Explain how Michael Porter's Five Forces Model can be applied to examine the competitive environment in the business world.

In the business world, these are groups of organizations that compete directly and indirectly with each other to win orders, sales and market share. The five forces that Michael Porter used as a model to examine or rather explain the logic competition are:

  • Threat of new entrants
  • Threat of new substitute products or services
  • Strength of bargaining power of suppliers
  • Strength of bargaining power of customers
  • Level of rivalry among existing companies in the industry

Michael Porter's model help in the following way:
  • Helps the manager to decide whether his organization should remain in or exit out of the industry.
  • Provides a rationale for increasing or decreasing resource commitment
  • Help the manager to improve and assess his own organizational competitive position

Wheelen and Hunger (1998) expanded Porter's five forces model with a sixth force, by including the relative power of other stakeholders. These stakeholders may include the government, local communities and environmental groups (NGOs)