Introduction
Most HR strategies look inward; they examine culture, engagement, and retention – all things happening internally within the business.
Most HR strategies don’t consider that much of what shapes your workforce happens outside the business too. Factors such as competitor pay rises, supplier costs, or a new rival entering the market might not start in HR, but they can still become issues.
This is where Porter’s 5 Forces analysis comes in. Built for business strategy, this tool helps HR spot external pressures before they become a retention crisis or a recruitment headache.
This guide covers what Porter’s 5 Forces analysis is, each of the five forces with real HR examples, how it compares to other tools, and how to use it step by step to develop your strategic HR practice.
What Is Porter's 5 Forces Analysis?
Porter’s Five Forces Model first appeared in a 1979 article on competitive strategy, when Harvard professor Michael Porter established the framework. Since then, this influential model has shaped how businesses think about their market.
Decades later, it remains one of the most widely taught strategy tools in business schools. Most MBA courses still cover it in some form, and it remains a common reference point in boardroom strategy discussions today.
The model examines the outside pressures that shape an industry, showing how much power a business really has in its own market.
Though Porter built the tool for strategists, the forces affect people, pay and culture directly.
That is why it matters in HR too; even if it was never written with HR in mind, it fits well alongside the strategic thinking covered in Level 5 and Level 7 CIPD courses.
The 5 Forces Explained
Porter’s 5 Forces analysis helps determine how competitive and profitable an industry is likely to be, and where potential pressure points lie outside a business.
While the framework can shape pricing, investment, and market-entry decisions, HR teams apply the five forces slightly differently to anticipate the outside influences facing a company.
In HR, Porter’s forces act as an early warning system. They can identify how likely issues around pay, hiring, and retention are to appear before they materialise as a resignation or a delayed offer.
Porter’s Model covers five areas:
- Competitive rivalry.
- Supplier power.
- Buyer power.
- New entrants.
- Substitutes.
Below, we apply each force to HR practice and explore what they mean for your people strategy with a real example for each:
1. Competitive Rivalry
What It Means: The core force of Porter’s model, and a measurement of competitive intensity among existing firms in an industry.
Potential Pressure: Competitors might chase your top performers with higher pay, and this could be what’s driving your turnover, even in the background. A rival’s starting salary increase can explain a resignation months before anyone in HR releases.
What You Can Do About It:
Check competitor ads regularly – they show your real market ranking far better than your own salary bands do, and they’ll identify a pay increase well before a resignation occurs.
2. Supplier Power
What It Means: How much control a company’s suppliers might have over raw goods or services by increasing their prices, limiting quality, or reducing availability.
Potential Pressure: Rising supplier costs can turn into pressure on your team – hiring freezes, delayed pay reviews. If procurement absorbs cost rises, it’s usually brought up in HR later on, often as a decision nobody explains properly to staff.
What You Can Do About It: Before the cost pressure reaches you as an unexplained freeze or delay, approach procurement directly and ask about it. As an HR leader, this means you can explain the decision honestly to your staff, rather than leaving them in the dark.
3. Buyer Power
What It Means: How much say your customers have over price and demand, and how easily they could go elsewhere.
Potential Pressure: Shifting customer expectations change the skills your team needs to do their jobs effectively. For example, fast service often means retraining staff or hiring for skills you didn’t need two years ago, but need right now. This shift in customer expectations can affect your whole team structure, sometimes faster than you expect.
What You Can Do About It: Check in with sales or customer-facing teams regularly, rather than relying on HR data, to catch skill shifts early. Planning retraining or hiring around what customers are starting to expect can help you get ahead, rather than reacting and inciting panic when it’s too late.
4. Threat of New Entrants
What It Means: A measurement of how easy or difficult it is for brand new companies to join a market and then compete with existing ones.
Potential Pressure: Well-funded new entrants won’t just compete for customers; they’ll compete for talent too, sometimes with better pay to develop a team fast.
