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How
competitive forces
shape strategy
Awareness of these forees can
help a company stake out
a position in its industry that
is less vulnerable to attack
Michael E. Porter
The nature and degree
of competition in an industry hinge on five
forces: the threat of new
entrants, the bargaining
power of customers, the
bargaining power of suppliers, the threat of substitute products or
services (where applicahle),
and the jockeying among
current contestants.
To estahlish a strategic
agenda for dealing with
these contending currents
and to grow despite them,
a company must understand how they work in
its industry and how they
affect the company in its
particular situation. The
author details how these
forces operate and suggests ways of adjusting to
them, and, where possihle,
of taking advantage of
them.
Mr. Porter is a specialist
in industrial economics
and business strategy. An
associate professor of husiness administration at the
Harvard Business School,
he has created a course
there entitled "Industry
and Competitive Analysis." He sits on the hoards
of three companies and
consults on strategy matters, and he has written
many articles for economics journals and published
two books. One of them,
Interbrand Choice, Strategy and Bilateral Market
Power (Harvard University Press, 1976) is an outgrowth of his doctoral
thesis, for which he won
the coveted Wells prize
awarded by the Harvard
economics department.
He has recently completed
two book manuscripts,
one on competitive
analysis in industry and
the other (written with
Michael Spence and
Richard Caves) on competition in the open
economy.
The essenee of strategy formulation is coping with
competition. Yet it is easy to view competition too
narrowly and too pessimistically. While one sometimes hears executives eomplaining to the eontrary,
intense eompetition in an industry is neither coineidence nor bad luck.
Moreover, in the fight for market...