Porter's Five Forces Quotes

Memorizing the five forces won’t make you a better business thinker; it will only help you to sound like one. It matters that you grasp the deeper point: there are a limited number of structural forces at work in every industry that systematically impact profitability in a predictable direction.

Thus a low-cost position protects the firm against all five competitive forces because bargaining can only continue to erode profits until those of the next most efficient competitor are eliminated, and because the less efficient competitors will suffer first in the face of competitive pressures.

During her time at Miss Porter’s School in Farmington she had often become depressed and was hobbled by fatigue. In 1887, when she was twenty, she wrote in her diary, “Tears come without any provocation. Headache all day.” The school’s headmistress and founder, Sarah Porter, offered therapeutic counsel. “Cheer up,” she told Theodate. “Always be happy.” It did not work. The next year, in March 1888, her parents sent her to Philadelphia, to be examined and cared for by Dr. Silas Weir Mitchell, a physician famous for treating patients, mainly women, suffering from neurasthenia, or nervous exhaustion. Mitchell’s solution for Theodate was his then-famous “Rest Cure,” a period of forced inactivity lasting up to two months. “At first, and in some cases for four or five weeks, I do not permit the patient to sit up or to sew or write or read,” Mitchell wrote, in his book Fat and Blood. “The only action allowed is that needed to clean the teeth.” He forbade some patients from rolling over on their own, insisting they do so only with the help of a nurse. “In such cases I arrange to have the bowels and water passed while lying down, and the patient is lifted on to a lounge at bedtime and sponged, and then lifted back again into the newly-made bed.” For stubborn cases, he reserved mild electrical shock, delivered while the patient was in a filled bathtub. His method reflected his own dim view of women. In his book Wear and Tear; or, Hints for the Overworked, he wrote that women “would do far better if the brain were very lightly tasked.

Complements can be important when they affect the overall demand for an industry’s product. However, like government policy, complements are not a sixth force determining industry profitability since the presence of strong complements is not necessarily bad (or good) for industry profitability. Complements affect profitability through the way they influence the five forces.

The five forces framework explains the industry’s average prices and costs, and therefore the average industry profitability you are trying to beat.

The introductory topic taught in any modern course on business strategy is the connection between industry structure and profit. This topic is usually called the “Five Forces,” following Michael Porter’s pioneering analysis of industry structure, published in 1980. A quick summary is that a terrible industry looks like this: the product is an undifferentiated commodity; everyone has the same costs and access to the same technology; and buyers are price sensitive, knowledgeable, and willing to switch suppliers at a moment’s notice to get a better deal.