Porter developed the Five Forces model as a framework for industry analysis. This model can be used to help understand the degree of competition in an industry and analyze its strengths and weaknesses. The model consists of five elements, each of which plays a role in determining the average profitability of an industry. In 2001 Porter wrote an article entitled “Strategy and the Internet,” in which he takes this model and looks at how the Internet impacts the profitability of an industry. Below is a quick summary of each of the Five Forces and the impact of the Internet. • Threat of substitute products or services . The first force challenges the user to consider the likelihood of another produce or service replacing the product or service you offer. The more types of products or services there are that can meet a particular need, the less profitability there will be in an industry. In the communications industry, the smartphone has largely replaced the pager. In some construction projects, metal studs have replaced wooden studs for framing. The Internet has made people more aware of substitute products, driving down industry profits in those industries in which substitution occurs. Please notice that substitution refers to a product being replaced by a similar product for the purpose of accomplishing the same task. It does not mean dissimilar products or services such as flying to a destination rather than traveling by rail. • Bargaining power of suppliers . A supplier’s bargaining power is strong when there are few suppliers from which your company can obtain a needed product or service. Conversely, when they are many suppliers their bargaining power is lower since your company would have many sources from which to source a product. When your company has several suppliers to
Information Systems for Business and Beyond (2019) pg. 149
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