PGPM 2026–27

Session 03 1.5 hours Analysis

Industry Analysis: The Fundamentals

The External Environment & Porter’s Five (Six) Forces

Why do some industries earn far more than others, year after year? Scan the macro-environment with PESTEL, take an industry apart with Porter’s five forces, settle the argument about a sixth, and turn the analysis into a strategy — then test all of it on the US car industry that Tesla chose to enter.

Session 2 started where Kaplan and Norton start: purpose and values, the core ideology Collins and Porras describe, then a vision precise enough to measure — Tesla’s 500,000 cars a year by 2020 — and the value gap between that ambition and where Tesla stood. Their next step is analysis: the key issues a strategy must address. Session 2’s quick five-forces read said “do not enter”. Today you build the tool properly and decide whether that verdict was wrong, or only the way the tool was used.

Start with question 1 Readings & preparation Learning outcomes & visual lab

The three questions

01What in the environment actually matters?
02What sets an industry’s profitability?
03Is there a sixth force, and how does the analysis become a strategy?

Each question belongs to one reading. Rothaermel’s PESTEL answers the first; Porter’s five forces answer the second, in the 2008 article and the 1983 note behind it; the second half of Porter (2008) answers the third, where Rothaermel’s case for a sixth force is put to the test. The Tesla case is where all three get argued out loud.

Start here · Session 3

Learning outcomes

By the end of this session, students should be able to:

Define an industry boundary and separate a PESTEL factor from the competitive force through which it operates. Practise the trend-to-force sorter.
Explain how each of the five forces changes price, cost or investment requirements, using case evidence. Name the force in a business situation.
Assess complements without assuming that every useful partner is an independent sixth force. Trace a complement through the framework.
Check an industry-profitability argument against the period, units and limitations of its exhibits. Audit the Tesla-era exhibits.
Defend a positioning, change-exploitation or structure-shaping recommendation and name the evidence that would overturn it. Classify a strategic response.

Start the existing session · Try the visual practice lab · Prepare with the assigned readings

The activities help you practise these outcomes. Browser feedback supports learning; formal assessment follows the course outline and instructor guidance.

Recall → connect → carry forward · Sessions 1–2

The strategy story so far: Sessions 1–2

A coherent strategy needs both a reason to exist and evidence that its ambition is possible. Sessions 1 and 2 supplied the choices, purpose and measurable gap; today we investigate the external conditions that could help or block those choices. Follow Nila Foods, a fictional Indian meal-service for working adults, as one continuing illustration.

One continuing classroom story. Nila Foods is a fictional Indian meal-service for working adults. Follow its choices from Session 1; later expansion ideas are proposals to test.

Session 1 · What is strategy?
Operational effectiveness improves similar activities; strategy requires positioning, trade-offs and fit. State objective, scope and advantage, then compare intended plans with emergent action using evidence.
Nila Foods: Nila proposes preordered weekday meals on clustered routes, declines instant citywide delivery and studies actual customer behaviour.
Session 2 · Framework for Strategic Analysis
Purpose and values guide what endures, while a quantified ambition opens a same-date gap from the baseline; closing that gap requires external and internal evidence.
Nila Foods: Nila separated easing meal burdens and honest food-safety disclosure from its growth target, then compared that target with its projected baseline.

Why this leads to Session 3

Nila now has a proposed position and a growth gap, but neither establishes an attractive business. We must define its industry, distinguish macro trends from competitive forces, and trace their effects on price, cost and investment. That turns Session 2’s call for analysis into Session 3’s question: where could this position earn a return, and what might overturn that judgment?

Retrieve it before moving on

Why can Nila’s focused delivery choices and clear growth target still leave its strategy unproven?

Compare your reasoning with a model answer

The focused menu, preorders and routes form a plausible system with real trade-offs (Session 1). Purpose, values and a same-date target gap clarify its direction (Session 2). Neither shows how suppliers, customers, substitutes, entrants and rivals affect its economics; that is the external evidence we now need.

Question 01 · Rothaermel (2024), ch. 3

What in the environment actually matters?

The external environment is everything outside the firm that can affect its ability to gain and keep an advantage. Rothaermel arranges it in layers, from the general environment inwards to the industry, the strategic group of close rivals and finally the firm. Leaders have little direct say over the outer layer, such as interest or exchange rates, and some say over the inner ones, such as the structure of their industry (Rothaermel, 2024, p. 83).

The general environment is scanned with PESTEL: political, economic, sociocultural, technological, ecological and legal factors. Each can be an opportunity or a threat. The model has one weakness worth remembering: it is a snapshot, so it cannot tell you which factor is moving fastest (Rothaermel, 2024, p. 90).

Porter supplies the rule that links the two layers. Government, he argues, is not a sixth force, because its involvement is neither good nor bad for profitability in itself; the way to understand a policy is to trace how it changes the five forces (Porter, 2008, p. 86). Apply that to every PESTEL item: a trend matters to strategy only once you can say which force it moves, in which direction, and roughly how much.

Porter’s 1983 note adds the second half of the rule. Forces outside an industry matter mainly in a relative sense: they usually hit every firm in it, so the strategic question is which firms are better able to deal with them (Porter, 1983, p. 1). A trend that hurts everyone equally changes little between rivals; one that hurts incumbents more than an entrant changes a great deal.

1 · NAME ITThe trend, with a number and a date.
2 · FOR WHOM?Opportunity or threat — and for incumbents or entrants?
3 · WHICH FORCE?Which force it moves, which way, and how much.
4 · SO WHAT?The response: adapt, position, or reshape.

General environment · PESTEL

Political · Economic · Sociocultural · Technological · Ecological · Legal

Firm’s influence: little. Scan and adapt.

Industry · five forces

Sets the profit potential of the average firm. Influence: partial. Position, defend, reshape.

Strategic group

Close rivals following similar strategies.

The firm

Session 5 goes inside it.

Redrawn after Rothaermel (2024), Exhibit 3.1, p. 84. Influence labels follow the course’s PESTEL vs. five forces comparison.

P · Political

Pressure from government bodies, NGOs and social movements, usually before any law changes. Firms answer with nonmarket strategy: lobbying, public relations, contributions and litigation (Rothaermel, 2024, pp. 83–84).

US autos: politicians at every level were keen to protect nearly 3 million auto jobs, and the dealer lobby fought Tesla’s direct sales (Sull & Reavis, 2019, pp. 3, 14).

E · Economic

Macroeconomic conditions: growth, employment, interest rates, price stability and exchange rates (Rothaermel, 2024, pp. 84–86).

US autos: sales rebounded by 2013 on higher incomes and easier credit, then stalled; they were forecast to stay flat until 2021 (Sull & Reavis, 2019, p. 2). When rates rose sharply in 2022, Tesla’s valuation fell more than 60% (Serafeim & Migdal, 2024, p. 15).

S · Sociocultural

A society’s culture, norms and values, including demographic trends (Rothaermel, 2024, pp. 86–87).

US autos: 92% of 20–24-year-olds held a driving licence in 1983; by 2014 it was 77% (Sull & Reavis, 2019, p. 5).

T · Technological

The application of knowledge to create new processes and products (Rothaermel, 2024, p. 87).

US autos: battery prices fell 80% between 2010 and 2017, and an electric car has about a third as many components as a combustion car (Sull & Reavis, 2019, pp. 4, 7).

E · Ecological

The natural environment, climate change and sustainable growth, including the externalities firms impose without paying for them (Rothaermel, 2024, p. 89).

US autos: passenger road vehicles emitted 3.64 gigatons of CO₂ in 2020, the largest source in transport (Serafeim & Migdal, 2024, Exhibit 1).

L · Legal

The official outcomes of political processes: laws, mandates, regulations and court decisions (Rothaermel, 2024, p. 89).

US autos: in 1990 California required 2% of cars in the state to be zero-emission by 1998, rising to 10% by 2003 (Serafeim & Migdal, 2024, p. 4).

Activity · PESTEL sorter

Ten Tesla-era trends: name the factor, then the force

For each trend, pick the PESTEL factor it belongs to, then the competitive force it mainly moves for the US auto industry. Some trends sit in two categories; the feedback says which answers are defensible and why. Every trend is from the two cases.

The readings

One question each

Two readings are required. Porter (2008): its first half answers what sets an industry’s profitability, its second half what to do about it. Porter (1983), the note behind the article, goes deeper into where each force comes from and how structure changes. Magretta (2012) restates the framework in plainer language and draws the cleanest picture of how each force reaches profit. Rothaermel (2024), the course textbook, supplies PESTEL for question 1 and the case for a sixth force. Each tab rebuilds that author’s central idea so you can work it rather than read it.

