The formulas, tricks and trade secrets of Private Equity

Porters Additional Forces 6th 7th

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To follow on from my last post about Porter’s 5 Forces, I’m going to briefly discuss suggestions that the model should be expanded to include additional forces. Keeping things simple is always good, but there’s also an argument for covering all bases. This is an especially interesting topic because the model is practicable and applicable; I don’t think many would bother with this discussion if it was only academic. Some suggestions for porters additional forces include a 6th, 7th and/or 8th force are as follows:

  1. Government: the thinking being that government regulation and intervention can drastically change the dynamics of an industry. And some industries are more exposed than others.
  2. Complements: since substitutes are included, many argue that complements should also be included. The thinking being that complements can drive an industry in unique ways too.
  3. The Public: similar to government, the public (in the form of pressure groups, lobbyists, trends, etc) can play an important role in the dynamics of an industry.

When Michael Porter himself revisited the model recently, he considered the inclusion of additional forces (6th or 7th) but ultimately decided against it. His reasoning was quite vague, but this doesn’t necessarily mean there shouldn’t be other forces.

Playing the role of a cynic, maybe he just wanted to save face or keep it simple. Then again, maybe he’s right in keeping the model simple and maybe government/complement/public analysis belongs at the business, opposed to industry, level. At this moment (and not necessarily the next moment), I tend to side with the latter.

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