porters-five-forces

Porter's Five Forces

Michael Porter's framework for analyzing the structural attractiveness

of an industry. Reveals where profit pools form, why some markets are

chronically unprofitable, and where strategic positioning has leverage.

When to use this skill

• Market entry decision (which industry to play in)
• Diagnosing chronic margin pressure (why are we squeezed?)
• Strategic positioning (where to invest, where to defend)
• Competitive response planning
• M&A target evaluation (industry attractiveness)
• Pre-fundraise industry framing

The 5 forces

1. Threat of new entrants — how easily can newcomers join?
2. Bargaining power of suppliers — how concentrated/critical are inputs?
3. Bargaining power of buyers — how concentrated/price-sensitive are customers?
4. Threat of substitute products — what alternatives could replace the category?
5. Competitive rivalry — how intense is competition between existing players?

Plus (Porter's later addition):

1. Complementors (the "sixth force") — do partners increase total industry value?

Scoring rubric

Each force is rated low / medium / high based on specific factors:

1. Threat of new entrants — high when:

• Low capital requirements
• No regulatory barriers
• No proprietary tech / patents
• Low switching costs
• No economies of scale
• No brand loyalty
• Access to distribution is easy
• Network effects absent

2. Supplier power — high when:

• Few suppliers / concentrated supply base
• Suppliers are critical / cannot be substituted
• Switching cost is high
• Suppliers can forward-integrate
• Industry is not a large customer for supplier

3. Buyer power — high when:

• Few buyers / concentrated demand
• Buyers purchase in large volumes
• Product is undifferentiated
• Switching cost is low
• Buyers can backward-integrate
• Buyers have full information
• Buyers face thin margins (price pressure)

4. Threat of substitutes — high when:

• Many substitutes exist
• Substitutes have favorable price-performance
• Switching cost to substitute is low
• Buyer propensity to substitute is high
• Substitute industry is growing fast

5. Competitive rivalry — high when:

• Many similar-sized competitors
• Low growth industry (zero-sum)
• High fixed costs (drive volume)
• Low differentiation
• High exit barriers
• Strategic stakes high

Clarify First

Before scoring the forces, confirm these inputs. If any is unknown or vague, ASK — do not assume:

• [ ] Precise industry definition — narrow enough to be specific, broad enough to catch substitutes (too broad/narrow is the #1 error and sets the entire analysis scope)
• [ ] Evidence per force — the data/facts behind each low/medium/high rating (a score without evidence is just opinion)
• [ ] Purpose — market entry / margin-pressure diagnosis / positioning audit (frames which dominant force matters and the strategy translation; margin diagnosis also needs a then-vs-now comparison)

Stop rule: ask only the 2-3 that most change the output. If the user says "just draft it," proceed and list your assumptions at the top of the artifact.

Workflow

Step 1 — Define the industry

Industry definition is the most-frequent source of error.

• "Software" is too broad
• "B2B SaaS" is too broad
• "Mid-market HR analytics SaaS" is workable
• "Enterprise revenue intelligence tools (Gong, Outreach, Salesloft-tier)" is precise

Step 2 — Score each force

Use the rubric. Each force gets low / medium / high + evidence.

Step 3 — Identify the dominant force(s)

Usually 1-2 forces dominate. They drive the industry's profit pool.

Step 4 — Translate to strategy

Each force suggests strategic moves:

| Force | High = unfavorable | Strategy implications |

|-------|---------------------|------------------------|

| New entrants | Easy entry | Build barriers (brand, scale, network, switching cost) |

| Supplier power | Concentrated | Diversify, integrate backward, build alternative supply |

| Buyer power | Concentrated | Diversify customer base, differentiate, integrate forward |

| Substitutes | Strong substitutes | Differentiate, raise switching cost, defend value prop |

| Rivalry | Intense | Differentiate, niche down, exit, consolidate |

Step 5 — Run five_forces_scorer.py

Audit for: missing evidence, generic factors, missed sub-factors, no

strategy implications drawn.

python3 project-management/strategy-frameworks/porters-five-forces/scripts/five_forces_scorer.py \
  --input forces.json --format markdown

Common engagements

"Should we enter market X?"

1. Define X precisely.
2. Score each force.
3. Identify dominant force.
4. Assess: can we differentiate against the dominant force?
5. If yes, structure entry to counter that force; if no, don't enter.

"Why are our margins under pressure?"

1. Score industry today vs 3-5 years ago.
2. Identify the force(s) that shifted (usually buyer power or rivalry).
3. Identify which factor specifically caused the shift.
4. Address: product differentiation, switching cost, customer concentration, etc.

"Audit our strategic position"

1. Score industry forces.
2. For each high force, identify how we currently counter it.
3. Identify weak counters; recommend reinforcement.

Anti-patterns to avoid

• Industry defined too broadly. Yields generic analysis.
• Industry defined too narrowly. Misses substitute threats.
• Each force = "medium". No analysis happened.
• No evidence cited. Just opinion.
• No strategy implications. Just a score; not actionable.
• Static analysis. Industries evolve; refresh every 12-18 months.
• Mixing internal capabilities with industry analysis. Five Forces is industry-level; capabilities are firm-level (see SWOT).

References

• references/five-forces-deep.md — each force, factors, examples
• references/five-forces-and-strategy.md — translating to strategic moves

Related skills

• project-management/strategy-frameworks/swot-analysis — firm-level positioning
• project-management/strategy-frameworks/ansoff-matrix — growth options
• project-management/strategy-frameworks/business-model-canvas — operational view
• marketing/competitive-teardown — competitor-specific analysis
• c-level-advisor/ceo-advisor — strategic context