5th week of MIS "Understanding a business"

Before start-up a business or entering a new industry, the first thing we need to do is to analysis the industry. We need to understand the business. One of the tools that can be used to analyze is Porter’s five forces which including competitive rivalry, the threat of new entry, the threat of substitution, supplier power, and buyer power.

1.      Competitive Rivalry

Identify the current market, and list the number of competitor in this industry. Then, we can identify what does each competitor offers, start from their product quality, prices, their delivering process, and many other differences such as bonuses or incentives given.

2.      Threat of new entry

There are several threats to enter the business. Therefore, firstly we need to identify the cost of entry that business. For example in a certain industry such as mining need a huge entry cost that might need to consider about compare to open a restaurant. Specialist knowledge, an expert, and human capital are needed for certain industry. Several questions such as is the economics of scale is high?; Is there a cost advantage to entry?; And also is there any technology protection?; might help us to understand the threat to enter the business.

3.      Threat of substitution

In this modern area, where everything is changing; start from the advanced technology until the changes in human behavior. All of these changes will bring us to another alternatives way to keep improving our convenient and efficiency even to create a better environment for our future. One real example is people demand paper is decreasing, where the use of paper is substitute by everything that can be done digitally (E-book, E-news, online test, and etc.). This substitution is a way to increase efficiency while at the same time saving the world. Hence, the threat of substitution might need to be considered before entering the business.

4.      Supplier power

By considering the supply and demand rules, the numbers of suppliers have a certain effect on their power. If a certain industry has a limited number of suppliers, then their power is bigger and usually might control over the potential rise of price, which in turn would lower the profitability of a business. Then, we need to compare between those suppliers, start from their size or the ability to provide until their uniqueness in service.

5.      Buyer power

Same with the supplier power, the buyer power here also implemented the supply and demands rule. Number of suppliers, size of each order, price sensitivity and the ability to substitute are some points we need to analyze to know the buyer power.