Required

The five forces, as a working map

Porter’s central diagram puts rivalry in the middle and four other claimants on an industry’s profit around it: customers, suppliers, potential entrants and substitutes (Porter, 2008, pp. 79–80). Select a force to see what it does to the accounts, what makes it strong, and the questions the earlier Tesla deck asked of it. The dashed box is the “sixth force” that deck added; Porter’s answer to it is question 3.

Redrawn after Porter (2008), “The Five Forces That Shape Industry Competition”, p. 80. The old deck drew suppliers and buyers either side of rivalry; its later version put them above and below, the “vertical” forces, with entrants, substitutes and rivals as the “horizontal” ones.

Reading lens · who can claim the industry’s value?

A force rating needs a mechanism and evidence: how the force presses on prices, costs or the investment needed to compete. Counting competitors or naming famous brands is only a beginning. Reading task: turn one paragraph of the article into a conditional statement, “When ___ changes, ___ gains bargaining leverage, which affects ___”, and test it against a dated exhibit in the case.

Required

Where the pressure comes from: the note behind the article

Porter’s 1983 note, first written in 1975 and the opening chapter of Competitive Strategy, is the longer engine room of the 2008 article. Its job is to find the structural features beneath each force, because the collective strength of the forces may be painfully obvious to every competitor; the strategist has to dig below it (Porter, 1983, p. 1).

A floor under returns. Competition pushes return on invested capital towards the floor a perfectly competitive industry would earn; investors will not accept less for long, since they could buy government securities instead. Returns above the floor pull capital in, through entry or expansion. The five forces decide how far that inflow drives returns down (p. 2).
The strongest force governs. In ocean tankers it is probably the buyers, the oil majors; in tyres, powerful car-maker buyers plus tough rivals; in steel, foreign competitors and substitute materials (p. 3).
Scale is not experience. Scale economies depend on volume per period, experience on cumulative volume. Experience is a barrier only if it stays proprietary, and a new product or process technology can start a fresh experience curve on which entrants leapfrog leaders that are poorly placed to jump. Commitment to scale in an existing technology can cloud a leader’s view of new ones (pp. 6, 8–9).
Barriers move, and firms move them. In cars, scale economies rose enormously with post-war automation and vertical integration, virtually stopping successful new entry (p. 7). A price below the entry-deterring price, the level that just balances an entrant’s expected rewards against the cost of barriers and retaliation, keeps entrants out (p. 7).

Reading lens · what structural feature causes the pressure?

Build an evidence ledger: scale requirements, differentiation, switching costs, access to distribution, capital requirements and exit barriers. Separate a structural constraint from one company’s weak execution. Reading task: choose one entry barrier and say what an entrant must spend or change, why incumbents are advantaged, and what could erode the barrier.

Porter’s Figure B, redrawn · entry and exit barriers together

Exit lowExit high Entry low Entry high

Select a cell to read Porter’s reasoning (1983, pp. 12–13).

Where does US car-making sit in 2018, and does its profitability fit the cell?

Supplementary

Profit = price − cost: where each force bites

“The real point of competition is not to beat your rivals. It’s to earn profits.”Magretta (2012), p. 2

Magretta’s chapter makes Porter’s argument with one equation. Every force works on price, on cost, or on both, and nothing else reaches profit. Strengthen a force below and watch which side of the equation it squeezes. Her three findings: the same forces sit under the skin of every industry; structure, not growth, technology or regulation, decides profitability; and structure is sticky, changing slowly once an industry is past its emerging phase (Magretta, 2012, pp. 2–4).

Why only five? Because they cover every relationship in commerce: buyers and sellers, sellers and suppliers, rival sellers, supply and demand (p. 18).
Why not SWOT? With no economics underneath it, SWOT yields lists that depend on who is in the room; industry structure is systematic and built on facts (p. 5).
One structure, two industries. CEMEX earns more in Mexico, where 85% of cement revenue comes from small buyers, than in the US, where big contractors bargain prices down. Same product, different buyer power, so two industries (p. 8).
A shelter in a storm. From 1993 to 2007 the heavy-truck industry averaged a 10.5% return on invested capital; Paccar, serving owner-operators, earned 31.6% (p. 25).

Strengthen a force

Directions follow Magretta’s table (2012, p. 7) and Figure 2-2 (p. 20): every force can raise cost; all but supplier power also push price down. Bar lengths are stylised, not data.

Structure is dynamic

Analysis is a snapshot plus a trend. Walmart was barely visible in 1970; it became the most powerful buyer in industry after industry, and its suppliers watched it happen slowly enough to act. Change that is truly strategic shows up in the five forces (Magretta, 2012, pp. 26–27).

Supplementary · textbook

How much does the industry explain?

Rothaermel defines an industry as a group of incumbent firms with more or less the same set of suppliers and buyers, and credits Porter with combining industrial-organisation economics with detailed case studies (Rothaermel, 2024, p. 91). Before you read his answer to the obvious next question, commit to your own.

Of the differences in firms’ performance, what share do you think comes from the industry they compete in?

50% from the industry

Rothaermel’s sixth force · pp. 109–110

A complement adds value to a product when the two are used together, so it raises demand and the profit potential of the industry. A complementor is a firm whose offering makes customers value yours more. Rivals can be complementors at the same time: Google’s Android makes Samsung’s phones more valuable while Google sells phones of its own. Rothaermel calls this cooperation between competitors co-opetition; Session 4 takes it further with Brandenburger and Nalebuff’s value net.

Two cautions from the same chapter

PESTEL is static. It lists factors but cannot say which is moving fastest (p. 90). Pair it with the trend question in Porter’s step 5.
The firm matters more than the industry. The research behind the slider is why Session 5 goes inside the firm. The five forces set the baseline a strategy must beat; they do not decide who beats it.

Page numbers for Porter (2008) follow the January 2008 issue of Harvard Business Review (pp. 78–93); the course-pack reprint numbers its pages from 1. Porter (1983) is cited by the note’s own page numbers, 1–19.

Question 02 · Porter (2008) and Porter (1983)

What sets an industry’s profitability?

Managers tend to define competition as the fight with today’s direct rivals. Porter’s point is that the fight for profit is wider: customers, suppliers, potential entrants and substitutes all compete for the value an industry creates. That extended rivalry is the industry’s structure (Porter, 2008, p. 79). Where the forces are intense, as in airlines, textiles and hotels, almost no company earns attractive returns; where they are benign, as in software, soft drinks and toiletries, many do (p. 80).

“Industry structure drives competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated.”Porter (2008), p. 80

Weather and the business cycle move profits in the short run; structure sets them over the medium and long run. And the strongest force decides, which is not always the obvious one. Film makers Kodak and Fuji fought each other, but their low returns came from a substitute, digital photography. In commercial aircraft the strong forces are the Airbus–Boeing rivalry and the airlines that place huge orders; in cinemas they are substitute entertainment and the studios that supply the films (Porter, 2008, p. 80).

The professor’s framing for a 1979 framework, updated in 2008: it does not tell you what to think about an industry; it tells you how to think about one. Treat it as an X-ray of structure, not a crystal ball.

Average return on invested capital, US industries, 1992–2006

14.9%

Industry averages ranged from zero or below to more than 50% (Porter, 2008, pp. 82–83).

Soft drinks and prepackaged software against airlines

≈ 6×

as profitable over the same period (Porter, 2008, p. 82). ROIC, not return on sales, is the right yardstick, because it counts the capital an industry needs (p. 83).

What the five forces decide

How the value an industry creates is divided: kept by its firms, or bargained away to customers and suppliers, capped by substitutes, or conceded to deter entrants (Porter, 2008, p. 86).

Industry profitability · annual snapshots through 2026

Why aren’t all industries equally profitable?

Before looking, predict which industry earns the highest return on the capital it needs, and which earns the lowest. Then ask: does the return exceed the cost of financing that capital? Use the full spectrum to propose a five-forces explanation, and test that explanation against case evidence.

Historical coverage: 2015–2026, not a 1975–2026 average.

No comparable public series reaches back to 1975. NYU’s US archive lists EVA and WACC from 1999; the retrieved ROIC files first provide the same explicit lease- and R&D-adjusted after-tax column in 2015. The average below therefore uses 12 paired January snapshots, 2015–2026. Missing earlier years are not filled with estimates or zeroes.

1975–2014: outside this comparable series. 2015–2026: verified paired observations. These are dataset vintages; January 2026 is not completed FY2026.

