Porter's Five Forces: An Introduction

Porter's Five Forces is a #business #strategy framework developed by Michael Porter at 美国哈佛大学 that helps to analyze an industry's competitiveness. The framework looks at five fundamental forces that shape the competitive landscape of an #industry:

1. Threat of new entrants:?This looks at the ease with which new companies can enter the industry and compete with existing firms. Factors such as economies of scale, government regulations, and the need for specialized technology can make it difficult for new companies to enter an industry.
2. Threat of substitute products or services:?This looks at the potential for products or services outside the industry to replace those within the industry. For example, the rise of digital media has replaced traditional print media.
3. Bargaining power of suppliers:?This looks at the power of companies that supply inputs to the industry. If suppliers have significant bargaining power, they can charge higher prices or limit supply, which can negatively impact companies in the industry.
4. Bargaining power of buyers:?This looks at the power of companies that purchase products or services from the industry. If buyers have significant bargaining power, they can negotiate lower prices or demand better terms, which can negatively impact companies in the industry.
5. Competitive rivalry:?Lastly, this looks at the intensity of competition within the industry. If many companies are competing for market share, it can lead to intense price competition and pressure on companies to innovate and cut costs.

The Five Forces Framework helps companies to understand the industry and the competition they face. It also helps companies identify areas where they can improve their competitiveness and develop strategies.

The Five Forces origin story

Porter's Five Forces was first introduced in Michael Porter's 1979 Harvard Business Review article, "How Competitive Forces Shape Strategy." The framework was developed as a way to analyze the competitiveness of an industry and provide a structured approach to understanding the key drivers of competition within that industry.

Porter proposed that five principal forces shape the competitive landscape of an industry. These five forces interact to determine the overall profitability of an industry, and companies can use this framework to understand the industry and develop strategies to improve their competitiveness.

Porter initially developed the framework to analyze the competitiveness of manufacturing industries, but it has since been applied to a wide range of industries, including services, retail, and technology. It has also been used to analyze the competitiveness of countries and regions.

Porter's Five Forces quickly gained popularity among business practitioners, academics, and consultants, becoming one of the most widely used tools for analyzing an industry's competitiveness. The framework has been commonly taught in business schools and is considered a classic in the field of strategic management.

In the years since its introduction, Porter's Five Forces has been the subject of much research and debate. Some scholars and practitioners argue that the framework should be expanded or modified to consider new technological developments, globalization, and other areas. Despite this, Porter's Five Forces remains an essential and widely used tool for analyzing the competitiveness of an industry.

Pros and Cons of the Five Forces Framework:

Porter's Five Forces is a widely used framework, but like any tool, it has its pros and cons.

Pros:

• Provides a clear and structured approach to analyzing an industry:?The framework is easy to understand and provides a clear and structured approach to analyzing an industry's competitiveness.
• Helps identify key drivers of competition:?The framework helps to identify the key drivers of competition within an industry, such as the threat of new entrants, the bargaining power of suppliers, and the intensity of competitive rivalry.
• Helps companies develop strategies:?The framework allows companies to understand an industry's competitive landscape and develop strategies to improve their competitiveness.
• Widely accepted:?The framework is widely accepted and used by companies, consultants, and academics.

Cons:

• Limited in scope:?The framework only looks at five specific forces that shape the competitive landscape of an industry, and it may not consider other important factors, such as technological changes or cultural differences.
• Doesn't consider the internal environment of the company:?The framework only analyzes external factors and doesn't take into account the internal environment of the company, such as its resources, capabilities, or culture.
• Limited in time:?The framework doesn't consider the dynamic nature of the industry and the economy, and, therefore, it can become outdated over time.
• Over-reliance:?Companies may over-rely on the framework and fail to consider other important factors affecting their competitiveness.

Overall, Porter's Five Forces is a valuable tool for analyzing the competitiveness of an industry, but it should be used in conjunction with other analysis tools and information to provide a comprehensive understanding of the industry.

Example applications of Porter's Five Forces:

