Porter’s 5 Force

Porter’s 5 Force

Porter's 5 forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979 . It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition". Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace. The overall industry attractiveness does not imply that every firm operating in the industry will return the same profitability. Firms are able to apply their uniqueness in resource, business model or network to achieve a profit above the industry average. A clear example of this being the airline industry. As an industry profitability is low (and since the dawn of flight the entire industry has failed to make