Investopedia Stock Analysis - Valueclick: Understanding Porter's 5 Forces vs. PESTLE Analysis

Porter's 5 Forces vs. PESTLE Analysis: An Overview

Porter's 5 Forces and PESTLE are tools companies can use to improve their competitive positions in the market. Porter's 5 Forces examines where power lies in a competitive situation. PESTLE identifies how various macro-environmental factors may affect an organization and its competitive standing.

Porter's Five Forces

Porter's 5 Forces is an analytical model used to help identify the structure of an industry and to help companies determine their competitive strategies. The model was developed by Harvard Business School professor Michael E. Porter as part of his book "Competitive Strategy: Techniques for Analyzing Industries and Competitors," published in 1980.

The model can be applied to any segment of the economy. It helps explain why various industries maintain different degrees of profitability.

As the name suggests, there are five factors that make up Porter's 5 Forces. They are all external, so they have little to do with the internal structure of a corporation:

1. Industry competition. A higher degree of competition means the power of competing companies decreases. When competition is low, companies can do whatever they need to in order to increase their profits.
2. New players in the industry. New (and more) entrants into the market means a company's power also decreases. Most companies prefer to operate in a market or industry where there are fewer players.
3. Supplier (seller) power. This factor examines how suppliers can use their power...