Porter's Five Forces
Examine five sources of competitive pressure within a defined industry, recording mechanisms, evidence coverage and unanswered questions.
Use Five Forces to investigate constraints on an industry's value capture. Set the boundary, examine five types of pressure and identify the evidence still needed. Keep firm-specific capability gaps separate.
An industry and geography, a period, records on actors and alternatives, and evidence on entry and switching conditions.
An evidence map of five pressures, structural questions and conditional response investigations.
How to use it
- Define the service, underlying need, geography, period and industry level.
- Identify buyers, suppliers, direct rivals, potential entrants and substitutes without double counting.
- Examine records, coverage, switching conditions and possible effects on prices or costs.
- Keep contradictions and gaps open; a firm's weakness is not an industry structure.
- Form investigation questions and examine resources and demand before deciding a response.
Keep its limits in mind
This is not five companies or an additive score. Substitutes meet the need differently from direct rivals. A partial list, a firm's qualification gap or a price card cannot establish industry concentration, margins or an entry/exit decision. Revisit classifications when the boundary changes.
Checking industry pressure before proposing an exit
Fictional teaching example: Alder Lunch is reviewing its direction. S3 contains three provider cards (E1, Oct 5–9, 2026), Alder's 100-order ledger (E2), ratings by three fictional respondents (E3), capability records (E4), and supply/entry questions (E5). These are synthetic records, not market research. Proposed actions have not been carried out.
On a small screen, scroll across the diagram to read it.
Fix the boundary: E1 covers three local preordered lunch providers, not the whole market. Packed lunches and canteens are alternatives outside this chosen service boundary.
Separate structure from a gap: Alder has qualified one of two listed packaging candidates. That is not evidence that the packaging industry has one supplier. Actual alternatives and switching costs need investigation.
Result: The map exposes five evidence needs. Prices alone establish neither intense rivalry nor margins. The proposed exit is unsupported; no fieldwork or supplier switch has occurred.
Three price cards are not market-share research; one qualified supplier is not an industry monopoly. Five Forces does not decide an exit.
Next step: The strategy lead should check supplier alternatives and buyer switching before deciding whether to extend the industry investigation.
Three reasons to pause before rating an industry
Begin with a boundary: what service, customer need, geography and period are being investigated? Then ask what could constrain value capture through entrants, suppliers, buyers, substitutes and existing rivalry. Keep evidence beside each question and leave a pressure unresolved when its basis is missing.
Pause when the boundary changes halfway through the analysis, making the same alternative switch categories without explanation. Pause when a price list is being treated as proof of industry margins or rivalry. Pause when a company’s inability to qualify a supplier is being presented as an industry monopoly. Those are different propositions and need different records.
A five-column map is not an additive score or a comparison of five named competitors. Keep structural pressure separate from how one firm responds to it. A difficult environment may still contain different business models, while a strong internal capability does not remove an external constraint.
Choose industry structure, external change or internal capability
The choice of method determines the unit of analysis. Move between views only when you retain which evidence belongs to the industry and which describes Alder itself. A strategy conclusion may need several views, but no sequence is mandatory.
| Method | Input | Output |
|---|---|---|
| Five Forces | A bounded industry and evidence of competitive pressures | Structural questions and implications |
| PEST | Dated, applicable external developments | External factors and impact hypotheses |
| VRIO | Firm resources and evidence about their use | Capability questions and competitive implications |
| SWOT | Supported internal and external conditions | A categorized situation to investigate |
Worked case: classify the records without deciding to exit
This continues the fictional Alder Lunch packet S3. The boundary is weekday preordered individual lunches in Harbor, October 5–9, 2026. E1 contains three provider cards priced at CNY26, CNY22 and CNY30, each including box and pickup, excluding delivery. The cards do not establish equivalent quality. It is a partial list, not a census. Sales volumes, market shares, growth, costs and margins are not supplied.
E2 is Alder’s 100-order ledger, not the industry’s total demand. E3 contains ratings from three fictional respondents, not a representative measure of market pressure. E4 contains firm capability records. E5 lists two packaging candidates with only one qualified by Alder and leaves supply and entry questions unresolved. These inputs support different questions; combining them into a weighted total would conceal their gaps.
The five-force table separates each known item from what the strategy lead still needs to check. Packed lunches and canteens meet the need differently outside the chosen preordered-provider boundary. A different boundary could change that classification. Individual orders without annual contracts do not establish that switching is effortless or that buyers are uniformly price-sensitive.
| Force | Given material | Missing evidence |
|---|---|---|
| Entrants | Kitchen, channel and investment questions listed | Actual entry requirements and obstacles |
| Suppliers | Two packaging candidates; one Alder-qualified | Usable alternatives and switching costs |
| Buyers | Individual orders; no annual contract in E1 | Switching barriers and price sensitivity |
| Substitutes | Packed lunch and canteen alternatives | Whether and why customers would switch |
| Rivalry | Three comparable-scope price cards | Coverage, shares, growth, costs and margins |
Turn the gaps into an investigation and review the boundary
The conclusion is five evidence needs, not a justified exit. Alder’s qualification gap may require an internal process check even if several suppliers exist. The strategy lead should first investigate usable packaging alternatives and buyer switching, as proposed in the original case. No supplier switch, fieldwork or exit has occurred.
For suppliers, ask what requirements each candidate can meet, which checks are incomplete and what a switch would change in effort, minimum orders or service reliability. Keep proposed quotations and actual qualified capacity separate. For buyers, investigate recent choice situations and the alternatives actually available in the same location and ordering window. A stated preference does not establish what a customer would do at a different price.
At review, retain the boundary, source dates, coverage and unresolved questions. Reclassify an alternative explicitly if the scope changes. Examine entry requirements and internal resources when the new evidence makes those questions relevant; do not turn the three respondents’ ratings into an industry statistic. A decision request should state what the investigation supports, which alternatives remain and what authority is required. Without cost and margin evidence, do not promise improved profitability from either staying or exiting.
Check your work
- The industry, geography, period and actors are defined.
- Each force has records or explicit unknowns; actor counts are not structural proof.
- There is no total score, profit forecast or automatic entry/exit decision.
Framework references
References explain the framework and its scope; they do not validate the fictional example's results.
Put the framework to work
Copy the outline and add your question, evidence, and open questions.