Porter's five forces: how to run the analysis

Who should use it, and when not to

Use the five forces before entering a market, when picking which segment to serve, or when an industry's margins are lower than anyone expected and you want the reason. It also helps when one actor changes the picture: a big customer starts tendering on price, a supplier consolidates, or a cheaper alternative appears.

It is an industry tool. It tells you how the profit pool is split, not how your company should beat its rivals inside that pool. For that, pair it with a choice of generic strategy and a look at your own value chain. It also works poorly when you can't say which industry you're in yet; settle that first.

The five forces in plain words

Two points from Porter's 2008 article change how people use the model. First, newcomers don't have to show up to hold prices down: the mere chance that they could is enough to keep incumbents careful. Second, growth rate, technology, government policy, and complementary products are not extra forces. A patent raises entry barriers; a rule that keeps failing firms alive feeds rivalry. You trace each factor to the force it moves instead of adding a sixth box.

How to run a five forces analysis

1. Define the industry. Write which products are in and which belong to a neighbouring industry, and how wide competition is geographically. If two products or regions differ a lot in buyers, suppliers, or barriers, treat them as separate industries.
2. Name the players. List rivals, buyer groups, supplier groups, substitutes, and likely entrants. Split buyers and suppliers into groups when their power differs.
3. Rate each force from its drivers. For each force, write the drivers that apply, the evidence, and a rating of low, medium, or high pressure on profit. Mark any rating that rests on a missing fact.
4. Route the other factors through the forces. For growth, technology, regulation, and complements, write which force each moves and in which direction.
5. Find the controlling forces. Pick the one or two forces that limit profit most, and check the story against real profitability over several years. If the most profitable players aren't the best placed against these forces, revisit the ratings.
6. Note what is changing. For each force, record recent and likely shifts, and separate lasting structural change from a cycle.
7. Decide where to compete and what to change. Choose a position where the forces are weakest, a shift you can get ahead of, or a move that changes the structure, and tie each move to the force it addresses.

A worked mini example

Illustration: a made-up business; every fact is stated here. Kawa Clean is a home-cleaning company in a Japanese city of 400,000 people, with 30 cleaners. The industry, as it defines it: recurring cleaning of private homes in that city. Office cleaning is excluded, because its buyers sign yearly contracts through tenders and the structure is different.

The controlling forces are entry and labour. Anyone can start, so prices stay low, and scarce cleaners take a growing share of each hour billed. Growth in demand from dual-income households doesn't change that, since it also pulls in entrants.

What Kawa Clean decides: stop competing for one-off bookings, where buyers compare prices and entrants win. Focus on weekly contracts with the same cleaner in each home, because trust raises switching costs and keeps buyer power low. Offer cleaners fixed schedules and longer contracts, which matter in a tight labour market. Each move names the force it answers. The five forces skill runs the same steps on your own facts.

Common mistakes

• A fuzzy industry. "Cleaning" mixes homes, offices, and hospitals, which have different buyers and barriers. The ratings then describe a market nobody competes in.
• Lists instead of judgements. Five bullet lists of facts aren't an analysis. Each force needs a rating and a reason.
• Equal weight on every force. Usually one or two forces explain most of the profit level. Spend the effort there.
• A sixth force. Adding "government" or "technology" as a box hides how they act. Trace them through the five.
• Stopping at "attractive" or "unattractive". The point is a choice of where and how to compete, not a grade.
• A snapshot. Forces move. A one-off price spike in an input is not the same as a supplier that has just bought its rivals.

Where it comes from

Michael E. Porter, a professor at Harvard Business School, first described the five forces in Harvard Business Review in 1979 and developed them in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1980). His 2008 HBR article, "The Five Competitive Forces That Shape Strategy", restates the model and adds guidance on defining the industry and on the factors that are not forces. This page is an independent summary in our own words. It is not written, reviewed, or endorsed by Porter or his publishers. For other frameworks, see the strategy books index.

Questions

What are Porter's five forces?

Rivalry among existing competitors, the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, and the threat of substitutes. Together they decide how much of the value an industry creates its companies get to keep.

Is government or complements a sixth force?

Not in Porter's 2008 article. He treats government policy and complementary products as factors that act through the five forces, because neither is good or bad for profit by itself. You trace which force each one moves.

Is a fast-growing industry always attractive?

No. Growth can soften rivalry, but it also draws entrants and can strengthen suppliers, and it does not help if buyers are strong or substitutes are cheap. Porter calls a narrow focus on growth a frequent cause of bad strategy decisions.