The ‘Five Forces’ industry analysis devised by strategist Michael Porter is a fantastic process for determining whether or not an industry is worth operating in. The analysis evaluates the forces that exist within an industry, including suppliers, buyers, rivalry, new entrants and substitutes.
The primary objective of the analysis is to help you anticipate the profitability of the industry’s environment. Are there many opportunities or threats? What are the chances of any future competitive pressures?
If you look at Porter’s original model, it almost looks like a Mind Map already. By translating it into a real Mind Map structure, particularly in Mind Mapping software such as iMindMap, you can explore your ideas on an unlimited workspace without losing focus. Mind Maps consolidate large amounts of information on one canvas clearly and concisely, thanks to their radiant, hierarchical structure. A Mind Map will also help trigger associations, encouraging you to create a more thorough picture of the situation.
Start by creating a Mind Map using the Five Forces as the main branches radiating from your central theme. Explore each force further by creating sub branches related to the various elements.
The suppliers within an industry can play a large part in the make up of a product or service. Depending on their bargaining power and the level of demand, they can dictate the pricing and availability of resources. Mind Mapping provides a visual way for you to see exactly where you and your suppliers stand.
Create branches for each supplier, with sub branches detailing their costs, locations and distribution channels. You can then compare which offers the best value, using visual flags such as green crosses and red ticks to highlight their positive and negative attributes.
The buyers will dictate the level of demand of your product or service. On a Mind Map, you can use branches to explore the different avenues that the buyer could purchase from, such as a shop or online. Stick to keywords rather than phrases on your branches to help trigger more associations and a deeper analysis.
Start by looking at the strengths and weaknesses of each avenue, especially cost and availability. This will help you to determine where the buyers are most likely to purchase from. Further topics to explore on the Mind Map include the product itself, the concentration of buyers, price sensitivity and the choice available to the buyers.
Let’s take the example of custom made oak furniture. Buyers will be willing to pay more for this as it is not a widely available product. This gives the manufacturer, you, more bargaining power. However, if you look at a product such as washing up liquid, there are more readily available options to the buyer, and factors such as the price and quantity will play a pivotal role in the buyer’s decision.
Rivalry is all about your competitors. In your Mind Map, create a branch for each of your main competitors with sub branches exploring their strengths and weaknesses. What are the objectives of your competitors? Are they driving for huge profit margins or increasing their market share?
A Mind Map helps you to evaluate these strengths and weaknesses by providing a clear, visual overview of each.
Existing companies within an industry should always keep an eye on newcomers. The unlimited canvas of a Mind Map will allow you to add any new entrants and fully examine their product or service, its strengths and weaknesses, the cost and also the company objectives. From this, you will be able to build a picture of their potential threat.
If there are low barriers to entry within the industry or if it is profitable, you can expect a lot of interest from new entrants. What you have to decide is, do you have a product or service that will blow new entrants out of the water?
Additional factors you should consider on your Mind Map are initial expenditure, economies of scale, government policy, customer loyalty and profitability.
This final force looks at substitutes or alternatives there could be for your product. Too many of these could seriously reduce your influence within an industry.
Create branches detailing potential substitutes or alternatives and their strengths and weaknesses. How do they compare to your own product or service? Consider brand loyalty, switching costs, trends and quality.
Take the example of bottled water. A substitute or alternative for this is tap water. It’s cheaper, readily available and potentially unlimited in volume. There are also a huge variety of popular alternatives, such as fizzy drinks, cartons of juice and energy drinks.
Use iMindMap’s relationship arrows to draw connections to other parts of your map. The visual aspects of a Mind Map will help you to identify potential links and relationships within your analysis, as well as the trends and behaviours of the industry.
Translating Porter’s Five Forces industry analysis into a Mind Map provides you with a strong visual overview. Connections and comparisons can be easily visualised and the radiant structure encourages more ideas and a more in depth analysis. Try the same with a more linear structure and you become locked into the detail, losing the big picture.
Get to know your industry and give it a try yourself with our free trial of iMindMap Mind Mapping software.
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