Porter, M. The Five Competitive Forces That Shape Strategy. Harward Business Review, January 2008. pp 78-93.
This Porter’s article is about industry analysis as part of strategy work. In the article Porter defines understanding and coping with competition as core task of the strategist. According to Porter, understanding competition means understanding five different competitive forces: direct competitors, customers, suppliers, potential entrants, and substitute products. These five forces defines industry’s structure. Porter also states that while industries can be and are very different on the surface, the underlying forces are the same. The article gives a quite indepth handlilng of all five forces, their effect on industry’s dynamics, and strategic choises the presence of the forces suggest.
The article includes some disturbing elements. Porter for example emphasizes the importance of numbers and quantitative data in industry analysis but fails to give any examples of this. Instead, all of the examples in the article are heavily qualitative. In addition, the article has a couple of problems with its reasoning. 1) the basis for the five forces is quite thin. Porter seems to believe that the five forces are ‘the forces’, i.e. there are no other relevant forces. However, there is no real evidence of this presented. 2) The article utilizes quite cheap tactic of “correct definition results to correct outcomes”, i.e. in industry analysis it is important to understand and define the industry conrrectly. Defining the industy to be analyzed is not a trivial task and while the article emphasizes the problems it does not give good advices on how to do it. 3) The five forces concept is seen as answer to almost everything. In the end of the article it is for example stated that “the five competitive forces reveal whether an industry is truly attractive” and “the five forces distinguish short-term blips from structural change”. These are bold statements that are not quite true. The understanding of the forces might help to see how attractive the industry is and to see what is happening in the industry. However, attractiveness is quite relative and depends on the company. In addition, the article handles the forces in quite static way and it is not clear how a structural change of an industry would be visible in five forces analysis.
In general the article is very convincing and it is easy to see why it has become a classical strategy text. Combined with the Porter’s view of strategy work inside a company (Porter, M. What Is Strategy) this article really helps to understand what kinds of decisions need to be tackled when creating and redefining company’s strategies.