This document discusses Michael Porter's Five Competitive Forces Analysis which is
used for assessing and analyzing the competitive strength and position of a corporation
or business organization. It draws upon industrial organization economics to derive five
forces that determine the competitive intensity and profitability of a market. This is a
simple yet powerful tool for understanding where power lies in a business situation. It
can be used to identify whether new products or services have potential to be profitable.
This document should be used by individuals in management positions of a company or
anyone interested in understanding competitive strategy for businesses.
Porter’s Five Competitive Force s Analysis
Porter’s Five
Competitive Forces
Analysis
Porter’s Five Competitive Force s Analysis
Table of Contents
Introduction ......................................................................................... 1
About Michael Porter .......................................................................... 1
Porter's Five Forces............................................................................... 5
Other Things Michael Porter is known for .............................................. 5
The Main Characteristics of Porter’s Five Forces Analysis ........................... 6
Force 1: The Degree of Rivalry ............................................................ 6
Force 2: The Threat of Entry ............................................................... 7
Force 3: The Threat of Substitutes ....................................................... 8
Force 4: Buyer Power ......................................................................... 8
Force 5: Supplier Power ...................................................................... 9
The Limitations of Porter’s Five Force Model ........................................ 10
Porter’s Five Competitive Force s Analysis
Introduction
T
here is continuing interest in the study of the forces that impact on
companies, particularly the forces that can be harnessed to provide a
competitive advantage. The ideas and models that emerged during
the period from 1979 to the mid-1980s (Porter, 1998) were based on the
idea that competitive advantage came from the ability to earn a return on
investment that was better than the average for the industry sector
(Thurlby, 1998).1
About Michael Porter
Michael Porter is an American who was born in 1947. After first
graduating in aeronautical engineering, Mr. Porter received an economics
doctorate at Harvard, where he was later honored with a university
professorship. Porter's famous Five Forces of Competitive Position model
presents a simple point of view for assessing and analyzing the competitive
strength and position of a corporation or business organization.
Mr. Porter’s research group is based at the Harvard Business School.
He also co-founded the Foundation Strategy Group with Mark Kramer. This
foundation is 'a mission-driven social enterprise, dedicated to advancing the
practice of philanthropy and corporate social investments, through
consulting to foundations and corporations'. 2
Porter's first book, Competitive Strategy (1980), which he wrote in his
thirties, became an international best seller. It is considered by many to be
an influential and definitive effort on corporate strategy. The book has been
published in nineteen languages and re-printed almost sixty times. It has
changed the way business leaders think, and internationally, it still is a guide
of choice for strategic managers.
When he finished working on corporate strategy, Porter extended the
application of his ideas and theories to i