ROIC: return on invested capital

After-tax operating profit relative to the book capital invested in the business. These industry ratios adjust for leases and capitalised R&D, using aggregate sector profit and capital. A high percentage can reflect a small accounting capital base as well as strong profit.

WACC: weighted average cost of capital

The estimated market-weighted cost of equity and after-tax debt. It is a required return estimate, not an accounting expense or a universal fixed hurdle. ROIC − WACC is the return spread, measured in percentage points.

Both available-period and current-vintage views are shown below. Each is ordered from highest to lowest ROIC.

ROIC at or above WACCPositive ROIC below WACCNegative ROICWACC marker

2015–2026 average: all 83 comparable nonfinancial industries

Arithmetic mean of each industry’s 12 published annual ROIC ratios and the same 12 WACC observations. No industry in this verified common set has a negative mean ROIC; seven have a mean ROIC below mean WACC. Change the period to see the negative returns in the 2026 snapshot.

Highest ROIC · 12 January snapshots

Tobacco 69.53%

WACC 8.21% · spread +61.32 percentage points

Lowest ROIC · 12 January snapshots

Real Estate (Development) 2.41%

WACC 5.92% · spread −3.51 percentage points

Go to the highest ROIC · Go to the lowest ROIC. Scroll through all 83 industries.

Industry

-10%0204070%

ROIC / WACC (%)

TobaccoROIC 69.53%WACC 8.21%
AdvertisingROIC 50.88%WACC 7.30%
Healthcare Support ServicesROIC 39.62%WACC 6.86%
Retail (Building Supply)ROIC 33.49%WACC 9.05%
Computers/PeripheralsROIC 33.26%WACC 8.67%
Household ProductsROIC 32.00%WACC 7.00%
Information ServicesROIC 31.64%WACC 7.41%
Beverage (Soft)ROIC 27.13%WACC 7.00%
Computer ServicesROIC 26.71%WACC 7.29%
ShoeROIC 25.67%WACC 7.51%
Aerospace/DefenseROIC 25.44%WACC 7.63%
MachineryROIC 24.74%WACC 7.73%
Semiconductor EquipROIC 24.60%WACC 8.82%
Business & Consumer ServicesROIC 24.30%WACC 7.22%
Environmental & Waste ServicesROIC 23.94%WACC 7.00%
Building MaterialsROIC 22.36%WACC 7.53%
Software (Entertainment)ROIC 21.92%WACC 8.38%
Software (System & Application)ROIC 21.44%WACC 8.41%
Electrical EquipmentROIC 21.19%WACC 8.29%
Telecom. EquipmentROIC 20.14%WACC 7.56%
Metals & MiningROIC 19.78%WACC 7.71%
EntertainmentROIC 19.39%WACC 7.57%
Food ProcessingROIC 19.27%WACC 5.75%
BroadcastingROIC 17.80%WACC 5.62%
TransportationROIC 17.78%WACC 6.85%
SemiconductorROIC 17.76%WACC 8.97%
Paper/Forest ProductsROIC 17.58%WACC 7.32%
Drugs (Pharmaceutical)ROIC 17.24%WACC 7.94%
Food WholesalersROIC 17.19%WACC 7.11%
Office Equipment & ServicesROIC 17.12%WACC 7.50%
Engineering/ConstructionROIC 17.04%WACC 7.48%
Beverage (Alcoholic)ROIC 16.81%WACC 6.80%
Restaurant/DiningROIC 16.71%WACC 6.84%
Hospitals/Healthcare FacilitiesROIC 16.17%WACC 5.61%
Heathcare Information and TechnologyROIC 15.99%WACC 7.74%
Healthcare ProductsROIC 15.88%WACC 7.35%
ApparelROIC 15.71%WACC 6.81%
SteelROIC 15.70%WACC 7.72%
Packaging & ContainerROIC 15.63%WACC 6.02%
Chemical (Specialty)ROIC 15.59%WACC 7.27%
Retail (Distributors)ROIC 15.44%WACC 6.98%
Transportation (Railroads)ROIC 15.31%WACC 7.71%
HomebuildingROIC 15.03%WACC 7.35%
Furn/Home FurnishingsROIC 15.02%WACC 6.56%
Auto PartsROIC 14.88%WACC 7.58%
Telecom. ServicesROIC 14.82%WACC 5.51%
Chemical (Basic)ROIC 14.77%WACC 6.71%
Construction SuppliesROIC 14.18%WACC 7.71%
Electronics (General)ROIC 14.07%WACC 7.28%
Retail (General)ROIC 13.80%WACC 7.21%
Retail (Special Lines)ROIC 13.72%WACC 7.07%
Cable TVROIC 13.34%WACC 5.99%
Oilfield Svcs/Equip.ROIC 13.05%WACC 7.78%
DiversifiedROIC 12.88%WACC 6.94%
RecreationROIC 12.76%WACC 6.72%
Retail (Automotive)ROIC 12.06%WACC 6.81%
Chemical (Diversified)ROIC 11.50%WACC 7.77%
EducationROIC 10.38%WACC 7.36%
Farming/AgricultureROIC 9.92%WACC 6.06%
Shipbuilding & MarineROIC 9.81%WACC 6.95%
Rubber& TiresROIC 9.71%WACC 5.12%
Oil/Gas DistributionROIC 9.69%WACC 5.82%
Precious MetalsROIC 9.30%WACC 7.74%
Oil/Gas (Production and Exploration)ROIC 9.15%WACC 7.42%
Drugs (Biotechnology)ROIC 8.93%WACC 8.45%
Retail (Grocery and Food)ROIC 8.77%WACC 4.95%
Software (Internet)ROIC 8.35%WACC 9.12%
Oil/Gas (Integrated)ROIC 7.98%WACC 7.30%
Coal & Related EnergyROIC 7.96%WACC 7.09%
Hotel/GamingROIC 7.92%WACC 6.91%
Utility (Water)ROIC 7.90%WACC 5.14%
TruckingROIC 7.88%WACC 7.13%
Real Estate (Operations & Services)ROIC 7.38%WACC 6.60%
Air TransportROIC 6.77%WACC 6.02%
PowerROIC 6.62%WACC 4.51%
Real Estate (General/Diversified)ROIC 6.61%WACC 6.91%
Utility (General)ROIC 6.42%WACC 4.08%
Telecom (Wireless)ROIC 5.78%WACC 5.61%
Electronics (Consumer & Office)ROIC 4.03%WACC 8.13%
Auto & TruckROIC 3.97%WACC 6.54%
Green & Renewable EnergyROIC 3.79%WACC 6.19%
R.E.I.T.ROIC 2.90%WACC 5.19%
Real Estate (Development)ROIC 2.41%WACC 5.92%

