What Is the Six Forces Model?
The six forces model is a strategic business tool that helps businesses evaluate the competitiveness and attractiveness of a market. It provides a view or outlook by analyzing six key areas of business activity and competitive forces that shape any industry. The purpose of the model is to identify the structure of the industry—including strengths and weaknesses—to help formulate a corporate strategy.
How the Six Forces Model Works
The five forces model was originally developed by Michael E. Porter of Harvard Business School. It was used as a framework to analyze a company's competitive environment. As a means of analysis, there were certain limitations in that original model. Among those limitations was that the model was more applicable to simple and static markets rather than the complex and dynamic markets that exist today.
- The six forces model is used to evaluate a firm's strategic position in a particular marketplace.
- The model emerged in the mid-1990s and built on the original five forces model.
- The five forces model considers how potential new market entrants, suppliers, customers, substitute products, and rivalry can influence a company's profitability.
- The sixth force of Porter’s model is complementary products—the tech industry was impacted by intense competition due to the proliferation of new products and services in the 1990s.
- The six forces model can also be used to determine the market's overall attractiveness in relation to profitability and competition.
Furthermore, the five forces model did not account for factors and influences from outside of the market or industry itself. The pace of change in business has increased and new business models continue to emerge that do not follow the same patterns as incumbent, older businesses. Complementary products was added as a component to the model and the updated version includes six forces:
- New entrants
- End users and buyers
- Rivalry among competitors
- Complementary products
Example of the Six Forces Model
The legacy media industry, which includes print, radio, television, and film, was disrupted by the growth of the Internet, which developed outside of those respective markets. That external element changed the dynamics of how media outlets of many formats conducted business.
The barriers to entry for new media companies diminished with the advent of online platforms to deliver content. It created new forms of competition and the arrival of new entrants who did not operate as traditional rivals did.
The supplier sources for media also changed as more independent and individual creators gained access to tools that allow them to produce content that could be distributed through online channels. The amount of content available grew exponentially.
At the same time, delivering content to users online could be done without incurring the traditional costs of publishing. Many content sources became available for free or dramatically reduced costs to buyers and users. Such competitive elements, which dramatically changed how content was distributed and reshaped the entire media industry, did not easily factor into the original model's analysis structure.