Six Forces Model:

The Six Forces Model (SFM) is a business strategy tool.  It is primarily used as an industry model to assess the competitiveness of a market.

The Six Forces Model is an improvement over the Five Forces Model developed by Michael Porter. SFM is more specific than even SWOT, and is also used as an alternative to SWOT.

SFM analyses six areas in a market place:-

Competition: Are there a lot competition in the market? Are there dominant players?

New Entrants: Is it easy for new entrants to enter the market and compete?

Buyers: How easy is it for buyers to affect the price? Can they work together? How strong is their position?

Suppliers: What is the state of supply base?  Is it a monopoly?  Are there many sellers?

Substitutes:  How easy can a product or service be substituted?

Complementors:  Influence of complementary products and services on the market?

What is the Six Forces Model (SFM) used for?

SFM is used for a detailed analysis of the strategy position of a company in the market place, and to calculate the market effectiveness with regard to competition and profitability.  This assessment is necessary prior to investing resources and deploying strategic measures if the market is very competitive.  It is also prudent to look at alternative markets for achieving better revenue.

Markets keep changing.  Hence the SFM needs a re-assessment of a strategy in the market.  The SFM should be part of a regular strategy planning process, and should be reviewed annually at least.

The following is the criticism of the Five Forces Model:-

• Buyers, competitors and suppliers are unrelated and not interact and collude.
• That the source of value is structural advantage (entry barriers).
• That uncertainty is low, allowing participants in a market to plan for and respond to competitive behavior.

The Six Forces Model is an improvement over the Five Forces Model as well as SWOT.

Questions:

1. What are the six areas the Six Forces Model helps analyze?      

2. Where the Six Forces Model can be used?