S. Amir Kohan

What are Porter’s Five Forces?

Each employer organization has pressures from both internal and external sources.
Those pressures impact the competitiveness the organization will be able to apply
to the world in which it operates. Porter first published his suggestion that these five
forces are what influence competitiveness. The Harvard Business Review article
appeared in 1979.

The five forces are as follows:

Threat of new entrants When a company does so well that its success attracts
new competitors who want to get in on that success, the competition can drive
down profits.
Threat of substitutes In modern terms, these are the “knockoff” products that
may even be legal if the original product patents have expired. Other people use
different products or services to address the same need that the original product
or service solved. Examples are digital watches versus analog watches and cell
phones versus landlines.
Bargaining power of customers When customer orders are large, they can
force the lowering of price. Consider the big-box stores and how their orders
influence suppliers.
Bargaining power of suppliers If there are few options for sourcing component
parts, raw materials, or other supplies, the supplier can have a strong influence on
the cost of end products.
Industry rivalry Industry competitors greatly influence our ability to succeed
in the marketplace. They can often drive our price to end users and force us
to clearly differentiate how our products and services are superior to the other
industry players.

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