Industry Structure Page

Rate the five structural forces on evidence rather than mood, see where your industry hands profit to others, and decide which force you can weaken and where the pressure is lighter.

Mixed research: industry structure shapes profit, but business-level differences inside an industry explain more of the gap (McGahan & Porter, 1997; Vanneste, 2017). The five forces are a tool for describing the industry, not a test of how well you will do in it. Ratings of low, medium and high are your judgment.

Use it when:

• You are about to enter an industry or a new segment and want to know where profit is made or lost.
• Profits are falling for reasons you cannot explain from your own costs.
• You review the industry once a year, or a new entrant, substitute or big buyer has appeared.

Skip it when:

• You have not looked at the wider environment yet: start with 7.1 PESTLE Snapshot.
• Your question is how rivals differ from each other, not how the industry shares value: use 7.3 Strategic Group Map.

Porter (1979) argued that profitability is set less by how hard you compete than by where you compete. A few structural forces decide how much of an industry's value stays with its firms and how much is bargained away to buyers, suppliers, substitutes and new entrants. The mechanism is bargaining power and credible alternatives, which is why the questions are about switching costs and concentration, not about who has the best product.

The evidence is mixed in an instructive way. Industry membership shapes profit, but differences between businesses inside the same industry explain more (McGahan & Porter, 1997; Vanneste, 2017). Porter (2008) restates the structural case, and that finding is the standing caveat to it. The forces describe the pool, not how well you will swim.

So Step 1 demands a narrow definition, because a blurry scope inflates every force. Step 2 asks for evidence before each rating. Steps 3 and 4 refuse to stop at attractive or unattractive: they ask where profit is squeezed, which force you could weaken and where the forces bear down less.

A force only means something for a defined industry. Name the customer need and the place.

Strong answer: "Independent physiotherapy clinics serving adults in one mid-sized Swedish city." Not "healthcare" or "services".

Industry:

Geography:

Our position in it: ☐ Incumbent ☐ New entrant ☐ Considering entry

Illustrative example: the industry and all ratings are made up.

A physiotherapist considers opening an independent clinic in a mid-sized Swedish city.

Pattern: profit is squeezed by one buyer and by staff cost, not by rivals. Mixed industry.

So what: weaken buyer power by adding a second customer group, employers who pay for occupational care, and test it with three local companies. Check 7.3 Strategic Group Map for a sports niche. The decision to enter depends on contract terms more than on the industry average.