Read the 83-industry data table

2015–2026 average: all 83 comparable nonfinancial industries. Percentages; spread in percentage points. Every row has the same 12 annual observations.
Industry	Mean ROIC	Mean WACC	ROIC − WACC (pp)	Observations
Tobacco	69.53%	8.21%	+61.32	12
Advertising	50.88%	7.30%	+43.58	12
Healthcare Support Services	39.62%	6.86%	+32.76	12
Retail (Building Supply)	33.49%	9.05%	+24.44	12
Computers/Peripherals	33.26%	8.67%	+24.59	12
Household Products	32.00%	7.00%	+25.00	12
Information Services	31.64%	7.41%	+24.23	12
Beverage (Soft)	27.13%	7.00%	+20.13	12
Computer Services	26.71%	7.29%	+19.42	12
Shoe	25.67%	7.51%	+18.16	12
Aerospace/Defense	25.44%	7.63%	+17.81	12
Machinery	24.74%	7.73%	+17.01	12
Semiconductor Equip	24.60%	8.82%	+15.78	12
Business & Consumer Services	24.30%	7.22%	+17.08	12
Environmental & Waste Services	23.94%	7.00%	+16.94	12
Building Materials	22.36%	7.53%	+14.83	12
Software (Entertainment)	21.92%	8.38%	+13.54	12
Software (System & Application)	21.44%	8.41%	+13.03	12
Electrical Equipment	21.19%	8.29%	+12.90	12
Telecom. Equipment	20.14%	7.56%	+12.58	12
Metals & Mining	19.78%	7.71%	+12.07	12
Entertainment	19.39%	7.57%	+11.82	12
Food Processing	19.27%	5.75%	+13.52	12
Broadcasting	17.80%	5.62%	+12.18	12
Transportation	17.78%	6.85%	+10.93	12
Semiconductor	17.76%	8.97%	+8.79	12
Paper/Forest Products	17.58%	7.32%	+10.26	12
Drugs (Pharmaceutical)	17.24%	7.94%	+9.30	12
Food Wholesalers	17.19%	7.11%	+10.08	12
Office Equipment & Services	17.12%	7.50%	+9.62	12
Engineering/Construction	17.04%	7.48%	+9.56	12
Beverage (Alcoholic)	16.81%	6.80%	+10.01	12
Restaurant/Dining	16.71%	6.84%	+9.87	12
Hospitals/Healthcare Facilities	16.17%	5.61%	+10.56	12
Heathcare Information and Technology	15.99%	7.74%	+8.25	12
Healthcare Products	15.88%	7.35%	+8.53	12
Apparel	15.71%	6.81%	+8.90	12
Steel	15.70%	7.72%	+7.98	12
Packaging & Container	15.63%	6.02%	+9.61	12
Chemical (Specialty)	15.59%	7.27%	+8.32	12
Retail (Distributors)	15.44%	6.98%	+8.46	12
Transportation (Railroads)	15.31%	7.71%	+7.60	12
Homebuilding	15.03%	7.35%	+7.68	12
Furn/Home Furnishings	15.02%	6.56%	+8.46	12
Auto Parts	14.88%	7.58%	+7.30	12
Telecom. Services	14.82%	5.51%	+9.31	12
Chemical (Basic)	14.77%	6.71%	+8.06	12
Construction Supplies	14.18%	7.71%	+6.47	12
Electronics (General)	14.07%	7.28%	+6.79	12
Retail (General)	13.80%	7.21%	+6.59	12
Retail (Special Lines)	13.72%	7.07%	+6.65	12
Cable TV	13.34%	5.99%	+7.35	12
Oilfield Svcs/Equip.	13.05%	7.78%	+5.27	12
Diversified	12.88%	6.94%	+5.94	12
Recreation	12.76%	6.72%	+6.04	12
Retail (Automotive)	12.06%	6.81%	+5.25	12
Chemical (Diversified)	11.50%	7.77%	+3.73	12
Education	10.38%	7.36%	+3.02	12
Farming/Agriculture	9.92%	6.06%	+3.86	12
Shipbuilding & Marine	9.81%	6.95%	+2.86	12
Rubber& Tires	9.71%	5.12%	+4.59	12
Oil/Gas Distribution	9.69%	5.82%	+3.87	12
Precious Metals	9.30%	7.74%	+1.56	12
Oil/Gas (Production and Exploration)	9.15%	7.42%	+1.73	12
Drugs (Biotechnology)	8.93%	8.45%	+0.48	12
Retail (Grocery and Food)	8.77%	4.95%	+3.82	12
Software (Internet)	8.35%	9.12%	−0.77	12
Oil/Gas (Integrated)	7.98%	7.30%	+0.68	12
Coal & Related Energy	7.96%	7.09%	+0.87	12
Hotel/Gaming	7.92%	6.91%	+1.01	12
Utility (Water)	7.90%	5.14%	+2.76	12
Trucking	7.88%	7.13%	+0.75	12
Real Estate (Operations & Services)	7.38%	6.60%	+0.78	12
Air Transport	6.77%	6.02%	+0.75	12
Power	6.62%	4.51%	+2.11	12
Real Estate (General/Diversified)	6.61%	6.91%	−0.30	12
Utility (General)	6.42%	4.08%	+2.34	12
Telecom (Wireless)	5.78%	5.61%	+0.17	12
Electronics (Consumer & Office)	4.03%	8.13%	−4.10	12
Auto & Truck	3.97%	6.54%	−2.57	12
Green & Renewable Energy	3.79%	6.19%	−2.40	12
R.E.I.T.	2.90%	5.19%	−2.29	12
Real Estate (Development)	2.41%	5.92%	−3.51	12

January 2026: all 85 numeric nonfinancial industries

The complete current nonfinancial spectrum runs from Tobacco to Electronics (Consumer & Office). Coal and consumer/office electronics have negative ROIC. Accounting inputs primarily reflect the latest available trailing 12 months through Q3 2025. It is a single-year snapshot: not a long-run average, and not completed FY2026.

Highest ROIC · January 2026

Tobacco 63.08%

WACC 6.94% · spread +56.14 percentage points

Lowest ROIC · January 2026

Electronics (Consumer & Office) −8.35%

WACC 7.63% · spread −15.98 percentage points

Go to the highest ROIC · Go to the lowest ROIC. Scroll through all 85 industries.

Industry

-10%0204070%

ROIC / WACC (%)

TobaccoROIC 63.08%WACC 6.94%
Computers/PeripheralsROIC 44.76%WACC 9.71%
Retail (Building Supply)ROIC 34.95%WACC 9.51%
Household ProductsROIC 34.42%WACC 7.03%
Environmental & Waste ServicesROIC 31.75%WACC 7.43%
Healthcare Support ServicesROIC 31.19%WACC 6.83%
Software (System & Application)ROIC 29.32%WACC 9.34%
Beverage (Soft)ROIC 29.03%WACC 6.33%
Semiconductor EquipROIC 28.40%WACC 9.89%
Business & Consumer ServicesROIC 28.30%WACC 7.23%
AdvertisingROIC 27.72%WACC 7.81%
SemiconductorROIC 27.23%WACC 10.55%
Metals & MiningROIC 27.04%WACC 8.20%
Software (Entertainment)ROIC 27.02%WACC 8.44%
Computer ServicesROIC 26.35%WACC 7.83%
Telecom. EquipmentROIC 25.47%WACC 7.72%
Precious MetalsROIC 25.45%WACC 7.47%
Engineering/ConstructionROIC 25.32%WACC 8.69%
MachineryROIC 24.41%WACC 7.70%
Information ServicesROIC 22.17%WACC 7.00%
Hospitals/Healthcare FacilitiesROIC 22.16%WACC 6.19%
Retail (Special Lines)ROIC 21.54%WACC 8.01%
ShoeROIC 20.93%WACC 8.01%
Building MaterialsROIC 20.16%WACC 7.85%
Restaurant/DiningROIC 18.36%WACC 7.16%
Office Equipment & ServicesROIC 18.26%WACC 7.92%
Electronics (General)ROIC 17.91%WACC 7.85%
Food WholesalersROIC 17.84%WACC 6.53%
Publishing & NewspapersROIC 17.63%WACC 5.95%
Healthcare ProductsROIC 16.98%WACC 7.54%
Drugs (Pharmaceutical)ROIC 16.95%WACC 7.85%
Construction SuppliesROIC 16.71%WACC 8.29%
Retail (Distributors)ROIC 16.11%WACC 7.22%
Aerospace/DefenseROIC 16.01%WACC 7.60%
Food ProcessingROIC 15.95%WACC 5.79%
EducationROIC 15.94%WACC 6.75%
ApparelROIC 15.77%WACC 7.13%
Beverage (Alcoholic)ROIC 15.74%WACC 6.48%
Electrical EquipmentROIC 15.60%WACC 8.99%
HomebuildingROIC 14.91%WACC 7.27%
DiversifiedROIC 14.82%WACC 7.30%
Packaging & ContainerROIC 14.82%WACC 6.75%
Hotel/GamingROIC 14.58%WACC 7.36%
BroadcastingROIC 14.57%WACC 5.09%
Transportation (Railroads)ROIC 14.24%WACC 7.27%
Oil/Gas (Production and Exploration)ROIC 13.73%WACC 6.25%
Heathcare Information and TechnologyROIC 13.72%WACC 8.22%
Retail (General)ROIC 13.59%WACC 7.27%
TransportationROIC 13.00%WACC 6.72%
EntertainmentROIC 12.42%WACC 7.13%
Oil/Gas DistributionROIC 12.35%WACC 5.78%
Retail (Automotive)ROIC 12.19%WACC 6.78%
Cable TVROIC 12.06%WACC 5.20%
Telecom. ServicesROIC 12.04%WACC 5.39%
Shipbuilding & MarineROIC 11.99%WACC 6.69%
Oilfield Svcs/Equip.ROIC 11.94%WACC 7.04%
Chemical (Specialty)ROIC 10.95%WACC 7.25%
Furn/Home FurnishingsROIC 10.59%WACC 6.53%
Paper/Forest ProductsROIC 10.41%WACC 6.93%
Telecom (Wireless)ROIC 10.37%WACC 5.48%
TruckingROIC 9.30%WACC 7.52%
Auto PartsROIC 8.98%WACC 8.18%
Oil/Gas (Integrated)ROIC 8.45%WACC 5.07%
RecreationROIC 8.02%WACC 6.76%
Air TransportROIC 7.93%WACC 6.72%
Farming/AgricultureROIC 7.28%WACC 7.27%
Utility (Water)ROIC 7.25%WACC 4.93%
Real Estate (Development)ROIC 7.04%WACC 5.82%
PowerROIC 6.92%WACC 5.01%
Retail (Grocery and Food)ROIC 6.76%WACC 7.24%
SteelROIC 6.72%WACC 7.76%
Utility (General)ROIC 5.99%WACC 4.36%
Real Estate (Operations & Services)ROIC 5.94%WACC 7.41%
Real Estate (General/Diversified)ROIC 5.19%WACC 6.25%
Retail (REITs)ROIC 5.16%WACC 5.57%
Chemical (Diversified)ROIC 4.05%WACC 5.23%
Chemical (Basic)ROIC 3.72%WACC 6.22%
Green & Renewable EnergyROIC 3.64%WACC 6.04%
Drugs (Biotechnology)ROIC 3.53%WACC 8.49%
Software (Internet)ROIC 3.43%WACC 10.66%
R.E.I.T.ROIC 3.20%WACC 5.32%
Rubber& TiresROIC 3.17%WACC 4.48%
Auto & TruckROIC 2.25%WACC 9.38%
Coal & Related EnergyROIC −4.76%WACC 8.41%
Electronics (Consumer & Office)ROIC −8.35%WACC 7.63%

