Porter’s Five Forces analysis: What it is and how to do it

Porter's Five Forces analysis is a strategic framework developed by Michael E. Porter in his 1980 book "Competitive Strategy: Techniques for Analyzing Industries and Competitors" to evaluate the competitive forces shaping any industry and guide long-term business strategies. The model identifies five key forces: existing industry competition, supplier power, customer power, the threat of new entry, and the threat of substitute products. Each force assesses different aspects of market dynamics, such as the bargaining power of suppliers and buyers, the intensity of competition, and the potential for new entrants or substitutes, which collectively determine an industry's competitive intensity and profitability potential. Understanding these forces helps companies recognize their threats and strengths, identify growth opportunities, and refine corporate strategies by considering industry-wide influences rather than focusing solely on individual enterprises. The article provides detailed steps for conducting a Porter’s Five Forces analysis and contrasts it with SWOT analysis, suggesting that while both tools are valuable, Porter’s model is particularly insightful for younger businesses and emerging industries.