CF Vol.

10 (1), 2012

Porter's Five Forces in Practice:

Templates for Firm and Case Analysis
Michael E. Dobbs, Eastern Illinois University

EXECUTIVE SUMMARY

Michael Porter's (1980) five forces framework is a rich, in-depth assessment of the underpinnings of competition and
profitability in an industry and is neither easily nor quickly conducted, perhaps leading to its misunderstanding and even
misuse. To aid students and managers, I developed a set of templates that systematically guides an analyst through a
comprehensive assessment of the five forces using graphics, visual cues, a uniform structure, and straightforward
descriptions of concepts. In this paper, I provide a copy of the templates, describe their structure and use, provide an
example of a completed template, and discuss possible modifications and extensions.

Keywords: Industry analysis, Five forces, Porter, Templates, Teaching, Practice

INTRODUCTION

In 1980, Michael Porter published Competitive Strategy, a work that shaped the thinking of a generation of academics and
managers (Crowther, 2008; Magretta, 2012). Included in that foundational text (the first chapter, in fact) was Porter’s
description of “five forces” that shape the structure of all industries and in large part establish the rules of competition and the
root causes of profitability within an industry (Porter, 2008). The five forces are the threats posed by competitive rivalry,
powerful buyers, powerful suppliers, potential new entrants, and substitute products. According to Porter (1980), “The
collective strength of the forces determines the ultimate profit potential in the industry” (p. 3). But of more interest to Porter,
as emphasized in his update of the five forces in 2008, is the potential to use the five forces framework to understand
strategic implications for individual firms within an industry.

CHALLENGES IN USING THE FIVE FORCES

The practical application of the five forces framework, however, has been more challenging. Porter himself admits as much
and describes common misapplications of the framework (2008). Magretta (2012; Allio, 2012) and Lee, Kim, & Park (2012)
also describe managerial difficulties. While working with practicing managers, small business owners, MBA and
undergraduate business students, and other academics, I have witnessed many of the same things. The following challenges
in using the five forces framework are taken from Porter (2008), Magretta (2012), and my own observations.

Many people only understand the five forces framework and its use in an inordinately shallow way. At best, this leads to
incomplete, inaccurate, and unhelpful analysis. At worst, it can lead to misanalysis, poor decision making, and disastrous
organizational outcomes. Those of us in academia bear a good deal of the blame when it comes to a lack of depth in teaching
students about the concepts and usage of the five forces framework. This begins with textbook coverage. I surveyed ten
leading (Napshin, 2010) Strategic Management textbooks and catalogued the coverage of the five forces in each (see Table
1). The number of pages devoted to the five forces framework ranges from four to 21 pages. Only two of the textbooks
provide in-depth descriptions, explanations, and applications (Thompson, Peteraf, Gamble, & Strickland, 2012; Barney,
2011). Most textbooks summarize the basic concepts, reprint or adapt Porter’s graphical depiction of the framework, and
provide examples from various industries. Two other textbooks (Wheelen & Hunger, 2012; David, 2011) provide only four

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pages of coverage, diluting the power and potential value of the framework considerably. Unless students read one of the
two textbooks with in-depth coverage of the five forces and have an instructor who can comprehensively and effectively
explain the framework, most will grasp only a superficial familiarity with five forces terminology. When these students
graduate and become managers, small business owners, and/or entrepreneurs, any industry analysis using the five forces
framework will be crippled by its lack of depth. The restoration of depth of analysis is one of the purposes of the templates.

