The Five Competitive Forces That Shape Strategy

Michael E. Porter

Article | Harvard Business Review | January 2008

The Five Competitive Forces That Shape Strategy

Abstract

This article includes a one-page preview that quickly summarizes the key ideas and provides an overview of how the concepts work in practice along with suggestions for further reading. In 1979, a young associate professor at Harvard Business School published his first article for HBR, "How Competitive Forces Shape Strategy." In the years that followed, Michael Porter's explication of the five forces that determine the long-run profitability of any industry has shaped a generation of academic research and business practice. In this article, Porter undertakes a thorough reaffirmation and extension of his classic work of strategy formulation, which includes substantial new sections showing how to put the five forces analysis into practice. The five forces govern the profit structure of an industry by determining how the economic value it creates is apportioned. That value may be drained away through the rivalry among existing competitors, of course, but it can also be bargained away through the power of suppliers or the power of customers or be constrained by the threat of new entrants or the threat of substitutes. Strategy can be viewed as building defenses against the competitive forces or as finding a position in an industry where the forces are weaker. Changes in the strength of the forces signal changes in the competitive landscape critical to ongoing strategy formulation. In exploring the implications of the five forces framework, Porter explains why a fast-growing industry is not always a profitable one, how eliminating today's competitors through mergers and acquisitions can reduce an industry's profit potential, how government policies play a role by changing the relative strength of the forces, and how to use the forces to understand complements. He then shows how a company can influence the key forces in its industry to create a more favorable structure for itself or to expand the pie altogether. The five forces reveal why industry profitability is what it is. Only by understanding them can a company incorporate industry conditions into strategy.

Keywords: Profit; Five Forces Framework; Industry Growth; Industry Structures; Business and Government Relations; Competitive Strategy;

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Porter, Michael E. "The Five Competitive Forces That Shape Strategy." Special Issue on HBS Centennial. Harvard Business Review 86, no. 1 (January 2008): 78–93.

Since its establishment in 2005, Hamburg's Martini Klinik had single-mindedly focused on prostate cancer care with a commitment to measure long-term health outcomes for every patient. A wholly owned subsidiary of the Hamburg University Hospital, Martini was a "hospital in a hospital" in close proximity to other hospital departments and services. By 2013, Martini Klinik had become the largest prostate cancer treatment program in the world with 5,000 outpatient cases and more than 2,200 surgical cases annually, with patients coming from all over Germany and from other countries. However, German private insurers were cutting reimbursement for prostate cancer by 15 percent, and denying extra payment for some new procedures, while reimbursement by public health plans was not covering costs. Dr. Hartwig Huland, Martini's founder and Medical Director, was considering how to respond.

Case | HBS Case Collection | February 2009 (Revised June 2019)

Cleveland Clinic: Transformation and Growth 2015

Michael E. Porter and Elizabeth O. Teisberg

The Cleveland Clinic's health care services are internationally renowned for quality. In 2008, The Clinic began to restructure the organization into teams defined around patient needs, rather than traditional medical specialties. "Patients First!" takes shape as the teams measure and report outcomes, coordinate care, and develop to support improving value for patients. In addition to restructuring care delivery in the hospitals and throughout northeastern Ohio, The Clinic has investments, facilities, and staff in several other states in the U.S. as well as in Canada and Abu Dhabi. Now in 2015, as the Clinic's domestic and international footprint continues to expand, its leadership is also focused in maintaining the Cleveland Clinic brand and providing optimal clinical care. Students can explore strategy transformation, geographic expansion, the process of introducing new measurement approaches, alignment of activities with strategic goals, and issues in leading change both within a company and across an economic sector.

Keywords: health; health care operations; health care quality; health care; strategy and leadership; strategy development; Health Care and Treatment; Leading Change; Goals and Objectives; Growth and Development Strategy; Measurement and Metrics; Service Delivery; Organizational Change and Adaptation; Outcome or Result; Health Industry; Cleveland;

Citation:

Porter, Michael E., and Elizabeth O. Teisberg. "Cleveland Clinic: Transformation and Growth 2015." Harvard Business School Case 709-473, February 2009. (Revised June 2019.) View Details

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The Five Competitive Forces That Shape Strategy

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