Corporate environment as a sixth force

Michael Porter’s Five Forces (The five forces (Porter)) has remained influential for four decades, while practitioners have repeatedly proposed additions. One candidate is the corporate environment: public institutions and collective bodies whose decisions can reshape industry economics.

When to use it

Use the extension when government, regulation or collective institutions materially determine industry profitability, as they can in sheep farming.

Origins

During the 1990s, several consulting groups began treating the corporate environment as a separate sixth force. The extension aggregates the influence of external organisations that are not already classified as competitors, entrants, substitutes, buyers or suppliers. Porter accepts that government and other institutions can be decisive, but generally analyses their effects through the original five forces rather than assigning them a universal independent category.

What it is

The model asks whether public policy and institutional action help or hinder the business, and through which economic mechanism.

Local, central and supranational authorities may alter profitability through tax, subsidy, regulation, trade policy, law or control of access. The analytical question is whether that combined effect merits separate treatment in the industry under review.

How to use it

Define the industry and list the external institutions that can change demand, cost, capacity, entry, conduct or risk. Exclude actors already represented clearly in the original five forces, then assess the remaining institutional effects by impact, direction, probability and time horizon.