Framework library · Competitive and market analysis

Porter's Five Forces

Five forces decide how much of the value an industry creates is kept by its companies: rivalry between them, the power of buyers and of suppliers, the threat of new entrants and the threat of substitutes. The strongest force sets the ceiling on profitability, and strategy is mostly about positioning against it.

LevelIntermediate
TimeHalf a day with data on the industry, or a week to do it properly
Who to involveStrategy, with commercial and procurement leads who know the buyers and suppliers.
Also calledFive Forces, Porter five forces, industry analysis

Use it when

  • You are deciding whether to enter, stay in or invest more in an industry.
  • Margins are under pressure and you need to know which force is squeezing them.
  • You want to see how a change, such as a new technology or regulation, shifts profit between players.

Avoid it when

  • You need to analyse one company's strengths. The forces describe an industry, not a firm.
  • The industry boundary is unclear. Draw it first (product and geography) or the forces will be about a different business.
  • You need numbers. The forces are qualitative. Pair them with market sizing and the companies' own filings.

How to run it

  1. Define the industry

    Product scope and geography. "US fixed broadband to homes" is an industry; "connectivity" is not.

  2. Rate each force with evidence

    Score how true each statement is of this industry today, and note the evidence: concentration figures, switching costs, prices, filings.

  3. Find the strongest force

    The force with the highest score usually sets the limit on margins. It is where strategy has to answer.

  4. Look for movement

    Write which forces are getting stronger or weaker over the next three years, and why. Most of the strategic value is in the trend, not the snapshot.

  5. Position against the forces

    Find where the business can sit so the strongest forces bear on it least: a segment with weaker buyers, a supplier relationship with options, a product substitutes cannot match.

Work through it

Answer the questions below, or load the worked example to see a finished one. The drawing updates as you type. Export the result as a PowerPoint deck, a Word document, an Excel workbook, a PDF or plain text.

What you type stays in this browser, so you can close the page and come back to it. It is not sent to Blue Prysm or anyone else, and the exports are made here, on your device. Privacy policy.

Mistakes to avoid

  • Listing factors without rating them. The output should say which force matters most.
  • Treating complementors and government as a sixth force. Porter treats them as factors that act through the five.
  • Doing it once. The forces move, and the analysis is worth most when repeated.

Where it comes from

Michael E. Porter, "How Competitive Forces Shape Strategy", Harvard Business Review, March to April 1979; developed in Competitive Strategy (1980) and restated in "The Five Competitive Forces That Shape Strategy", Harvard Business Review, January 2008. Source.

Use it with

Further reading

Work through it with us

The frameworks here are free to use as they stand. If you would rather work through the question behind this one with us, these are the ways an engagement starts.