Watch this with a 10-15 minute audiotrack at http://vimeo.com/novusprogram/lesson22 This lesson will discuss Michael Porter's economic theory about various forces that can affect the success of a business and the decisions that need to be made before starting a business. It will apply each particular force to small businesses to illustrate the core concepts and how small businesses can be impacted by industry competition. The Novus project is a combination of video tutorials designed to be used in conjunction with a free business simulation software program. The Novus Business and IT Program contains 36 business and IT training videos, covering basic finance, accounting, marketing, economics, business strategy, Word, Excel, and PowerPoint. Users will have an opportunity to apply the lessons in the Novus Business Simulator. Over six rounds, the user or teams will have to make decisions on capital purchases, financing, production, financing, and human resources for a microbrewery. This channel has arranged the 36 video lessons into the order in which they are meant to be used with the simulator. To watch this slideshow as a video, please go to our Vimeo page at: https://vimeo.com/novusprogram. To download our free business simulation software, please go to our SourceForge page at: http://sourceforge.net/projects/novus/.

1. Assessing Industry Competitiveness:
Porter’s Five Forces Theory
Objective: To examine Porter’s Five Forces Theory which provides a
framework for assessing the competitive environment.
Novus Business and IT Training Program

2. Porter’s Framework
Buyer Power
Threat of Degree of
Rivalry Threat of
New Entrants
Within the Industry Substitutes
Supplier Power
Novus Business and IT Training Program 1

3. Degree of Rivalry:
What Creates Fierce Competition
• High Industry Concentration
• Low Industry Growth Rate
• High Fixed Costs vs. Variable Costs
• Perishable Products
• High Storage Costs
• Low Switching Costs
• Little Product Differentiation
• High Exit Barriers
Novus Business and IT Training Program 2

4. Porter’s Framework
Buyer Power
Threat of Degree of
Rivalry Threat of
New Entrants
Within the Industry Substitutes
Supplier Power
Novus Business and IT Training Program 3

5. Threat of New Entrants
Situations that make an industry difficult to enter:
• Regulatory Hurdles
• Proprietary Technology
• High Start-up Costs
• Need Economies of Scale to Prosper
• Distribution Network is Hard to Create
• Dominant Player with a Strong Brand
Exists
Novus Business and IT Training Program 4

6. Porter’s Framework
Buyer Power
Threat of Degree of
Rivalry Threat of
New Entrants
Within the Industry Substitutes
Supplier Power
Novus Business and IT Training Program 5

7. Threat of Substitutes
• Often creates downward pressure on
prices
• Can come from new technology
Novus Business and IT Training Program 6

8. Porter’s Framework
Buyer Power
Threat of Degree of
Rivalry Threat of
New Entrants
Within the Industry Substitutes
Supplier Power
Novus Business and IT Training Program 7

9. Supplier Power
Suppliers are Strong when:
• Suppliers are concentrated
• It is expensive to switch suppliers
Suppliers are weak when:
• Buyers are concentrated
• They supply commodity products
Novus Business and IT Training Program 8

10. Porter’s Framework
Buyer Power
Threat of Degree of
Rivalry Threat of
New Entrants
Within the Industry Substitutes
Supplier Power
Novus Business and IT Training Program 9

11. Buyer Power
Buyers are Strong when:
• Buyers are concentrated
Buyers are weak when:
• It would cost a lot or be difficult to
switch to the product of a different
supplier
• They buy very specialized products
Novus Business and IT Training Program 10

12. Porter’s Framework
Buyer Power
Threat of Degree of
Rivalry Threat of
New Entrants
Within the Industry Substitutes
Supplier Power
Novus Business and IT Training Program 11