Read the 85-industry data table

January 2026: all 85 numeric nonfinancial industries. Percentages; spread in percentage points. Firm counts are the publisher’s January 2026 sector counts.
Industry	ROIC	WACC	ROIC − WACC (pp)	Firms
Tobacco	63.08%	6.94%	+56.14	10
Computers/Peripherals	44.76%	9.71%	+35.05	36
Retail (Building Supply)	34.95%	9.51%	+25.44	14
Household Products	34.42%	7.03%	+27.39	110
Environmental & Waste Services	31.75%	7.43%	+24.32	53
Healthcare Support Services	31.19%	6.83%	+24.36	104
Software (System & Application)	29.32%	9.34%	+19.98	309
Beverage (Soft)	29.03%	6.33%	+22.70	27
Semiconductor Equip	28.40%	9.89%	+18.51	31
Business & Consumer Services	28.30%	7.23%	+21.07	155
Advertising	27.72%	7.81%	+19.91	52
Semiconductor	27.23%	10.55%	+16.68	66
Metals & Mining	27.04%	8.20%	+18.84	73
Software (Entertainment)	27.02%	8.44%	+18.58	77
Computer Services	26.35%	7.83%	+18.52	64
Telecom. Equipment	25.47%	7.72%	+17.75	57
Precious Metals	25.45%	7.47%	+17.98	56
Engineering/Construction	25.32%	8.69%	+16.63	48
Machinery	24.41%	7.70%	+16.71	105
Information Services	22.17%	7.00%	+15.17	15
Hospitals/Healthcare Facilities	22.16%	6.19%	+15.97	31
Retail (Special Lines)	21.54%	8.01%	+13.53	94
Shoe	20.93%	8.01%	+12.92	11
Building Materials	20.16%	7.85%	+12.31	41
Restaurant/Dining	18.36%	7.16%	+11.20	64
Office Equipment & Services	18.26%	7.92%	+10.34	14
Electronics (General)	17.91%	7.85%	+10.06	114
Food Wholesalers	17.84%	6.53%	+11.31	13
Publishing & Newspapers	17.63%	5.95%	+11.68	19
Healthcare Products	16.98%	7.54%	+9.44	204
Drugs (Pharmaceutical)	16.95%	7.85%	+9.10	228
Construction Supplies	16.71%	8.29%	+8.42	40
Retail (Distributors)	16.11%	7.22%	+8.89	62
Aerospace/Defense	16.01%	7.60%	+8.41	79
Food Processing	15.95%	5.79%	+10.16	78
Education	15.94%	6.75%	+9.19	32
Apparel	15.77%	7.13%	+8.64	35
Beverage (Alcoholic)	15.74%	6.48%	+9.26	14
Electrical Equipment	15.60%	8.99%	+6.61	112
Homebuilding	14.91%	7.27%	+7.64	30
Diversified	14.82%	7.30%	+7.52	20
Packaging & Container	14.82%	6.75%	+8.07	19
Hotel/Gaming	14.58%	7.36%	+7.22	63
Broadcasting	14.57%	5.09%	+9.48	24
Transportation (Railroads)	14.24%	7.27%	+6.97	4
Oil/Gas (Production and Exploration)	13.73%	6.25%	+7.48	142
Heathcare Information and Technology	13.72%	8.22%	+5.50	115
Retail (General)	13.59%	7.27%	+6.32	23
Transportation	13.00%	6.72%	+6.28	19
Entertainment	12.42%	7.13%	+5.29	92
Oil/Gas Distribution	12.35%	5.78%	+6.57	23
Retail (Automotive)	12.19%	6.78%	+5.41	34
Cable TV	12.06%	5.20%	+6.86	9
Telecom. Services	12.04%	5.39%	+6.65	39
Shipbuilding & Marine	11.99%	6.69%	+5.30	8
Oilfield Svcs/Equip.	11.94%	7.04%	+4.90	97
Chemical (Specialty)	10.95%	7.25%	+3.70	59
Furn/Home Furnishings	10.59%	6.53%	+4.06	27
Paper/Forest Products	10.41%	6.93%	+3.48	6
Telecom (Wireless)	10.37%	5.48%	+4.89	12
Trucking	9.30%	7.52%	+1.78	26
Auto Parts	8.98%	8.18%	+0.80	35
Oil/Gas (Integrated)	8.45%	5.07%	+3.38	4
Recreation	8.02%	6.76%	+1.26	49
Air Transport	7.93%	6.72%	+1.21	23
Farming/Agriculture	7.28%	7.27%	+0.01	35
Utility (Water)	7.25%	4.93%	+2.32	14
Real Estate (Development)	7.04%	5.82%	+1.22	14
Power	6.92%	5.01%	+1.91	46
Retail (Grocery and Food)	6.76%	7.24%	−0.48	15
Steel	6.72%	7.76%	−1.04	19
Utility (General)	5.99%	4.36%	+1.63	14
Real Estate (Operations & Services)	5.94%	7.41%	−1.47	54
Real Estate (General/Diversified)	5.19%	6.25%	−1.06	12
Retail (REITs)	5.16%	5.57%	−0.41	26
Chemical (Diversified)	4.05%	5.23%	−1.18	4
Chemical (Basic)	3.72%	6.22%	−2.50	29
Green & Renewable Energy	3.64%	6.04%	−2.40	15
Drugs (Biotechnology)	3.53%	8.49%	−4.96	496
Software (Internet)	3.43%	10.66%	−7.23	29
R.E.I.T.	3.20%	5.32%	−2.12	190
Rubber& Tires	3.17%	4.48%	−1.31	3
Auto & Truck	2.25%	9.38%	−7.13	33
Coal & Related Energy	−4.76%	8.41%	−13.17	16
Electronics (Consumer & Office)	−8.35%	7.63%	−15.98	8

Download both industry views (CSV)Download the 996 paired annual observations (CSV)Download data, definitions and source manifest (JSON)

Which company leads its named comparison set?

16 popular industries, with industry ROIC and WACC alongside the same company’s ROIC and WACC. “Highest” means the highest valid ROIC among the named candidates in that row. This small, recognisable-company screen does not identify an industry-wide or global leader.

Industry columns use NYU’s January 2026 adjusted method. Company columns use GuruFocus’s separately calculated TTM ROIC and current WACC, with their own dates. Differences include the tax, lease, R&D and capital definitions. Do not subtract a company ROIC from the NYU industry WACC. Read the comparison method.

Read the company WACCs with care. GuruFocus estimates each company’s cost of equity from that company’s own regression beta, and a few of those betas make poor hurdle rates. EOG Resources and ConocoPhillips have negative betas and McDonald’s a near-zero one, so their WACCs (2–5%) sit below the provider’s own risk-free rate and overstate the spread. AMD’s very high beta pushes its WACC above 25%. Sonos’s positive TTM return follows a negative fiscal-2025 ROIC, so one strong period moves it a lot. Some pairs are near ties measured over different 12-month windows (Delta to September 2026, United to June 2026), so a later update can change which company is “highest”.

On a narrow screen: scroll the table horizontally to see the company’s own WACC, accounting period and sources. Keyboard users can focus the table region and use the arrow keys.

