In business executives and managers have a responsibility to ensure that their venture stays viable and growing. This requires them analyze their competitors, customers, and market forces to guide their decisions. Patterns are identified to develop abstract strategies and models that are applicable across domains. Since the 1970s academics have developed and refined several techniques to models business.
The first of these techniques is the SWOT (Strengths, Weaknesses, Opportunities, and Threats). SWOT spawned a variant called TOWS. SWOT and TOWS were not sufficient though so the Porter Five Forces Analysis was developed leveraging industrial organization economics to determine the five forces that compose a market’s competitive intensity. The five forces are threat of new entrants, bargaining power of suppliers, bargaining power of buyers, industrial rivalry, and threat of substitute products or services. Executives use insights gleaned to decide if a market is worth entering or exiting. A sixth force was later added to address complementary competitors and government. A final higher level analysis is the PEST analysis that describes political, economic, social, and technological factors. These factors effect entire industries help managers with macro-level strategic decisions.
Indeed, while these techniques are no panacea, they do help illuminate the competitive landscape to enable decision makers to deliver the maximum value to their stakeholders. These models fail though when they are based on flawed information. Managers must be sure models are based on well researched facts and educated assumptions to have the best chance of a successful execution.