Five Forces, Michael Porter (1979)

The Five Forces Framework, introduced by Michael Porter in his book “Competitive Strategy” published in 1979, is a widely recognized and influential model for analyzing the competitive forces within an industry and assessing its attractiveness and profitability.

Porter’s Five Forces Framework suggests that the competitive intensity and profitability of an industry are determined by five key forces:

  • Threat of New Entrants: The ease with which new competitors can enter the market. Factors such as barriers to entry, capital requirements, economies of scale, and access to distribution channels influence the threat posed by new entrants.
  • Bargaining Power of Suppliers: The ability of suppliers to influence the terms and conditions of supply, including pricing, quality, and availability. Supplier power increases when there are few alternative suppliers or when suppliers possess unique resources or expertise.
  • Bargaining Power of Buyers: The ability of buyers to influence the terms of purchase, such as price, quality, and service. Buyer power increases when buyers have multiple options, are price-sensitive, or can integrate backward into the supply chain.
  • Threat of Substitute Products or Services: The availability of alternative products or services that can fulfill a similar need. The threat of substitutes is higher when there are many alternatives that offer comparable benefits or when switching costs are low.
  • Intensity of Competitive Rivalry: The degree of competition among existing firms in the industry. Factors such as the number and size of competitors, industry growth rate, product differentiation, and exit barriers determine the intensity of rivalry.

By analyzing these five forces, organizations can gain insights into the overall attractiveness and dynamics of their industry. The model helps identify areas of competitive advantage and vulnerability, guiding strategic decision-making and resource allocation.

Porter’s Five Forces Framework has been widely adopted as a tool for industry analysis and strategy development. It has influenced business thinking and has become an essential concept in understanding competition and formulating effective competitive strategies. The framework encourages organizations to assess the underlying forces shaping their industry and develop strategies to position themselves favorably within the competitive landscape.