Porter's Five Forces

Originally developed by Michael E. Porter while working for the Harvard Business School and the Boston Consulting group, Porter’s Five Forces are five powerful forces seen to impact profitability and completive clout in a business situation.

The Five Forces:

• Industry Rivalry - How many competitors are in the market, who are they, what are their growth prospects? 
• Threat of new entrants - How easy is it for start-ups to muscle in on your turf, what are the factors that would encourage or discourage them?
• Threat of substitutes - How easy is it for clients find alternative ways of satisfying their needs?
• Bargaining power of suppliers - What is the relationship you have with your suppliers, how easy is it for them to drive up pricing?
• Bargaining power of customers - How sensitive are they to pricing, how transparent is the market, what is the value of the customer to the business, how unique is your product or service?

Reviewing each of these market forces in depth and determining whether the power or pressure of each is low, medium or high gives insights into the “micro environment” of the business.

Porter’s Five Forces can help understand both the strength of the current business position as well as assessing a situation you’re about to move into; it helps to determine the attractiveness of a market; how potentially profitable that market will be.