Awareness of the ﬁve forces can help a company understand the structure of its industry and stake out a position that is more proﬁtable and less vulnerable to attack.
78 Harvard Business Review
STRATEGY STRATEGY by Michael E. Porter
THE FIVE COMPETITIVE FORCES THAT
Editor’s Note: In 1979, Harvard Business Review published “How Competitive Forces Shape Strategy” by a young economist and associate professor, Michael E. Porter. It was his ﬁrst HBR article, and it started a revolution in the strategy ﬁeld. In subsequent decades, Porter has brought his signature economic rigor to the study of competitive strategy for corporations, regions, nations, and, more recently,
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But to understand industry competition and proﬁtabilThe Five Forces That Shape Industry Competition ity in each of those three cases, one must analyze the industry’s underlying structure in terms of the ﬁve forces. (See the exThreat hibit “The Five Forces That Shape Industry of New Competition.”) Entrants If the forces are intense, as they are in such industries as airlines, textiles, and hotels, almost no company earns attractive returns on investment. If the forces are benign, Rivalry as they are in industries such as software, Among Bargaining Bargaining soft drinks, and toiletries, many companies Power of Power of Existing Suppliers are proﬁtable. Industry structure drives Buyers Competitors competition and proﬁtability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated. While a myriad of factors can affect industry proﬁtability Threat of in the short run – including the weather Substitute Products or and the business cycle – industry structure, Services manifested in the competitive forces, sets industry proﬁtability in the medium and long run. (See the exhibit “Differences in Industry Proﬁtability.”) Understanding the competitive forces, and their underThe strongest competitive