Gadu

www.hbrreprints.org

Awareness of the five forces
can help a company
understand the structure of its
industry and stake out a
position that is more
profitable and less vulnerable
to attack.

The Five Competitive
Forces That Shape
Strategy
by Michael E. Porter

Reprint R0801E

Awareness of the five forces can help a company understand the
structure of its industry and stake outa position that is more profitable
and less vulnerable to attack.

The Five Competitive
Forces That Shape
Strategy
by Michael E. Porter

COPYRIGHT © 2007 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

Editor’s Note: In 1979, Harvard Business Review
published “How Competitive Forces Shape Strategy” by a young economist and associate professor, Michael E. Porter. Itwas his first HBR article,
and it started a revolution in the strategy field. In
subsequent decades, Porter has brought his signature economic rigor to the study of competitive strategy for corporations, regions, nations,
and, more recently, health care and philanthropy.
“Porter’s five forces” have shaped a generation of
academic research and business practice. With
prodding and assistancefrom Harvard Business
School Professor Jan Rivkin and longtime colleague Joan Magretta, Porter here reaffirms,
updates, and extends the classic work. He also
addresses common misunderstandings, provides
practical guidance for users of the framework,
and offers a deeper view of its implications for
strategy today.

In essence, the job of the strategist is to understand and cope withcompetition. Often,
however, managers define competition too
narrowly, as if it occurred only among today’s

harvard business review • january 2008

direct competitors. Yet competition for profits
goes beyond established industry rivals to include four other competitive forces as well:
customers, suppliers, potential entrants, and
substitute products. The extended rivalry that
results from all fiveforces defines an industry’s
structure and shapes the nature of competitive interaction within an industry.
As different from one another as industries
might appear on the surface, the underlying
drivers of profitability are the same. The global auto industry, for instance, appears to
have nothing in common with the worldwide
market for art masterpieces or the heavily
regulated health-caredelivery industry in
Europe. But to understand industry competition and profitability in each of those three
cases, one must analyze the industry’s underlying structure in terms of the five forces. (See
the exhibit “The Five Forces That Shape
Industry Competition.”)
If the forces are intense, as they are in such
industries as airlines, textiles, and hotels,
almost no company earns attractivereturns

page 1

T he Five Competitive Forces That Shape Strategy

on investment. If the forces are benign, as
they are in industries such as software, soft
drinks, and toiletries, many companies are
profitable. Industry structure drives competition and profitability, not whether an industry
produces a product or service, is emerging or
mature, high tech or low tech, regulated orunregulated. While a myriad of factors can
affect industry profitability in the short run—
including the weather and the business
cycle—industry structure, manifested in the
competitive forces, sets industry profitability
in the medium and long run. (See the exhibit
“Differences in Industry Profitability.”)
Understanding the competitive forces, and
their underlying causes, reveals the roots
of anindustry’s current profitability while
providing a framework for anticipating and
influencing competition (and profitability)
ov er time. A healthy industry structure
should be as much a competitive concern to
strategists as their company’s own position.
Understanding industry structure is also
essential to effective strategic positioning. As
we will see, defending against the competitive...