Porter's Five Forces Analysis
Framework: M. E. Porter, “How Competitive Forces Shape Strategy”, Harvard Business Review, 1979; updated in 2008
Overall Reading
To write: Name the industry. Porter's analysis applies to one line of business — “online grocery in the UK”, not “retail”.
Reading: Rate all five forces to see a reading
| Force | Pressure on profit | Checklist items true |
|---|---|---|
| Threat of new entrants | Not rated | 0 of 8 |
| Bargaining power of suppliers | Not rated | 0 of 7 |
| Bargaining power of buyers | Not rated | 0 of 7 |
| Threat of substitutes | Not rated | 0 of 5 |
| Rivalry among existing competitors | Not rated | 0 of 7 |
Tip: A teaching convention, not Porter's own formula: an average of 2.0 or less reads as attractive, 3.5 or more as unattractive, and anything between as mixed. Porter argued that the strongest force or forces set an industry's profit potential, so read the forces rated 4 or 5 before the average.
Threat of new entrants
Pressure on profit: Not rated
To write: Explain which barriers to entry exist (scale, capital, brand, channels, regulation) and whether any newcomer has recently entered.
Bargaining power of suppliers
Pressure on profit: Not rated
To write: Name the main suppliers or inputs, including labor, and explain how easily the industry could switch or do without them.
Bargaining power of buyers
Pressure on profit: Not rated
To write: Say who the buyers are, how concentrated they are, and how easily they can switch or push prices down.
Threat of substitutes
Pressure on profit: Not rated
To write: Name the substitutes — different products that meet the same need — and compare their price and performance with the industry's.
Rivalry among existing competitors
Pressure on profit: Not rated
To write: Describe the competitors, how they compete (price, quality, service), how fast the industry is growing, and how hard it is to leave.
Implications for Strategy
Tip: Porter describes strategy as building defenses against the forces or finding a position where they are weaker. Answer these for the forces you rated 4 or 5.
- 1.
[To write: Which force presses hardest on profit, and what exactly causes it?]
- 2.
[To write: Where in the industry — which segment, customer or product — is that force weaker?]
- 3.
[To write: What could the organization do to defend against it, or to change the force in its favor?]
- 4.
[To write: Which trend could make a force stronger or weaker in the next few years?]