Strategy
Five forces analysis
This is a way of analysing the attractiveness of an industry.
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Five forces analysis vs Porter’s five forces
The corpus marks this as a duplicate or close editorial overlap. Use the comparison to preserve provenance and decide which public article treatment is the better starting point.
Close overlapConceptual / qualitativeFinanceFinance
Strategy
Porter’s five forces
Assess five economic factors for competitive intensity.
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Use this when.
To understand why an existing industry is more or less profitable than relevant alternatives.
Assess the structural drivers of industry profitability and competitive intensity.
Extracted signals
Strengths, limits, and pitfalls.
Five forces analysis
- Calibrate the story against economics. Compare industry returns with a relevant baseline; average return on invested capital across US industries during 2000–2008 was 12.4 per cent in the cited example. Then concentrate strategy discussion on the one or two forces that most affect future value, while documenting why the others are secondary.
- First define the industry by customer need, geography, product scope and value chain stage. Too broad a boundary hides differences; too narrow a boundary excludes real substitutes and entrants.
- Gather evidence for each force: concentration, switching costs, entry barriers, economics of substitutes, supplier dependence, capacity, growth, margins and observed behaviour. Rate the direction and strength of each force and record the evidence and uncertainty behind the rating.
Watch for
- A completed diagram is not a strategy. The analysis must lead to choices about positioning and activity. The most common error is an ill defined industry boundary—for example, treating all banking as one market when retail banking in a particular country has different buyers, substitutes and rules from commercial banking elsewhere.
Porter’s five forces
- For every force, write the causal chain from structural driver to price, cost, investment or risk. That is more useful than scoring a force “high” or “low” without an economic mechanism.
- The following IKEA example is historical and should not be treated as a current company assessment. At the time described, the Swedish retailer had more than 300 stores across 40 countries and reported 2016 sales of €35 billion.
- Rivalry among established competitors: very strong. Furniture retail includes numerous large and small rivals, category specialists and local operators. IKEA reduces direct comparability through a distinctive modern, self service, value for money position, but differentiation does not eliminate rivalry.
Watch for
- Do not analyse the company instead of the industry or assume that present market share proves weak forces. Poor boundaries, static labels and unsupported rankings turn the model into a checklist.
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Application bridge
Related templates.
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