Porter's Five Forces

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Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack.

The Five Competitive Forces That Shape Strategy

by Michael E. Porter

Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 The Five Competitive Forces That Shape Strategy 18 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

Reprint R0801E

The Five Competitive Forces That Shape Strategy

The Idea in Brief

You know that to sustain long-term profitability you must respond strategically to competition. And you naturally keep tabs on your established rivals. But as you scan the competitive arena, are you also looking beyond your direct competitors? As Porter explains in this update of his revolutionary 1979 HBR article, four additional competitive forces can hurt your prospective profits: • Savvy customers can force down prices by playing you and your rivals against one another. • Powerful suppliers may constrain your profits if they charge higher prices. • Aspiring entrants, armed with new capacity and hungry for market share, can ratchet up the investment required for you to stay in the game. • Substitute offerings can lure customers away. Consider commercial aviation: It’s one of the least profitable industries because all five forces are strong. Established rivals compete intensely on price. Customers are fickle, searching for the best deal regardless of carrier. Suppliers—plane and engine manufacturers, along with unionized labor forces—bargain away the lion’s share of airlines’ profits. New players enter the industry in a constant stream. And substitutes are readily available—such as train or car travel. By analyzing all five competitive forces, you gain a complete picture of...