Industry snapshot: January 2026. Company data: dated 2026 provider observations, accessed 19 October 2026. Both company metrics in each row belong to the selected company.
Industry / comparison set	Industry ROIC	Industry WACC	Highest ROIC in this set	Company TTM ROIC	Same company WACC	Company accounting period	Reference / as-of date
TobaccoCompared: MO, PM	63.08%	6.94%	Altria Group, Inc. (MO) Comparison set Altria Group, Inc. (MO): ROIC 34.59%, WACC 5.97%; Philip Morris International Inc. (PM): ROIC 20.47%, WACC 5.38%	34.59%	5.97%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Telecom. EquipmentCompared: CSCO, MSI	25.47%	7.72%	Motorola Solutions, Inc. (MSI) Comparison set Cisco Systems, Inc. (CSCO): ROIC 10.74%, WACC 10.11%; Motorola Solutions, Inc. (MSI): ROIC 14.99%, WACC 8.03%	14.99%	8.03%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Software (System & Application)Compared: MSFT, ORCL	29.32%	9.34%	Microsoft Corporation (MSFT) Comparison set Microsoft Corporation (MSFT): ROIC 21.24%, WACC 11.83%; Oracle Corporation (ORCL): ROIC 9.42%, WACC 14.66%	21.24%	11.83%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
SemiconductorCompared: NVDA, AMD	27.23%	10.55%	NVIDIA Corporation (NVDA) Comparison set NVIDIA Corporation (NVDA): ROIC 135.00%, WACC 17.32%; Advanced Micro Devices, Inc. (AMD): ROIC 9.06%, WACC 25.04%	135.00%	17.32%	TTM to Jul. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Drugs (Pharmaceutical)Compared: LLY, PFE	16.95%	7.85%	Eli Lilly and Company (LLY) Comparison set Eli Lilly and Company (LLY): ROIC 30.81%, WACC 8.26%; Pfizer Inc. (PFE): ROIC 9.34%, WACC 5.70%	30.81%	8.26%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Healthcare ProductsCompared: SYK, BSX	16.98%	7.54%	Stryker Corporation (SYK) Comparison set Stryker Corporation (SYK): ROIC 11.45%, WACC 8.19%; Boston Scientific Corporation (BSX): ROIC 11.12%, WACC 7.74%	11.45%	8.19%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Retail (General)Compared: WMT, COST	13.59%	7.27%	Costco Wholesale Corporation (COST) Comparison set Walmart Inc. (WMT): ROIC 11.28%, WACC 7.21%; Costco Wholesale Corporation (COST): ROIC 15.44%, WACC 8.77%	15.44%	8.77%	TTM to Aug. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Restaurant/DiningCompared: MCD, CMG	18.36%	7.16%	McDonald's Corporation (MCD) Comparison set McDonald's Corporation (MCD): ROIC 17.09%, WACC 4.73%; Chipotle Mexican Grill, Inc. (CMG): ROIC 16.77%, WACC 8.55%	17.09%	4.73%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Hotel/GamingCompared: MAR, HLT	14.58%	7.36%	Hilton Worldwide Holdings Inc. (HLT) Comparison set Marriott International, Inc. (MAR): ROIC 9.80%, WACC 10.33%; Hilton Worldwide Holdings Inc. (HLT): ROIC 11.47%, WACC 9.63%	11.47%	9.63%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Transportation (Railroads)Compared: UNP, CSX	14.24%	7.27%	Union Pacific Corporation (UNP) Comparison set Union Pacific Corporation (UNP): ROIC 11.39%, WACC 9.12%; CSX Corporation (CSX): ROIC 9.13%, WACC 9.76%	11.39%	9.12%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Oil/Gas (Production and Exploration)Compared: EOG, COP	13.73%	6.25%	EOG Resources, Inc. (EOG) Comparison set EOG Resources, Inc. (EOG): ROIC 16.46%, WACC 3.32%; ConocoPhillips (COP): ROIC 8.14%, WACC 2.15%	16.46%	3.32%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Air TransportCompared: DAL, UAL	7.93%	6.72%	Delta Air Lines, Inc. (DAL) Comparison set Delta Air Lines, Inc. (DAL): ROIC 4.19%, WACC 11.05%; United Airlines Holdings, Inc. (UAL): ROIC 4.04%, WACC 8.44%	4.19%	11.05%	TTM to Sep. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Auto & TruckCompared: TSLA, GM	2.25%	9.38%	Tesla, Inc. (TSLA) Comparison set Tesla, Inc. (TSLA): ROIC 4.10%, WACC 16.56%; General Motors Company (GM): ROIC 0.85%, WACC 4.19%	4.10%	16.56%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Coal & Related EnergyCompared: BTU, CNR	−4.76%	8.41%	Core Natural Resources, Inc. (CNR) Comparison set Peabody Energy Corporation (BTU): ROIC −2.67%, WACC 7.37%; Core Natural Resources, Inc. (CNR): ROIC −1.05%, WACC 5.63%	−1.05%	5.63%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Electronics (Consumer & Office)Compared: SONO, GPRO	−8.35%	7.63%	Sonos, Inc. (SONO) Comparison set Sonos, Inc. (SONO): ROIC 18.41%, WACC 17.76%; GoPro, Inc. (GPRO): ROIC −28.55%, WACC 25.93%	18.41%	17.76%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18
Computers/PeripheralsCompared: AAPL, HPQ	44.76%	9.71%	Apple Inc. (AAPL) Comparison set Apple Inc. (AAPL): ROIC 42.12%, WACC 10.40%; HP Inc. (HPQ): ROIC 13.24%, WACC 10.16%	42.12%	10.40%	TTM to Jun. 2026	ROIC and WACC sourceProvider as-of 2026-10-18

Explain the pattern before explaining a company

US industry comparison. In the January 2026 data, system/application software earns 29.32% against 9.34% WACC; autos/trucks earns 2.25% against 9.38%. Hypothesise how switching costs, substitutes, buyer power and the capital needed to compete might explain the difference. The chart alone cannot establish those causes.

Hypothetical Indian example. Nila Foods’ new delivery kitchen requires ₹1 crore of invested capital. After-tax operating profit of ₹8 lakh gives an 8% ROIC. At an assumed 11% WACC, its spread is −3 percentage points and its annual economic-profit shortfall is ₹3 lakh. It has positive operating profit while failing to cover the assumed capital charge. These are teaching assumptions, not measured Indian industry figures.

Discuss: would moving Nila Foods into software guarantee a better return?

No. An industry average is not a promise to an entrant. Nila would still need capabilities, a position, customers and an activity system that competitors cannot easily copy. Entry costs and failed firms matter. Use Porter to explain industry structure, then test the firm’s own advantage.

Discuss: can a profitable company operate in a negative-return industry?

Yes. A sector ratio aggregates different firms. An exceptional firm can outperform its peers, and a sector can change over the cycle. The average, a leading company and a causal explanation answer different questions. A negative annual snapshot also does not imply that the industry’s 12-year mean is negative.

Sources, averaging method and limits

Reviewed 19 October 2026. Geography: US classifications. All numeric nonfinancial industries with paired observations are included: 85 in January 2026; 83 with the same exact labels in all 12 vintages. Financial services and market totals are excluded. REIT and real-estate rows with published numeric returns remain included. Publishing & Newspapers and Retail (REITs) lack all 12 identical-name observations and appear only in the snapshot view.

The annual ROIC is a ratio of aggregate sector adjusted operating profit after effective taxes to aggregate book invested capital. WACC combines market-weighted equity and after-tax debt costs; the 2026 workbook uses a 25% marginal tax rate for debt tax shields. Earlier vintages used marginal rates between 24% and 40%, and their risk-free rates and equity risk premiums also differ, so each mean WACC blends twelve years of assumptions. The mean gives each annual snapshot equal weight: sum the 12 ROICs and divide by 12, and do the same for WACC. It is not a pooled earnings/capital ratio, a geometric investment return or a fixed-company panel. Firm membership, providers and industry definitions can change. No renamed labels were joined speculatively.

The original Porter 1992–2006 exhibit below uses a different historical period and return definition. Keep it separate from these adjusted after-tax figures. A single snapshot cannot prove a persistent structural advantage, while a multi-year average can hide severe individual loss years. Values are displayed to two decimal places. Each displayed spread is the displayed ROIC minus the displayed WACC; sorting, colour categories and the downloadable files use unrounded data.

