Wednesday February 29, 2017 - Class #11 Porter's 5 forces vs SWOT analysis

Today:

In Class #8 we discussed Porter's Five forces and how its used to analyze a company and industry. In Class #10 (Last Class), we discussed using SWOT analysis to analyze a company and industry.

How are these tools related? What are their differences and similarities?

SWOT and Michael Porter's Five Forces analysis model are both useful tools in strategic planning. While they both help in assessing your company's strengths and weaknesses relative to industry opportunities and challenges, a primary difference is that SWOT focuses more on company-specific elements while Five Forces involves a look at five important competitive factors when making a strategic decision.

SWOT Basics
SWOT is a basic assessment of your company's current position based on strengths and weaknesses, as well as a look at opportunities and potential threats as the company moves forward. To conduct this analysis, company leaders often set up a table that includes key points in each of the four SWOT categories. Strengths and weaknesses are analyzed relative to how your company currently measures up against competitors. Identifying opportunities and threats involves brainstorming future events or direction.

Five Forces Basics
The Five Forces model includes five factors in a competitive assessment. They include supplier power, buyer power, competitive rivalry, substitution threat and threat of new entry. You use Five Forces analysis to figure out the competitive advantages your business has in each area. As a product reseller, for instance, it helps to know your relative bargaining power with industry suppliers and buyers. The general level of competition may also affect your opportunities. Substitution threats and potential new entries involve analyzing long-term viability if you enter a market.

Level of Specificity
One major distinction between the two is that
      1) SWOT is a general, overall assessment, while
          Five Forces is typically focused on a single growth decision (one product).

You might start with SWOT to paint the picture of your company's current position in the marketplace and then look ahead to future strategic options.

Then, Five Forces provides a tool to assess viability of particular product, service or industry expansion. You can weigh diversification into a product category using Five Forces, for instance.

Competition and Time-Orientation
       1) SWOT is about your business and its position, and
            Five Forces is a tool you use to analyze competitors and how they could inhibit you.

Generally, the best opportunities for a business lie in situations where a company's strengths relative to competition align with its opportunities and less inhibiting competitive factors. Time-orientation is also slightly different with SWOT and Five Forces. With SWOT, you assess your current position and future endeavors. Five Forces is centered mostly on future decisions.