• Assessing the competitiveness of the smartphone industry:?A company considering entering the smartphone industry would use Porter's Five Forces to analyze the industry's competitiveness. They would look at the threat of new entrants, which is high due to the significant initial investment required to develop and manufacture smartphones and the need for specialized technology and brand recognition. They would also look at the threat of substitute products such as tablets and laptops, which have the potential to replace smartphones as the primary device for accessing the internet and other services. In addition, they would examine the bargaining power of suppliers of critical components such as processors and screens and the bargaining power of buyers with many options in the market. Finally, they would analyze the competitive rivalry among smartphone manufacturers such as Apple, Samsung, and Huawei.
• Analyzing the competitiveness of the retail industry:?A retail company would use Porter's Five Forces to analyze the competitiveness of the retail sector. They would look at the threat of new entrants, which can be high in the retail industry due to the low barriers to entry and the threat of substitute products such as online retail. They would also examine the bargaining power of suppliers, which can be high in the retail industry if suppliers have significant control over the supply of goods. Additionally, they would analyze the bargaining power of buyers, which can be high in the retail industry due to the abundance of options for consumers. Lastly, they would look at the intensity of competitive rivalry among existing retail companies such as Walmart, Amazon, and Target.
• Evaluating the ride-hailing industry's competitiveness:?A company considering entering the ride-hailing industry would use Porter's Five Forces to analyze the industry's competitiveness. They would look at the threat of new entrants, which is high due to the low barriers to entry and the increasing number of new companies entering the industry. They would also examine the threat of substitute products such as public transportation and bike-sharing services. Additionally, they would analyze the bargaining power of suppliers, which can be high in the ride-hailing industry if suppliers have significant control over the supply of drivers. Finally, they would look at the intensity of competitive rivalry among existing ride-hailing companies such as Uber and Lyft.
• Analyzing the competitiveness of the fast-food industry:?A fast-food company would use Porter's Five Forces to analyze the competitiveness of the fast-food industry. They would look at the threat of new entrants, which can be high in the fast-food industry due to the low barriers to entry. They would also examine the threat of substitute products such as food delivery services and home cooking. Additionally, they would analyze the bargaining power of suppliers, which can be high in the fast-food industry if suppliers have significant control over the supply of ingredients. Lastly, they would look at the intensity of competitive rivalry among existing fast-food companies such as McDonald's, Burger King, and KFC.
• Evaluating the competitiveness of the online education industry: A company considering entering the online education industry would use Porter's Five Forces to analyze the industry's competitiveness. They would look at the threat of new entrants, which is high due to the low barriers to entry in the online education industry. They would also examine the threat of substitute products such as in-person education and self-education. Additionally, they would analyze the bargaining power of suppliers, which can be high in the online education industry if suppliers have significant control over the supply of content and professors. Finally, they would look at the intensity of competitive rivalry among existing online education companies such as Coursera, Udemy, and edX.
• Analyzing the competitiveness of the hotel industry:?A hotel company would use Porter's Five Forces to analyze the competitiveness of the hotel industry. They would look at the threat of new entrants, which can be high in the hotel industry if there are low barriers to entry and many new companies entering the market. They would also examine the threat of substitute products such as vacation rentals and home-sharing services. Additionally, they would analyze the bargaining power of suppliers, which can be high in the hotel industry if suppliers have significant control over the supply of amenities and services. Lastly, they would look at the intensity of competitive rivalry among existing hotel companies such as Marriott, Hilton, and InterContinental Hotels Group.
• Evaluating the competitiveness of the airline industry:?A company that is considering entering the airline industry would use Porter's Five Forces to analyze the competitiveness of the industry. They would look at the threat of new entrants, which is high due to the large initial investment required to start an airline and the need for specialized technology and government regulations. They would also examine the threat of substitute products such as high-speed trains and carpooling services. Additionally, they would analyze the bargaining power of suppliers, which can be high in the airline industry if suppliers have significant control over the supply of fuel and aircraft. Finally, they would look at the intensity of competitive rivalry among existing airline companies such as American Airlines, Delta, and United.
• Analyzing the competitiveness of the pharmaceutical industry:?A pharmaceutical company would use Porter's Five Forces to analyze the competitiveness of the pharmaceutical industry. They would look at the threat of new entrants, which can be high in the pharmaceutical industry if there are low barriers to entry and many new companies entering the market. They would also examine the threat of substitute products such as generic drugs and alternative therapies. Additionally, they would analyze the bargaining power of suppliers, which can be high in the pharmaceutical industry if suppliers have significant control over the supply of key ingredients and raw materials. Lastly, they would look at the intensity of competitive rivalry among existing pharmaceutical companies such as Pfizer, Merck, and GlaxoSmithKline.
• Evaluating the competitiveness of the renewable energy industry:?A company that is considering entering the renewable energy industry would use Porter's Five Forces to analyze the competitiveness of the industry. They would look at the threat of new entrants, which can be high in the renewable energy industry if there are low barriers to entry and many new companies entering the market. They would also examine the threat of substitute products such as fossil fuels and nuclear energy. Additionally, they would analyze the bargaining power of suppliers, which can be high in the renewable energy industry if suppliers have significant control over the supply of raw materials and components. Finally, they would look at the intensity of competitive rivalry among existing renewable energy companies such as SolarCity, SunPower, and Vestas Wind Systems.
• Analyzing the automotive industry's competitiveness:?An automaker would use Porter's Five Forces to analyze the automotive industry's competitiveness. They would look at the threat of new entrants, which can be high in the automotive industry due to the large initial investment required to start an automaker and the need for specialized technology and government regulations. They would also examine the threat of substitute products such as electric vehicles and ride-sharing services. Additionally, they would analyze the bargaining power of suppliers, which can be high in the automotive industry if suppliers have significant control over the supply of critical components such as engines and transmissions. Lastly, they would look at the intensity of competitive rivalry among existing automakers such as Toyota, General Motors, and Volkswagen.

What does the future hold for Porter's Five Forces?

It is difficult to predict precisely what the future holds for Porter's Five Forces, but the framework will likely continue to be widely used in the business world to analyze the competitiveness of industries.

One potential development for Porter's Five Forces is that it may be expanded or modified to consider new factors shaping the competitive landscape of industries. For example, with the increasing importance of technology, digital platforms, and e-commerce, some researchers have suggested that the framework should be updated to include a sixth force to account for the role of digital platforms in shaping competition.

Another potential development is the increasing importance of sustainability and social responsibility. Companies and industries may need to consider these factors when analyzing an industry's competitiveness.

The framework will continue to be the subject of research and debate among academics, practitioners, and policymakers. As the global economy and industries are constantly changing and evolving, the framework may need to be adapted to account for these changes.

However, despite these potential developments, Porter's Five Forces will remain a widely used and respected tool for analyzing the competitiveness of industries, as it provides a clear and structured approach to understanding the key drivers of competition within an industry.