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CF Vol. 10 (1), 2012
Porter 's Five Forces in Practice:
Templates for Firm and Case Analysis
Michael E. Dobbs, Eastern Illinois University
EXECUTIVE SUMMARY
Michael Porter 's (1980) five forces framework is a rich, in-depth assessment of the underpinnings of competition and profitability in an industry and is neither easily nor quickly conducted, perhaps leading to its misunderstanding and even misuse. To aid students and managers, I developed a set of templates that systematically guides an analyst through a comprehensive assessment of the five forces using graphics, visual cues, a uniform structure, and straightforward descriptions of concepts. In this paper, I provide a copy of the templates, describe their structure and use, provide an example of a completed template, and discuss possible modifications and extensions.
Keywords: Industry analysis, Five forces, Porter, Templates, Teaching, Practice
INTRODUCTION
In 1980, Michael Porter published Competitive Strategy, a work that shaped the thinking of a generation of academics and managers (Crowther, 2008; Magretta, 2012). Included in that foundational text (the first chapter, in fact) was Porter’s description of “five forces” that shape the structure of all industries and in large part establish the rules of competition and the root causes of profitability within an industry (Porter, 2008). The five forces are the threats posed by competitive rivalry, powerful buyers, powerful suppliers, potential new entrants, and substitute products. According to Porter (1980), “The collective strength of the forces determines the ultimate profit potential in the industry” (p. 3). But of more interest to Porter, as emphasized in his update of the five forces in 2008, is the potential to use the five forces framework to understand strategic implications for individual firms within an industry.
CHALLENGES IN USING THE FIVE FORCES
The practical application of the five forces framework, however, has been more challenging.
Porter 's Five Forces in Practice:
Templates for Firm and Case Analysis
Michael E. Dobbs, Eastern Illinois University
EXECUTIVE SUMMARY
Michael Porter 's (1980) five forces framework is a rich, in-depth assessment of the underpinnings of competition and profitability in an industry and is neither easily nor quickly conducted, perhaps leading to its misunderstanding and even misuse. To aid students and managers, I developed a set of templates that systematically guides an analyst through a comprehensive assessment of the five forces using graphics, visual cues, a uniform structure, and straightforward descriptions of concepts. In this paper, I provide a copy of the templates, describe their structure and use, provide an example of a completed template, and discuss possible modifications and extensions.
Keywords: Industry analysis, Five forces, Porter, Templates, Teaching, Practice
INTRODUCTION
In 1980, Michael Porter published Competitive Strategy, a work that shaped the thinking of a generation of academics and managers (Crowther, 2008; Magretta, 2012). Included in that foundational text (the first chapter, in fact) was Porter’s description of “five forces” that shape the structure of all industries and in large part establish the rules of competition and the root causes of profitability within an industry (Porter, 2008). The five forces are the threats posed by competitive rivalry, powerful buyers, powerful suppliers, potential new entrants, and substitute products. According to Porter (1980), “The collective strength of the forces determines the ultimate profit potential in the industry” (p. 3). But of more interest to Porter, as emphasized in his update of the five forces in 2008, is the potential to use the five forces framework to understand strategic implications for individual firms within an industry.
CHALLENGES IN USING THE FIVE FORCES
The practical application of the five forces framework, however, has been more challenging.
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