Key MBA Models

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Five forces analysis

This is a way of analysing the attractiveness of an industry. In some industries, such as pharmaceuticals, profit margins are typically very high, while in other industries, such as retailing, profit margins are consistently lower. Five forces analysis explains why this is the case – and what a firm can do to make its industry more profitable.

When to use it

• To understand the average profitability level of an existing industry.
• To identify opportunities for your firm to become more profitable.

Origins

Michael Porter was a junior faculty member at Harvard Business School in the mid-1970s, with a background in the micro-economic theories of ‘industrial organisation’. That body of literature was mostly concerned about ...