4.6 Porter's Five Forces

Analyses industry structure across five forces to guide strategic positioning. Launch on platform.

What is it?

Dragonfly's Porter's Five Forces Lens analyses industry structure and competitive dynamics to assess profit potential and guide strategic positioning. It reveals how five competitive forces—threat of new entrants, supplier power, buyer power, substitute threats, and competitive rivalry—shape industry competition and determine the sustainability of profits.

Why is it useful?

• Assess industry attractiveness and profit potential by analysing structural forces rather than surface-level competitive activity

• Understand competitive dynamics that determine pricing power, investment returns, and strategic positioning options

• Identify defensible strategic positions within industry structure that protect against competitive forces

• Evaluate structural changes in industry competition that create opportunities or threats to existing strategies

• Guide investment and market entry decisions based on systematic analysis of competitive forces rather than intuition

• Develop competitive strategies that work with or change industry structure rather than fighting inevitable forces

How does it work?

The Porter's Five Forces Lens applies systematic structural analysis to evaluate competitive forces and identify optimal strategic positioning within industry dynamics.

Threat of New Entrants Analysis and Barrier Assessment

• Focus: Analyse barriers to entry including economies of scale, capital requirements, brand loyalty, switching costs, and regulatory protections

• Example: Pharmaceutical industry analysis revealing high barriers from R&D costs ($2.6B average), regulatory approval requirements (10+ years), and patent protections, limiting new entrant threats for established players

Supplier Power Evaluation and Relationship Dynamics

• Focus: Assess suppliers' ability to capture value through concentration, switching costs, differentiation, and forward integration threats

• Example: Semiconductor manufacturing analysis showing high supplier power from TSMC and Samsung's advanced node monopoly, creating cost and capacity constraints for chip designers without vertical integration

Buyer Power Assessment and Negotiation Leverage

• Focus: Evaluate customers' leverage through concentration, price sensitivity, switching costs, backward integration possibilities, and information access

• Example: Retail industry analysis revealing increasing buyer power from Amazon's market concentration, price transparency, and private label threats, pressuring traditional manufacturers' margins

Substitute Threat Analysis and Disruption Potential

• Focus: Map alternative solutions to customer needs, analysing performance, switching costs, price-performance trade-offs, and disruption possibilities

• Example: Traditional taxi industry facing substitute threat from ride-sharing platforms offering superior convenience, pricing transparency, and technology integration, fundamentally altering competitive dynamics

Competitive Rivalry Intensity and Market Dynamics

• Focus: Analyse direct competition through competitor balance, industry growth, fixed costs, differentiation levels, and exit barriers

• Example: Airlines industry showing intense rivalry from numerous competitors, high fixed costs, low differentiation, and high exit barriers, creating persistent price competition and margin pressure

Industry Structure Evolution and Strategic Implications

• Focus: Understand how forces interact and evolve over time, creating strategic opportunities and threats

• Example: Cloud computing industry evolution showing decreasing barriers to entry for software companies while increasing supplier power for infrastructure providers, reshaping competitive dynamics and profit distribution

Turning Porter's Five Forces into Action

• Position strategically within industry structure to defend against competitive forces rather than competing on operational excellence alone

• Influence industry structure through strategic moves that alter force dynamics rather than accepting structural constraints as unchangeable

• Time strategic initiatives based on force evolution patterns rather than static competitive analysis that ignores structural change