Porter's five forces explains why a whole industry is more or less profitable. It is about industry structure, not about any one company's execution.
Origin
Harvard Business School's Institute for Strategy and Competitiveness names the creator as Michael Porter, with the original publication a 1979 Harvard Business Review article.
The wrong-year distractors are borrowed from other frameworks: a 1991 Business Horizons article is Archie Carroll's CSR pyramid, a 1992 Kaplan and Norton working paper points to the balanced scorecard, and a 2004 COSO framework publication is Enterprise Risk Management.
The five forces
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitute products or services
- Rivalry among existing competitors
Nothing else is on the list. "Bargaining power of regulators" is not a force, however plausible regulation sounds. Employer brand is an HR concept, not an industry-structure force. Availability of venture capital is financing, which the framework touches only indirectly through barriers to entry.
Matching a scenario to a force
The items give you facts and ask which force names the pressure. All four options are usually real forces, so read for the actor.
- A new low-cost company arriving in the industry is the threat of new entrants. Rivalry among existing competitors would mean pressure from firms already in the market, not a newcomer.
- Customers who are large, few in number and able to switch vendors easily exert the bargaining power of buyers. Rivalry would show as direct competitive moves such as price wars; supplier power concerns input providers, not customers.
- Input providers raising costs is bargaining power of suppliers.
Carry this in: identify who is applying the pressure - a newcomer, a customer, a supplier, an incumbent rival, or an alternative product - and the force names itself.