Michael E. Porter of Harvard Business School developed Porter’s Five Forces Analysis in 1979 as a framework for industry analysis and strategic development. The goal of the model is to derive the five forces that determine the competitive intensity and, thus, the attractiveness of a market. If profitability is high across the market, it’s attractive; if the combination of forces drives profitability of the market or industry down, it is deemed “unattractive”.
Porter refers to these forces as micro environmental, as they are forces close to the company and which affect it’s ability to serve its customers and make a profit. In the model, should a change occur in any of the forces, the company must re-evaluate the marketplace. Also, it is important to note that the overall industry attractiveness does not mean all companies in it will yield the same profitability, as specific business models within them might allow individual companies to deliver above average profitability.
The model is nice to assess the attractiveness of a market we’re in or planning to enter by stating under each epigraph the reality of the micro environment. The model’s graphic representation is as follows:
Tags: company profitability, competitive forces, industry analysis, industry profitability, marketplace assesment, Michael E. Porter, Porter's Five Forces Analysis, strategic development
