The Five forces of Porter
To perform the Industry Analysis it is better to follow Michael Porter's five forces model. This analysis framework was created so that it helps managers in their task to analyze competitive forces to the company. (Hill & Jones 80) This model is only one of the models that can be used for this task but it is one of the more popular models. The five forces that we will have to look at for this model are (1) the risk of new and potential competitors; (2) the bargaining power of suppliers; (3) the threat of substitute products; (4) the bargaining power of buyers; and (5) the degree of rivalry among established companies within an industry. (Hill & Jones 80) The first force in Porter's Five Forces Model is Entry Barriers. These factors are those that make it harder or easier for another company to enter into the industry. High barriers to entry will keep potential competitors out of the industry and low barriers to entry will give an opening for competitors to enter into the industry if the industry returns are high enough. (Hill & Jones 82) The fewer competitors in an industry the more the existing companies can take advantage of higher prices and better returns.
One of the limitations to this way of looking at industry analysis is that the Five Forces model looks at an industry as a whole instead of each individual company. Hewlett Packard and Compaq, revenues have increased by 107% and 714% respectfully over the past ten years. The stronger each force is the more the industry in which the company is in is competitive. These new companies were producing very similar computers at the same cost but charging less. IBM also is able to make one of the smallest and lightest notebook computers. It can be hooked up to other hardware or connected to a PC, network or printer. If you are looking for a computer that is easy to set up and easy to use you can find the "Power book" to give you the least amount of difficulties. Since laptops provide an efficient means for mobile computing, there is no other true mechanism that poses as a substitute except for possibly a palm pilot or even nowadays cell phones. When an industry is more competitive this leads to lower prices due to price wars and ultimately lower rate of return. However when IBM went into the notebook computer industry it became innovative and produced computers that were similar to their normal PC. When a buyer can demand certain things from the company then that would give them power.
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