Michael Porter’s 5 forces strategic analysis model is a business strategy tool that helps analyse the competitive forces at play in any industry. The model is especially useful for evaluating industry attractiveness and profit potential. I recently applied this model to an industry I don’t work in directly and found the insights I gathered extremely valuable. It allowed me to quickly understand the main forces at play. (Porter, 1979)
I learned about the 5 forces framework in the online Business Strategy course taught by Deepak Somaya from Gies College of Business at the University of Illinois Urbana-Champaign. Somaya explained that the 5 forces model is “robust” and “has stood the test of time” because it’s based on economic research. (Somaya, n.d.)
Porter developed this model in response to the SWOT framework to address its shortcomings. While the SWOT analysis assesses a company’s internal strengths and weaknesses, the 5-forces model looks at the industry as a whole. Both models can be used in parallel. (Greton, 2025)
According to Porter’s original article which appeared in the Harvard Business Review in 1979, the 5 forces that shape competition are:
1. Threat of new entrants, in other words, how easy or hard it may be for newcomers to enter the market. A variety of factors may be at play:
- Established businesses in economies of scale may have become more efficient over time, making it difficult for new entrants to compete.
- Product differentiation like low cost or added value may be hard to beat by newcomers.
- Capital requirements to compete may be prohibitively high.
- Access to distribution channels may be limited at first or hard to break into.
- Government policy can regulate an industry making it harder to make profit
2. Threat of substitutes
Some products or services can easily be substituted for others. The iPhone’s success comes in part from being a substitute for other products like a camera, calculator, notebook, iPod and telephone.
3. Bargaining power of suppliers
A supplier group is powerful when it is dominated by a few companies, offers unique products, doesn’t compete with others, can integrate forward, and its profits are not directly tied to the industry in which it sells.
4. Bargaining power of buyers
A buyer group is powerful if it buys in large volumes, can find alternative suppliers, and the product is price-sensitive when it forms a large portion of the cost. Additionally, the group earns low profits, quality doesn’t matter, and buyers can integrate backwards.
5. Intense competitive rivalry is marked by an industry marked by
- Competitors who are equal in size and power
- Slow growth
- Low differentiation among products and services
- High fixed costs or perishables
- Overcapacity that can lead to price wars
- High exit barriers
- Diverse strategies
Important to note: Technology and innovation
A change in technology or large scale innovation in an industry can affect all companies in the industry.
Criticism of the 5-forces model
The 5-forces model has its criticisms. Firstly, it’s a static model that can’t be used for long-term planning. Secondly, applying the model to a single company instead of an industry can be misleading. Thirdly, it’s difficult to apply to companies that straddle multiple industries, which can lead to analysts leaving out important information. Finally, a common mistake is paying too much attention to all five forces, as some carry significantly more weight than others. (Beattie, 2022)
If you found this text useful, why not browse other business tools I have written about.
References
Somaya, D. (n.d.). Foundations of business strategy [Coursera]. University of Illinois Urbana-Champaign. https://www.coursera.org/learn/strategy-business
Greton, P. (2025). Porter’s 5 forces definition. Investopedia. https://www.investopedia.com/terms/p/porter.asp
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review. https://hbr.org/1979/03/how-competitive-forces-shape-strategy
Beattie, A. (2022). Pitfalls of Porter’s 5 forces. Investopedia. https://www.investopedia.com/articles/investing/103116/pitfalls-porters-5-forces.asp
