Five Porter Forces Essay example

11138 Words Jun 19th, 2013 45 Pages
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


January 2008


STRATEGY STRATEGY by Michael E. Porter
Peter Crowther



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

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