for competitive advantage.
In summary, the Six Forces Model is an extension of Michael Porter's Five Forces Model, which adds the concept of Complementors as a sixth force. This model helps organizations understand the factors affecting industry dynamics and competitive positioning, enabling them to make informed strategic decisions, identify opportunities and threats, and allocate resources effectively.