Question

What is the current usefulness as an analytic tool. Porter 5 forces and PESTLE Analysis

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Answer 1

Porter 5 forces are the 5 forces which a new business/product or service have to look in to before entering the market. As per porter these are the 5 forces which define the market:

1. bargaining power of consumers: Consumer is the king, hence, you need to launch your product/service with a price parity and utility which is accepted by the consumer. Consumer has the bargaining power to the extent of its utility and availability. What is the cost of moving from you to your competitor, supply vs demand plays a role in who holds more power here.

2. Supplier power: your product could be requiring niche raw materials who have very limited suppliers or you raw materials are generic and available in abundance, this drives the power of control accordingly and impacts the ease of business for the new entrant

3. competition/rivalry: who are you in the market you are entering, is it a monopolistic business or a competitive pool of many existing competitors, what competitive advantage do you hold or what is the pivot in your product.

4. threat of substitutes: Any market is likely to have a substitute available for the service or product you have, you have to understand if there is any substitute or a likelihood of one being in the making.

5. threat of new entrant: Being in the business one always has the threat that a new business entrant could get a ground breaking product service or advantage, how easy is it for a new entrant to come in business, is it easy or difficult, both of these determine the business opportunities for us.

If you go beyond the contact and see, all these 5 forces are intertwined, as these overlap in approach with each other in some way or the other, however there are some forcer/factors which are not addressed here, like Political/govt regulation effects, environmental effects etc which are covered in PESTEL analysis:

PESTEL analysing focuses on the macro economic level of business and its impacts on the various verticals defined here:

Political: This factor represents the political side of influence on business, basically how can any political/governmental related factor impact the over all business, could be new CSR policies, tax rates, emission standards, sanctions on countries effect exports and imports etc,

Economic: Macro and micro level factors like GDP, unemployment rate, inflation etc determine this yardstick, you may evaluate the business impact of these factors

Social: Understanding the target audience or you customers, their cultural alignments and orientations, spending habits, lifestyles, emotional quotients etc to tweak your business model/advertising etc.

Technological: The factors related to RnD spend, new technological advancements, new machinery, technical skills to perform operations etc come here. Technology is valuable to any business hence, benchmarking these to your business needs.

Environmental: Corporations harm the environments in different levels from raw material depletion to pollution of air, water and soil to high carbon foot print products to flora fauna disruption, these and many factors need to be appraised before and during any business is to be started or already has.

Legal: all the legalities pertaining to the constitution, govt laid regulation or corporate laws, which include employment laws, labour laws, compensation benefits statures, patent laws etc need to be abided by. one needs to assess which of these are applicable to their business and operate in accordance to these.