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

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

Plus (Porter's later addition): 6. 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?"

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

"Why are our margins under pressure?"

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

"Audit our strategic position"

Score industry forces.
For each high force, identify how we currently counter it.
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

porters-five-forces