TABLE 1
FIVE FORCES COVERAGE IN LEADING STRATEGIC MANAGEMENT TEXTBOOKS

Five Forces
Author(s) Title Edition © Page Coverage
Barney Gaining and Sustaining 4 2011 21
Competitive Advantage

David Strategic Management: 13 2011 4

Concepts and Cases

Dess, Lumpkin, Strategic Management: 6 2012 11

Eisner, & McNamara Text & Cases

Hill & Jones Strategic Management: 10 2013 11

An Integrated Approach

Hitt, Ireland, Strategic Management: 10 2013 8

& Hoskisson Competitiveness & Globalization

Marcus Management Strategy: 2 2011 8

Achieving Sustained Competitive Advantage

Pearce & Robinson Strategic Management: 13 2013 7

Planning for Domestic & Global Competition

Rothaermel Strategic Management: 1 2013 8

Concepts and Cases

Thompson, Peteraf, Crafting & Executing Strategy: 18 2012 18

Gamble, & Strickland The Quest for Competitive Advantage

Wheelen & Hunger Strategic Management and Business Policy: 13 2012 4

Toward Global Sustainability

Porter (2008) laments the lack of quantitative measures used in typical applications of the five forces framework and the
devolution of the analysis into a series of qualitative lists. These types of assessments of industry conditions are frequently
rather arbitrary and make for poor substitutes for the rigor originally outlined and prescribed by Porter. However, the
presentation of the framework in Competitive Strategy may have played a significant role in the development of this
particular problem in applying the framework for two reasons. First, in the original explanation of the framework, Porter
provides dozens, if not hundreds of examples of the five forces at work in a wide variety of industries, but in only very rare
instances does he provide quantitative details of the examples. Second, the original description of the five forces is, in
essence, a list. Granted, the list is not simple, but there are extensive lists of the sources of threats within the five forces.
Users of the framework have naturally taken their cues from Porter, and following his lead have used lists and largely
qualitative assessments of the five forces. It is the frequent arbitrary nature of five forces analyses that may be significantly
diminished through a more structured approach to the implementation of the framework which is what the templates are
designed to provide.

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Perhaps Porter’s (2008) biggest disappointment in the misapplication of the five forces framework is the perception that the
framework is primarily a tool to assess the attractiveness levels of industries rather than gain strategic insight as to how a firm
can compete more effectively within its industry. The primary purpose of the framework is the latter, however, tying the
analysis to specific strategic action items is challenging. There are many contingency factors to consider (e.g., stage of
industry cycle) so that universal guidelines regarding actions to take given certain threat levels are not advisable. In
Competitive Strategy, Porter’s links between the five forces and specific strategic actions are provided throughout much of
the latter parts of the book and are not in a single place which would make them more accessible and likely to be seen and/or
used. While this placement is understandable and warranted, it forces the user of the framework to be more proactive and
perceptive in drawing actionable conclusions from his/her five forces analysis. The templates are designed to aid analysts
with this aspect of using the framework, as well.

FIVE FORCES TEMPLATES

The challenges identified by Porter in applying the five forces framework have certainly been observed by others. Any
instructor teaching a Strategic Management course or a consultant working with clients has witnessed the same issues. But in
an intensive, professional M.B.A. program in which students have a strong desire to take Monday evening’s principles and
bring them to bear on Tuesday morning’s business problems, the challenges to proper and effective application of the five
forces framework comes into much sharper focus. It was in such an environment that I made my first rudimentary attempts
at developing a guide to help managers and students apply the five forces framework to their companies. Over the course of
time, I continued to refine the emerging set of templates as I interacted with different types of students, consulting clients,
academics, and professional industry analysts. My students and I used the templates to analyze large, small, and
entrepreneurial businesses; government agencies; nonprofit and charitable organizations, and other types of organizations.
As the templates improved, students’ strategic insight improved. Rather than exhibiting a superficial familiarity with
terminology like switching costs and exit barriers, students and professionals using the templates seemed to have a deeper
understanding of the underpinnings of industry structure. This translated into more nuanced recognition and exploitation of
competitive industry dynamics. Granted, not all users of the templates have become proficient in the application of the five
forces framework – far from it in many cases. However, in my experience, each of the challenges described earlier regarding
the application of the five forces framework is lessened significantly when these templates are used. The latest version of
these five forces templates are provided in Appendices A - E.

As to the order in which the five forces are presented in the templates (competitive rivalry, buyer power, supplier power, new
entrants, and substitutes), there are two primary reasons for the order I decided to use. First, Porter presents them in different
orders himself, implying there is no correct order. In 1980, he uses the following order: new entrants, competitive rivalry,
substitutes, buyer power, and supplier power. In 2008, he presented them n a different order: new entrants, supplier power,
buyer power, substitutes, and competitive rivalry.