What You Can Do About It: Watch who is hiring hard in your sector, not just who is winning new business.
5. Threat of Substitutes
What It Means: How easily customers could replace your product with something else entirely.
Potential Pressure: AI is a real threat, cropping up more and more in business. If a substitute threat such as AI threatens part of a role, staff sense it long before leadership raises the issue, which may affect team morale.
What You Can Do About It: An effective HR leader will respond to the worry directly rather than letting it go unnoticed in the background of an organisation. In this scenario, clear, honest communication is needed to address what is and isn’t changing so teams feel reassured and supported.
Porter's 5 Forces vs Other Strategic Models
In HR practice, Porter’s 5 Forces frequently appears alongside other key HR models.
Realising the key differences between these models can help you pick the right tool for your practice, rather than relying on the same framework every time.
The table below demonstrates the distinctions between Porter’s 5 Forces and two fundamental tools for HR professionals, especially those studying CIPD: SWOT Analysis and PESTLE Analysis.
Some HR teams use Porter’s 5 Forces and PESTLE Analysis together, starting broad with PESTLE before narrowing in with Porter’s.
Neither model replaces the other. Used side by side, they give HR a fuller picture – the wide view and the sharp one work together rather than competing for attention.
Advantages and Disadvantages of Porter's 5 Forces
Like any model, this one has real strengths and real gaps. Weigh up both before you rely on it for a big decision.
The table below illustrates the main advantages and disadvantages of applying Porter’s 5 Forces in strategic HR Practice:
How to Use Porter's 5 Forces in HR: A Leadership Example
While Porter’s 5 Forces Model is useful at all levels, it’s especially valuable for aspiring HR leaders or those already leading teams, as the example below shows.
Leaders directly shape a company’s people strategy and can act quickly on the pressures the forces identify before anyone else. They regularly operate across the five forces, rather than only experiencing one.
Understanding the pressures a company may face creates trust within teams, which is a leadership responsibility.
So, to use Porter’s 5 Forces effectively as an HR leader, start by working through each force with your own business in mind. Because your industry is constantly shifting, treating this as a generic admin task will cause real pressures to be ignored.
Instead, respond to these alterations and ask why they’re happening in the first place.
Even the smallest of shifts can go unnoticed until they materialise as a resignation or a delayed hire, and by the time the pattern is obvious to a wider team, it has likely been building under the surface for months.
Here are a few useful suggestions for leading this well:
- Revisit Porter’s Model Regularly: It’s important to factor repeat reviews into your leadership calendar regularly, for instance, as an annual or twice-yearly check, not a one-off task.
- Tie the process to real decisions: Consider bringing the model and its findings into the room for pay reviews, retention plans, and workforce planning, not purely as a slide in a deck.
- Consider the wider team: Procurement and sales will catch supplier or customer pressure before HR does, and you shouldn’t handle this alone. Ask these departments first, before drawing your own conclusions.
Although Porter’s model focuses on external factors affecting a business, internal elements also shape people strategy significantly. Our guide to situational leadership covers how to adjust your management style as your team and circumstances shift.
Key Takeaways
Porter’s 5 Forces analysis gives HR professionals a clear way to understand the outside pressures directing their team, not just the ones developing from within.
Repeat the process of working through each of Porter’s Forces often, examining the rivalry, supplier power, buyer power, new entrants, and substitutes affecting a company’s stability.
Catching risks related to pay, retention, and culture early can stop them from expanding into a much larger crisis.
Other frameworks like Kotter’s 8-Step Change Model complement Porter’s 5 Forces when used in effective HR practice. For instance, once Porter’s model helps you understand where the pressure is, Kotter’s model can help you lead and embed change to support your teams.
Want to build strategic tools like this into your own HR practice? This is what HRC’s CIPD Level 5 and Level 7 courses are designed to teach you.
Get in touch with HRC Online today, or explore our course outlines to find the right fit for your career.
