Six Forces Model

What is the 'Six Forces Model'

The six forces model is a strategic business tool that helps businesses evaluate the competitiveness and attractiveness of a market. The six force model provides an industry-view and analyzes six key areas:

Competition - Information regarding present competition
New Entrants - Information regarding the ease with which new competition could enter the market
End Users/Buyers - Information regarding the buyers' abilities to affect price
Suppliers - The number and type of sellers
Substitutes - The ease by which a product or service can be substituted
Complementary Products - The impact of related products and services already in the market

BREAKING DOWN 'Six Forces Model'

The five forces model was originally developed by Michael E. Porter of Harvard Business School. As a means of analysis, there were certain limitations in that original model. Among those limitations was the model primarily applied more towards simple and static markets rather than complex and dynamic markets. Furthermore, the model did not account for factors and influences from outside of the market or industry itself. The pace of change in business has also increased and new business models continue to emerge that do not follow the same patterns as incumbent, older businesses.

Limitations of Porter's Model

For instance, the legacy media industry, which includes print, radio, television, and movies, was disrupted by the growth of the internet, which developed outside of those respective markets. That external element changed the dynamics of how media outlets of many formats conducted business. The barriers to entry for new media companies diminished with the advent of online platforms to deliver content. This created new forms of competition and the arrival of new entrants who did not operate as traditional rivals did. The supplier sources for media also changed as more independent and individual creators gained access to tools that allow them to produce content that could be distributed through online channels. This could be done without incurring traditional costs of publishing content the audience. This also allowed new buyers and end users access to media in ways that influenced price as many content sources became available at free or lower costs to the incumbents. Such elements do not easily factor into the models analysis structure.

The six force model later came in the mid-1990s and added complementary products. It is used to evaluate a firm's strategic position in a particular marketplace. The six forces model can also be used to determine the market's overall attractiveness in relation to profitability and competition.