Second, by trial and error, I have found this particular order most effective. My experience with MBA and undergraduate
students alike is that they are most familiar with concepts regarding competitive rivalry. They understand direct competition
from previous business classes as well as life experiences. Therefore, I place competitive rivalry as the first force to examine
in an attempt to start with the most familiar concepts. The second and third forces are buyer and supplier power, in that
order. Typically, students and practicing managers are familiar with distribution channels and supply chain issues, so these
two forces are not as challenging to grasp. The fourth force is the threat of new entrants. This is not a force some students
and managers have thought about before in much depth, so it is placed fourth so that students/managers can have some
momentum upon which to build. And finally, the concept of substitutes, while extremely valuable, is frequently unknown to
many students/managers. In my experience, I have found it best to save this force for last. Although this sometimes
increases the likelihood that students struggling with comprehension of the concepts will fail to comprehend the essential
concepts of substitute product threats. However, this would likely be the case for whichever force was fifth in the order.
Users of the templates should feel free to experiment with their own order to see what works best for them.

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Standard Format of all Templates

All of the five forces templates share the same underlying format. The particular force to be analyzed is listed at the top with
an asterisk that directs the user to an explanation of how this force may threaten the profits of firms in the industry. Below
the title are the individual components of the templates as follows and as depicted in Appendices A - E.

Sources of threats. Six to eight contributing sources of threats from the underlying structure of an industry are listed for
each force. These are taken from Porter’s 1980 and 2008 publications. For most of the threat sources there is consistency
between what is listed on the template and what can generally be found in other explanations of the five forces (i.e., in
textbooks). However, with substitute products in particular, greater detail is provided in the templates than what is typically
found in other sources. Much of this is derived from Porter’s (1985) Competitive Advantage and is not ordinarily used in
descriptions of the five forces. However, Porter devotes significant space to substitute product threats in this work and
provides much greater detail as to how this particular threat can be assessed.

Threat level indicator bar. Each of these six to eight sources of threats is to be analyzed and the user may then indicate the
relative threat level by marking (e.g., circling) the threat level indicator bar above the name of the item. The farther right the
mark, the higher the analyst perceives the threat level to be (as indicated by the shaded bar just below the title). To aid the
analyst, bar labels are provided for each threat source that indicate the value, level, or measurement that is associated with
either high or low threat levels. Below the name of each threat source, there is space enough for the analyst to write brief
explanations, thoughts, notes, analysis, etc. More detailed comments may be noted on the back of the template.

Driving factors. To the left of each potential threat source, there is a square box labeled "DF". The analyst is to mark the
box(es) of those contributing threat sources s/he determines to be a driving factor of the threat level of a particular force. The
number of driving factors may vary by force and industry. Other formats have been considered and/or used to indicate the
relative weight of a contributing factor. On one extreme, there is an implied equal weighting to each source of threat if no
special designation is provided (see Coulter, 2002). On the other extreme, mathematical weights could be used to assess each
threat source (see Lee, Kim, & Park, 2012). The format described here attempts to strike a balance between the two extremes
and maintain depth of analysis without bogging down the analyst in three or four dozen mathematical assessments and their
subsequent use in equations and calculations.

Threats and opportunities. Finally, in an attempt to more directly link analysis to strategic action, space is provided for the
template user to indicate key opportunities and threats facing the focus organization. Without an explicit, clearly stated tie-in
to opportunities and threats, the full value of an industry analysis utilizing the five forces framework is not realized. Often,
the five forces are presented as a purely external analytical exercise and are not linked to specific resources of the firm. This
lays the groundwork for an unnecessary and unfortunate battle for paradigm dominance between Porter’s five forces and the
resource-based view of the firm (Prahalad & Hamel, 1990; Barney, 2011). Contrary to common perceptions, the five forces
framework does, indeed, take into consideration the unique resources of the firm, but that consideration is made after the
industry analysis is complete. The five forces framework and the resource-based view of the firm can be considered
complementary perspectives (Porter, 2008) rather than adversarial as is commonly the case (see Makhija, 2003; Ronda-Pupo
& Guerras-Martin, 2012). Specifically linking five forces assessments to opportunities and threats can help strategic thinkers
develop powerful responses to industry pressures to improve competitiveness and increase profits.

