Porter's five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter . It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Three of Porter's five forces refer to competition from external sources. The remainders are internal threats. It is useful to use Porter's five forces in conjunction with SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally, requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average.
1. Rainer and Turban, (2009), Information systems and the modern organization. In Introduction to information systems ( 2nd Edition, Ch 2, pp 38-39), Wiley 2. Michael E. Porter. "The Five Competitive Forces that Shape Strategy", Harvard Business Review, January, 2008, p.86.
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