Porter's Five Forces
A strategic analysis framework developed by Michael Porter that helps organizations assess industry competition and attractiveness through five key competitive forces.
Porter's Five Forces
Overview
Porter's Five Forces is a fundamental framework in strategic management developed by Harvard Business School professor Michael Porter in 1979. The model provides a structured approach to evaluating the competitive intensity and attractiveness of an industry by analyzing five distinct market forces that shape every industry's structure.
The Five Forces
1. Threat of New Entrants
This force examines how easily new competitors can enter the market:
- barriers to entry
- Economies of scale
- Capital requirements
- Access to distribution channels
- Government regulations
- brand loyalty
2. Bargaining Power of Suppliers
Analyzes how much control suppliers have over:
- Input costs
- Quality of supplies
- Number of suppliers
- Switching costs
- supply chain management
3. Bargaining Power of Buyers
Evaluates customers' ability to influence:
- Price sensitivity
- Product differentiation
- market demand
- Buyer concentration
- customer relationship management
4. Threat of Substitute Products
Considers the availability of alternative solutions:
- Price-performance trade-off
- Switching costs
- product differentiation
- innovation
5. Competitive Rivalry
Examines existing competition within the industry:
- Number of competitors
- Industry growth rate
- Fixed costs
- market share
- Exit barriers
Applications
The framework is widely used in:
- strategic planning
- Industry analysis
- competitive advantage assessment
- Market entry decisions
- business model development
Limitations and Criticisms
- May not fully account for digital transformation impacts
- Static analysis in dynamic markets
- Focuses on industry-level rather than firm-specific factors
- May overlook collaborative advantage
- Does not explicitly address disruption
Modern Relevance
Despite its age, the framework remains relevant for:
- Traditional industry analysis
- market research
- competitive intelligence
- Strategic decision-making
- risk assessment
Related Frameworks
The framework continues to evolve with modern business practices while maintaining its core principle of understanding competitive forces that shape industry profitability and attractiveness.