Example Template: Competitive Rivalry in North American Spectator Sports

Seeing an example of a completed template concretely illustrates the mechanics of the templates and provides additional
clarity for users. Included as Appendix F is an example template assessing competitive rivalry in North American spectator
sports. This industry includes the four “major” sports of baseball, football, basketball, and hockey at both the major and
minor league levels (professionally) and collegiately; other team sports such as soccer; individual-based sports such as track
and field, golf, tennis, and even auto racing. Only the competitive rivalry template is provided due to space limitations, but
the form and structure is the same for all five of the forces. The text in italics font is meant to represent the hand-written
analysis of a template user.

Below each of the eight sources of competitive rivalry, there are brief comments explaining the thinking behind the
assessment and the placement of the shaded circles on the associated threat level indicator bars. Some of the comments
include source citations and quantitative measures. The level of documentation and rigor used in the analysis is variable. In

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this particular example, four of the threat sources are identified with check marks in the corresponding boxes as the driving
factors of competitive rivalry in the industry. Finally, key threats and opportunities are identified in the last two boxes near
the bottom of the page. These could be used in different ways by the template user, including but not limited to incorporation
into a larger SWOT analysis.

POSSIBLE MODIFICATIONS AND EXTENSIONS

These templates have evolved over time and significant alterations have been made to address observed confusion on the part
of users and to strengthen their practical use. Future modifications are likely as new feedback is received and a wider
audience utilizes them. A different system of indicating which sources of threats are more important could be developed.
Originally, and following the example of most other attempts at practical application of the framework, the templates did not
direct the user to distinguish between the most important and least important threat sources. A mathematical weighting
system similar to a TOWS (Weihrich, 1982) or MOWST matrix (Dobbs & Pisarczyk, in press) was considered, but
ultimately rejected due to anticipated unwieldiness. One other modification has been seriously considered. While there is no
room on the template to include detailed explanations of how each of the threat sources relates to one of the five forces (e.g.,
why/how slow or negative industry growth causes higher levels of competitive rivalry), these descriptions could be included
on the back of the template. The advantage of this would be added convenience for the user, but there could be a negative
impact on student learning if there is too much concern for convenience and not enough individual processing of concepts.

Porter’s five forces framework is a powerful tool in the hands of a skilled manager or analyst. Unfortunately, no practical,
systematic templates that balance comprehensiveness and ease of use have been developed to help in the application of the
framework to actual organizations. The templates presented here have been developed with this need in mind. Thus far,
usage in classroom and consulting settings has yielded positive feedback and reports of higher levels of comprehension and
better strategic insight. Hopefully this will continue and be enhanced with further feedback and modifications. Brandenburger
and Nalebuff (1996) popularized the term co-opetition to describe how businesses simultaneously compete and cooperate
with competitors, suppliers, customers, and other "players" in their environments. In general, firms cooperate to grow a
market and compete when dividing that market. Lado, Boyd, and Hanlon (1997) developed a matrix to visualize this
simultaneous competition and cooperation. With modifications, such a co-opetition matrix can be an insightful means of
analyzing and exploring which firms are engaged in various levels of competitive and cooperative behaviors, identifying
which mixes seem to be most effective in an industry, and predicting future actions of firms in an industry. I use data from
Major League Baseball to demonstrate the potential uses (and limitations) of such a co-opetition matrix and how such a
matrix can be constructed using actual industry data.