Aswath Damodaran, NYU Stern: US industry return-on-capital table, US industry cost-of-capital table and EVA cross-check. The return column is “Lease & R&D adjusted after-tax ROIC”; the funding-cost column is “Cost of Capital”.
Annual archive: 2015–2025 snapshots use workbooks ending 14–24; January 2026 uses the current files. The archive page lists the WACC and EVA workbooks; the matching ROC workbooks (roc14–roc24) are direct links on the same server, recorded in the downloadable JSON. Workbook internal dates, rather than filename suffixes, identify the vintages. The downloadable JSON lists all 24 source URLs, SHA-256 hashes and annual source-cell locators.
Current dataset timing and data history, timing and definitions: annual updates, prior-year accounting lag, changing providers and source limits. The ROC HTML footer retains an old 2025 date, while its analysis header and workbook identify January 2026. Water utilities use the dedicated ROC workbook because the EVA workbook has a mismatching return in that row.
Company comparisons: GuruFocus ROIC calculation and WACC explanation, with the dated individual-company source beside each row. NYU’s company classifications establish US industry membership. NYU does not share the underlying company financial dataset, so a complete, audited highest-ROIC company ranking cannot be reconstructed from its public sector averages. Eligibility requires positive average invested capital in the public prior-annual and latest-quarter calculations. The provider’s TTM denominator was not independently reconstructed. A maximum over two named companies is only a sample maximum.

Activity · the profitability puzzle

Above or below the average? Six industries, before you see the answer

An industry that has connected the world and an industry that writes code: which one earns its investors more? Place each industry above or below the US average return on invested capital for 1992–2006, then reveal Porter’s figures. Name the force you think explains each answer before you look.

How each force reaches the income statement

Porter ties every force to a line in the accounts and asks the same question of each: how much? (Porter, 2008, p. 87). Three of the forces compete with you sideways, for the same customers’ money: rivals, entrants and substitutes. Two squeeze you along the chain: suppliers above, buyers below.

RIVALRY

Lowers prices, or raises the cost of marketing, R&D and service.

SUPPLIERS

Raise input costs.

BUYERS

Lower prices, or raise the cost of meeting their demands: inventory, financing, service.

ENTRY & SUBSTITUTES

Cap the price an industry can sustain.

What makes each force strong

The determinants below are Porter’s, in paraphrase (Porter, 2008, pp. 80–86). These, not the five labels, are what you analyse. A force is a summary of its determinants.

Threat of entry

Entrants add capacity and fight for share. The threat alone caps profits: incumbents hold prices down or invest to deter, as Starbucks must keep modernising stores and menus in a business with low barriers. Seven barriers keep the threat low:

supply-side economies of scale (Intel in microprocessors);
demand-side benefits of scale, or network effects (eBay);
customer switching costs (an installed SAP system);
capital requirements, especially unrecoverable ones such as R&D and advertising, though efficient capital markets will fund entry into an attractive industry;
incumbency advantages independent of size: technology, raw materials, locations, brands, experience;
unequal access to distribution channels;
restrictive government policy (which can also ease entry, through subsidies).

Plus expected retaliation: entrants hold back when incumbents have hit back before, have cash and capacity to fight, have high fixed costs, or face slow growth. Barriers decide whether an entrant can get in; expected retaliation decides whether it wants to.

Power of suppliers

Powerful suppliers, including suppliers of labour, take value by charging more, limiting quality or shifting costs. Microsoft did it to PC makers. A supplier group is powerful if it:

is more concentrated than the industry it sells to;
does not depend heavily on that industry for its revenue;
would cost the industry a lot to switch away from;
offers differentiated products (patented drugs);
has no substitute (a trained pilot in the cockpit);
can credibly threaten to integrate forward into the industry.

Power of buyers

Two separate questions. Leverage: few or large buyers, standardised products, low switching costs, a credible threat to integrate backward. Price sensitivity: the purchase is a large share of the buyer’s costs or budget, the buyer earns low profits, and the product barely affects the buyer’s own quality or other costs. Film studios renting cameras care about reliability, not price.

Intermediate customers, such as distribution channels, gain extra power when they influence what end customers buy. Producers fight back with exclusive deals or by selling direct.

Threat of substitutes

A substitute does the same job by a different means: videoconferencing for travel, e-mail for express mail. Doing without, buying used and doing it yourself all count. The threat can also be downstream: lawn-care firms lose when apartments replace suburban houses. Substitutes are easy to overlook because they look nothing like the product. The threat is high when the substitute:

offers an attractive price-performance trade-off;
costs the buyer little to switch to (branded to generic drugs).

Watch other industries: a change there can turn something into a substitute that was not one before, as better plastics did for steel car parts.

Rivalry among existing competitors

Damage depends on intensity and on the basis of competition. Intensity is greatest when rivals are numerous or equal in size, growth is slow, exit barriers are high, rivals have goals beyond profit, and they misread each other’s signals.

Price wars are likeliest when products are near-identical with low switching costs, fixed costs are high and marginal costs low, capacity comes in big increments, or the product is perishable. Competing on different dimensions for different segments can be positive-sum; everyone chasing the same attributes is zero-sum.

Before you rate anything

Define the arena first

State product, customer, geography and period before you score a force. Porter’s 1983 working definition is the group of firms making close substitutes, and he adds that every definition is a choice of where to draw lines, between rivals and substitutes, incumbents and entrants, the industry and its suppliers and buyers, so it is a matter of degree (1983, pp. 2, 18–19). The 2008 test: if the forces differ markedly, they are separate industries. Car and truck motor oil look alike but are different industries (2008, p. 91), as is cement in Mexico and the US (Magretta, 2012, p. 8).

US passenger-car making is not global battery production or urban mobility: a new boundary can turn the same firm from supplier into rival or substitute. Defining the industry is also not the same as deciding where your firm competes (Porter, 1983, p. 19).

What the 1983 note adds to the determinants

The 2008 article is the short version. The note gives more causes, and more of the auto industry, for the same forces (Porter, 1983).

Rivalry · pp. 9–12

Fixed costs matter relative to value added; costly storage tempts price cuts as surely as fixed costs; diverse rivals, foreign or owner-run, misread each other; high strategic stakes make firms accept poor returns, as Bosch, Sony or Philips might to win the US. Exit barriers have five sources: specialised assets, fixed costs of exit, strategic interrelationships, emotion, and government.

Buyers and suppliers · pp. 14–16

GM and Ford used tapered integration, making some of a part in-house and buying the rest, as a bargaining lever that also taught them suppliers’ costs. Buyer selection is a strategy: the replacement market is usually less price-sensitive than original-equipment makers. Labour’s power rises with its organisation and falls when supply can expand.

Substitutes · p. 13

Watch most closely the substitutes whose price-performance is improving, and those made by highly profitable industries. A collective industry response can work where one firm’s cannot; security-guard firms facing electronic alarms were better off packaging guards with electronics than fighting them.

Government · p. 16

Government is also a buyer and a supplier, and shifts substitutes through subsidies and standards. Analyse it through the five forces rather than as a force of its own, but strategy may still treat government as an actor to be influenced, which is what Tesla’s fight with the dealer lobby was.

Examples in this grid: Starbucks, Intel, eBay, SAP (Porter, 2008, pp. 81–82); Microsoft, patented drugs, pilots (pp. 82–83); film studios (p. 84); videoconferencing, e-mail, lawn care, generic drugs, plastics (pp. 84–85).

Beyond cars · the teaching script, the earlier decks and Magretta (2012)

Five forces in industries you already use

You are here to build the next Nvidia or SpaceX, not to analyse heavy trucks; the forces still apply. Each card asks the question the session script puts to one force and answers it with a company you know. These are illustrations, stated qualitatively: figures in the script that could not be checked against the readings are left out.

The gatekeepers · threat of entry

“What really stops someone copying your business?”

SpaceX faced the ultimate capital barrier and then built new ones: reusable rockets that cut its cost per launch, and a record buyers trust. When Boeing’s crew capsule ran into trouble on its first crewed flight, NASA turned to SpaceX to bring the crew home.
Threads launched on the back of Instagram’s users instead of building a network from scratch: Porter’s entrant “diversifying from other markets”, which can bypass a network-effect barrier (Porter, 2008, p. 80).
Early ride-hailing needed only an app and drivers, so entrants poured in and spent years buying share. Its barriers had to be built, not inherited.

The power players · suppliers

“Who really makes the money in a gold rush?”

Nvidia in the AI build-out: one dominant supplier, differentiated chips, and switching costs that sit in software written for its CUDA platform rather than in the hardware.
Microsoft and Intel squeezed PC makers, which were also losing ground to buyers as the PC became a commodity; Intel Inside branded what might have become a commodity part (Porter, 2008, p. 82; Magretta, 2012, pp. 9, 11).
Neodymium: China produced 95% of the world’s supply; prices quadrupled in 2010 as it restricted supply, and Toyota set out to design a motor without rare earths (Magretta, 2012, p. 11).
The response in the script: Tesla making its own battery cells and AI-training hardware, Porter’s “alter technology to avoid a powerful supplier group” (2008, p. 90).

