- Free Essays, Term Papers & Book Notes

5 Forces of Porter

By:   •  Essay  •  688 Words  •  June 2, 2010  •  1,472 Views

Page 1 of 3

5 Forces of Porter


An industry is a group of firms whose products are close substitutes for each other (e.g. the car industry, the travel industry).

Some industries are more profitable than others. Why? The answer lies in understanding the dynamics of competitive structure in an industry.

The external environment of an organization is marked by intense competition between rival firms. The components of external environment include economic, socio-cultural, and global issues. In order to gain sustainable competitive advantage, the organization needs to study its external environment and exploit the opportunities prevailing therein.

The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model, which is described below:

Michael Porter described a concept that has become known as the "five forces model" to help understand how competition affects your business. Porter's 5 forces analysis is a framework for industry analysis and business strategy development developed by Michael E. Porter in 1979 of Harvard Business School. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term macroenvironment. 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.

Strategy consultants use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. The framework is textbook material for modern business studies and therefore widely known.

Porter's Five Forces include three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers, bargaining power of customers.

Each of these forces has several determinants:


5 competitive forces define industry’s structure and shape the nature of competitive interaction within an industry.

the job of the strategist is to understand and cope with competition

there is a strong relationship between the 5 c.f. and the industry’s profitability. When 5 c.f. are intense we have low profitability and when they are benign the profitability is high.

In the long-run is the industry’s structure that drives profitability.

the intensity of the 5 c.f. varies from the one industry to the other. And it is the most intensive force that determines

Continue for 2 more pages »  •  Join now to read essay 5 Forces of Porter
Download as (for upgraded members)