Strategy
Porter’s five forces
Assess five economic factors for competitive intensity.
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Porter’s five forces vs The five forces (Porter)
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Strategy
The five forces (Porter)
That is the basic premise of Michael Porter’s work. And he went on to describe in detail what the fundamental forces are which drive competitive intensity.
Read articleChoice logic
Use this when.
Assess the structural drivers of industry profitability and competitive intensity.
Use it whenever assessing the attractiveness, evolution or boundaries of an industry.
Extracted signals
Strengths, limits, and pitfalls.
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.
The five forces (Porter)
- Analyse each force as a driver of price, cost or investment, and include regulation and other external institutions where they materially alter competition.
- Define the industry and customer need before scoring anything. A boundary that is too narrow hides substitutes; one that is too broad averages away meaningful economics. Analyse current conditions and the direction of change for each force.
- Rivalry among existing competitors
Watch for
- Industry boundaries are analytical choices. A rigid definition can hide substitutes, complements and changing business models, producing a false conclusion.
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Application bridge
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