Five Force Model

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Special section: Winning in your industry: new tools and strategies A new competitive analysis tool: the relative profitability and growth matrix Joseph Calandro Jr and Scott Lane Joseph Calandro, Jr is a Managing Consultant at IBM Global Business Services and a part-time Professor in the Finance Department of the University of Connecticut (jtacalandro@yahoo.com). Scott Lane is an Assistant Professor in the Accounting Department of the University of New Haven (slane@newhaven.edu). A brief history of the competitive analysis matrix: 1970 to the present The theory, process and tools of competitive analysis are keystones of strategy. Michael Porter’s 1980 book, Competitive Strategy, and the Five Forces model it introduced provide a framework for the systematic study of the external environment as a method of developing a competitive strategy[1]. Subsequent researchers have refined Porter’s model; in practice, however, this type of analysis can be inordinately complex and often does not summarize easily. Since executive time is always in short supply, finding effective ways of focusing analytical activities and communicating the information generated from those activities can help increase the overall return on management[2]. One of the most versatile tools for summarizing and communicating strategic information is the 2 £ 2 matrix, which graphs two variables and defines the four outputs derived from them. While some may complain that the 2 £ 2 matrix oversimplifies issues, it has proven to be an extremely useful business tool. Properly used, it provides a visual focus on a core set of variables, thus modeling a complex situation ‘‘as a set of dueling interests’’[3]. It can also offer insights into resource allocation alternatives (such as competing in segments with strong levels of profitability but lower levels of growth versus segments with very strong growth but
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