Wednesday, July 30th, 2008...6:00 am

Revisiting Michael Porter’s Five Competitive Forces

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Almost 30 years ago, Michael Porter identified the five competitive forces that shape business strategy. This ground-breaking work was a holistic way of looking at industry/business. Porter focuses on the need to step back from the details of running your business so that you can identify the strategic objectives that will deliver value across your organization.

This is a particularly important skill for leaders — after all, it is easy to be caught up in the detail of running a business. Some even find it enjoyable. But leading a business also means being able to operate, like Richard Branson, at 30,000 feet.

To recap, Porter’s five forces are:

  1. Rivalry among existing competitors
  2. Bargaining power of buyers
  3. Bargaining power of suppliers
  4. Threat of new entrants
  5. Threat of substitute products or services

The Harvard Business Review have published a reaffirmation and extension of Porter’s five forces. In this 12 minute video from HBR you can hear Porter speak about the five forces, or, you can see an edited, 5 minute version, on YouTube.

Nina Nets It Out: Despite being written 30 years ago, Porter’s five forces still provides a solid framework for thinking through business strategy. No matter where you are in your career, understanding this framework can provide you with a way of understanding the trends, opportunities and challenges faced by your company and your industry.

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4 Comments

Filed under Corporate Performance, Leadership, Strategy

4 Comments

  • Alan S. Michaels
    July 30th, 2008 at 6:05 pm

    Excellent Nina - thank you!

    A minor point is that Porter’s five-forces model is really for a single industry (single business unit).

    Most organizations compete in many industries - so each business unit should analyze its respective industry. Corporate planning should help the analyze linkages among the business units.

    In our research of the largest global 1000 companies, the average company competes in approximately 52 industries, with the global IT companies competing in the most number of distinct industries. (For example: IBM, HP, Microsoft, Oracle and Fujitsu each compete in over 100 industries.)

    Alan S. Michaels
    co-founder http://www.eCompetitors.com

  • Nina
    July 30th, 2008 at 8:45 pm

    Hey Alan,
    Very fair point. As someone working in a global software company [SAP AG], I fully understand your point about companies competing in numerous industries. Further, I agree that Porter’s five forces framework is primarily used for assessing industry forces and business strategy within an industry vs. across numerous industries at one time. However, despite this shortcoming, it is truly a classic strategic framework that I strongly encourage everyone working to study, even if only at the highest levels.

  • Alan S. Michaels
    July 31st, 2008 at 4:20 pm

    Thanks Nina,

    And in case I wasn’t clear - we love Porter’s work - and that’s why we’ve spent the last seven years leveraging his five-forces methodology as we continuously analyze and update the top 10,000 global industries.

    And now that I see you work at SAP, we have SAP competing in 87 industries.
    Besides using Porter’s ideas for conducting an industry analysis, we also use Porter’s “Multipoint Competitor” concept to analysis companies like SAP, Oracle, IBM, Microsoft, etc., side by side at the line-of-business level (also known as the Porter “industry” level).

    Cheers,
    Alan S. Michaels
    co-founder http://www.eCompetitors.com

  • Nina
    July 31st, 2008 at 5:38 pm

    Hey Alan,
    Very interesting work you do and I am certain that Porter’s methodology [both five-forces and multipoint competitor] would come in handy for those industry level comparisons/analyses. It is also interesting to note that my company, SAP, competes in 87 industries per your comment. Thanks for sharing.

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