The 5 Competitive Forces That Affect Your Company’s Profitability

Michael E. Porter is the Bishop William Lawrence University Professor at Harvard University and the author of “The Five Competitive Forces That Shape
Strategy”. Porter’s five forces have shaped a generation of
academic research and business practice across industries and governments.

Porter’s tool is a step-up from the popular SWOT analysis pushing companies to look beyond competition and examine what other factors could impact the business environment. He identified five forces that make up the competitive environment that can eat into your profitability: buyer power, supplier power, competitive rivalry, the threat of substitution, the threat of new entrants.

According to Porter, if the forces are intense, as they are in the airline industry, almost no company earns attractive returns on investment. If the forces are benign, as they are in industries such as software and soft drinks, many companies are profitable. This framework encourages you to learn your industry’s structure and position your company where forces are weakest.

“Industry structure drives competition and profitability, not whether an industry is emerging or mature, high tech or low tech…