Perhaps you’ve undergone strategic planning at your workplace, company or a local non-profit board and experienced SWOT – an alalysis of strengths, weaknesses, opportunities and threats.

Often participants in these meetings debate the long-term vision of their organization and how they will achieve their goals. An alternative to SWOT that we prefer is from famed management consultant and Harvard Business School professor Michael Porter. 

Porter’s Five Forces of Competitive Position Analysis were developed in the late 1970s. The concept is simple to understand and has gained great credibility over the resulting decades. The five forces can be summarized as follows:

1. Competition in the industry.

2. Potential of new entrants into the industry.

3. Power of suppliers.

4. Power of customers.

5. Threat of substitutes.

As stock investors, assessing a company’s strategic plan and priorities is important to understanding how management and the board of directors will allocate free cash flow. Management can allocate cash flow in five ways: reinvestment in the business (such as research and development), building new facilities and general strategic capital expenditures, paying a dividend, repurchasing stock, paying down debt, or mergers and acquisitions.