REFERENCES

Allio, R. J. & Fahey, L. (2012). Joan Magretta: What executives can learn from revisiting Michael Porter. Strategy &
Leadership, 40(2), 5-10. doi 10.1108/10878571211209297
Barney, J. B. (2011). Gaining and sustaining competitive advantage (4th ed.). Upper Saddle River, NJ: Pearson Prentice
Hall.
Coulter, M. K. (2002). Strategic management in action (2nd ed.). Upper Saddle River, NJ: Prentice Hall.
Crowther, P. (2008). Editor’s note. In Porter, M. E. , The five competitive forces that shape strategy. Harvard Business
Review, 86(1), 78-93.
David, F. R. (2011). Strategic management: Concepts and cases (13th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Dess, G. G., Lumpkin, G. T., Eisner, A. B., & McNamara, G. (2012). Strategic management: Text and cases (6th ed.). New
York: McGraw-Hill Irwin.
Dobbs, M. E. & Pisarczyk, T. (in press). The MOWST Matrix for nonprofit strategic decision making. Journal of Business,
Society and Government, 4.
Hill, C. W. L. & Jones, G. R. (2013). Strategic management: An integrated approach (10th ed.). Mason, OH: South-
Western, Cengage Learning.
Hitt, M. A., Ireland, D. A., & Hoskisson, R. E. (2013). Strategic management: Competitiveness & globalization: Concepts

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and cases (10th ed.). Mason, OH: South-Western Cengage Learning.

Lee, H., Kim, M., & Park, Y. (2012). An analytic network process approach to operationalization of five forces model.
Applied Mathematical Modeling, 36, 1783-1795.
Magretta, J. (2012). Understanding Michael Porter: The essential guide to competition and strategy. Boston, MA: Harvard
Business Review Press.
Makhija, M. (2003). Comparing the resource-based and market-based views of the firm: Empirical evidence from Czech
privatization. Strategic Management Journal, 24, 433-451.
Marcus, A. A. (2011). Management strategy: Achieving sustained competitive advantage (2nd ed.). New York: McGraw-
Hill Irwin.
Napshin, S. (2010). Strategy text: Revised results [Online discussion group post]. Retrieved from,
http://aomlists.pace.edu/archives/BPS-NET.html
Ozanian, M. (2012, March 21). The business of baseball 2012. Forbes.com. Retrieved from,
http://www.forbes.com/sites/mikeozanian/2012/03/21/the-business-of-baseball-2012/
Pearce, J. A. & Robinson, R. B. (2013). Strategic management: Planning for domestic and global competition (13th ed.).
New York: McGraw-Hill Irwin.
Plunkett Research. (2012). Sports industry overview. Retrieved from, http://www
.plunkettresearch.com/sports-recreation-leisure-market-research/industry-statistics
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93.
Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. New York: Free Press.
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.
Prahalad, C. K. & Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79-91.
Ronda-Pupo, G. A. & Guerras-Martin, L. A. (2012). Dynamics of the evolution of the strategy concept 1962-2008: A co-
word analysis. Strategic Management Journal, 33, 162-188.
Rothaermel, F. T. (2013). Strategic management: Concepts and cases. New York: McGraw-Hill Irwin.
Thompson, A. A., Peteraf, M. A., Gamble, J. E, & Strickland, A. J. (2012). Crafting and executing strategy: The quest for
competitive advantage: Concepts and cases (18th ed.). New York: McGraw-Hill Irwin.
Weihrich, H. (1982). The TOWS Matrix – A tool for situational analysis. Long Range Planning, 15(2), 54-66.
Wheelen, T. L. & Hunger, J. D. (2012). Strategic management and business policy: Toward global sustainability (13th ed.).
Upper Saddle River, NJ: Pearson Prentice Hall.

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APPENDIX A: COMPETITIVE RIVALRY TEMPLATE (BLANK)

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APPENDIX B: BUYER POWER TEMPLATE (BLANK)

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APPENDIX C: SUPPLIER POWER TEMPLATE (BLANK):

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APPENDIX D: NEW ENTRANTS TEMPLATE (BLANK):

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APPENDIX E: SUBSTITUTES TEMPLATE (BLANK):

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Appendix F: Competitive Rivalry Template (Example):

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