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The Value of Business Analytics: Identifying the Path to Profitability by Evan Stubbs

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BUSINESS ANALYTICS AND THE EXTERNAL VIEW

An alternative approach, suggested by Michael Porter, is to consider the external factors that influence the attractiveness of a given market. This is often referred to as the “positioning approach” due to the importance of positioning the organization within the broader external environment.

Porter’s Five Forces

Within this context, attractiveness is considered to be closely aligned with overall industry profitability. By considering the major external drivers of profitability within a given market, strategic planners can develop a series of strategies that aim to mitigate or manage these forces.

Porter identified five major forces that influence market attractiveness:

1. The threat of new market entrants

2. The threat of substitutable products

3. Competitive rivalry

4. The bargaining power of suppliers

5. The bargaining power of customers

The interrelationships among these factors are shown in Figure 2.3.

Figure 2.3 Porter’s Five Forces.

Source: Adapted from Michael Porter, Competitive Strategy (New York: Free Press, 1980).

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New Entrants

New entrants create a significant force against market attractiveness: They may drive prices down in the interest of gaining market share, they reduce mindshare in consumers, and they dilute profitability. Barriers to entry act as a constraining force against new entrants, but their threat is real. ...

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