The squeeze · buyers

“One of millions of sellers on one platform: customer or product?”

Amazon’s marketplace is one dominant channel facing many fragmented sellers, whose products sit on identical pages competing on price and reviews, and who lose its customers if they leave: an intermediate customer with real clout (Porter, 2008, p. 84).
Riders with two cab apps on one phone switch for a few rupees or minutes, so the platforms keep paying to hold them.
The reverse: social-network users would lose their followers and history by leaving, so the platform’s power falls on its paying customers, the advertisers.
Cement: big US contractors bargain prices down; Mexico’s small buyers cannot (Magretta, 2012, p. 8).

The blind spot · substitutes

“What if your biggest threat doesn’t look like a threat?”

Bike taxis in congested Indian cities were cheaper and faster than a cab for a solo rider, one tap away: a better price-performance trade-off with no switching cost. Rapido later launched cabs, turning a substitute into a rival.
The job, not the product: airlines compete with videoconferencing (Porter, 2008, p. 84); a short-video app competes with X for the same minutes of downtime; meal kits competed less with each other than with groceries, delivery and frozen pizza.
Not always cheaper: the Madrid–Barcelona high-speed train is a dearer, better substitute for flying, as energy drinks are for coffee (Magretta, 2012, p. 13).

The main event · rivalry

“A zero-sum race to the bottom, or a positive-sum game?”

The EV shake-out the script describes for 2024–25: early-adopter growth slowing, many rivals (Tesla, BYD, Rivian, GM, Ford), gigafactories that cannot be redeployed, and prices falling. Porter’s warning: as an industry matures, competitors become more alike and rivalry intensifies (2008, p. 88).
The opposite: in reusable heavy-lift launch, SpaceX has had almost no direct rival. Near-zero rivalry lets it set terms, for now.
Positive-sum is possible: US casinos competed mainly by opening new niches, not by cutting prices (Porter, 2008, p. 88).

One company, five fronts · Amazon

Rivals: Walmart, Flipkart, Target.
Entrants: Temu and Shein, attacking from a low-cost angle.
Buyers: us, demanding fast free delivery, easy returns and low prices, and free to switch.
Suppliers: brands such as P&G, Samsung and Sony that would rather sell direct.
Substitutes: the shop down the road.

And Amazon the shaper (the script’s closing example): fulfilment logistics raise the bar for entrants, Prime raises switching costs, own brands discipline suppliers, and AWS turned an internal cost into an industry where Amazon is the supplier.

Activity · name the force

Thirteen situations: which force is at work?

Most of these come from the professor’s quiz sets and the earlier decks, rewritten as situations. Pick the force each one mainly moves. A dashed green outline marks a second answer that is also defensible.

A second industry, done properly · the course’s ride-hailing exercise

Why an industry that created so much value keeps so little of it

Ride-hailing changed urban transport: convenience and transparent prices for riders, flexible income for many drivers. Yet the platforms have long struggled to earn a steady profit. The course’s ride-hailing exercise resolves the paradox the way Porter would: not with the novelty of the technology or the pace of growth, but with structure. It runs Porter’s steps on India.

Boundary. Product scope: four-wheel cabs, three-wheel auto-rickshaws and two-wheel bike taxis, related segments with different dynamics. Geographic scope: local or at most national, because rivals, alternatives and above all regulation differ from one city or state to the next.

Players. For years a two-player fight between Uber and Ola over cabs, paid for with investors’ money. Rapido came in through the overlooked bike-taxi niche on a driver subscription model, then moved into autos and cabs. Smaller players include electric-only fleets and zero-commission community apps, signs of where structure might move next.

Where the value goes

Riders keep most of it: low and subsidised fares, convenience, choice.
Drivers take a growing share as commissions fall and rules on their pay and welfare tighten.
Platforms fight over a small and precarious slice of the value they helped create.

The exercise’s verdicts and mechanisms, restated. Its market-share, commission and cost-per-kilometre figures come from web sources outside the readings, so they are not repeated here.

Threat of entry

Moderate to high

The walls look high: a two-sided network (more drivers, shorter waits, more riders, more drivers) and the capital to subsidise both sides. But there was a gate: a niche entry and a subscription model that built driver supply cheaply. The most potent entrant is not a clone with more money but a firm with a new economic logic.

Licensing cuts both ways: compliance costs deter, patchy state rules open doors.

Power of buyers (riders)

High

Switching costs are close to zero, the ride itself is largely undifferentiated, fares are compared before booking, and surge pricing is a running sore. A regulator’s inquiry into claims that fares varied by the rider’s phone, which the platforms denied, shows buyers’ power amplified by the state.

The platforms’ answer: sticky features such as fixed fares on regular routes and metro ticketing, competing on the app rather than the ride.

Power of suppliers (drivers)

Moderate, growing

One driver has no clout, but drivers run several apps at once and take the best-paid ride, they strike, and without enough of them the whole service collapses. Flat-fee models and national aggregator guidelines on drivers’ share of fares and welfare move power their way.

Autonomy would remove this supplier altogether, at a colossal capital cost.

Threat of substitutes

High

Owning a car (cheaper per kilometre for heavy users), metro and buses (a substitute for the whole trip and a complement for the first and last mile), street taxis and autos, and inside the category bike taxis for solo trips. Competing head-on with subsidised public transport is hard; Uber’s own shuttle-bus service was wound down.

Analyse substitution by use case, not by industry label.

Rivalry

Extreme

Well-funded rivals with leadership ambitions, slowing land-grab growth, a commodity ride, low switching costs and high fixed costs for technology and marketing: a recipe for price and incentive wars, which spilled into court. Exit barriers are high for players to whom India is strategic.

The basis of rivalry is shifting from subsidies to the business model itself.

Factors, traced through the forces

Government shapes entry through licensing, rivalry through fare and surge rules, supplier power through driver-welfare mandates, and substitutes through bike-taxi bans. Technology enables the business but also price transparency and low switching costs; AI routing is operational effectiveness that rivals copy quickly, the distinction from Session 1.

Make the calls yourself in Workshop 2 and Simulation 1 below.

Question 03 · Porter (2008), pp. 86–92

Is there a sixth force, and how does the analysis become a strategy?

The course outline says “five (six)” because the readings disagree. The textbook adds complements as a sixth force; Porter, in the article that defines the five, argues they are not one. Settle that first, because it is the same discipline that turns an analysis into choices: everything that matters must be traced to a force, and every force to a move.

Rothaermel (2024), pp. 109–110

A sixth force: the strategic role of complements

A complement is a product, service or competency that adds value to the original offering when the two are used together. Complements raise demand for the primary product and so raise the profit potential of the industry and the firm. A complementor is a company whose product makes customers value yours more. Rivals can also cooperate as complementors, which Rothaermel calls co-opetition.

Porter (2008), pp. 86–87

Factors, not forces

Complements are products used together with an industry’s product, worth more combined than apart. The value of a car is higher when the driver can reach petrol stations, roadside help and insurance. They matter when they shift demand, but strong complements are not necessarily good or bad for profitability, so they are not a sixth force. They work through the five, and the analyst’s job is to trace their effect on each.

The two positions are closer than they look. Rothaermel stresses that complements can grow demand; Porter accepts that and insists you then ask who captures the extra value. Magretta gives the test that separates a force from a factor: more of a structural force always pushes price or cost one known way, while more growth, technology, government or complements can help or hurt (Magretta, 2012, p. 21). This page uses Porter’s test because it forces the second question.

Four things that look like forces and are not

Porter calls mistaking a visible attribute of an industry for its structure a common pitfall (Porter, 2008, p. 86). Each card gives his reason and an example from the cases.

Industry growth

Growth mutes rivalry, but it can strengthen suppliers and pull in entrants. Fast growth guarantees nothing if buyers are powerful or substitutes attractive; personal computers grew fast and were among the least profitable industries.

US EV sales grew 25% in 2017 to about 200,000 (Sull & Reavis, 2019, p. 6). The growth drew GM (20 EV models planned by 2023) and Ford ($11 billion for 24 hybrids and 16 EVs by 2022) into the segment (p. 7).

Technology

Advanced technology does not by itself make an industry attractive. Dull industries with high barriers or price-insensitive buyers often out-earn exciting ones.

Connected-car revenue was expected to nearly triple, from $53 billion in 2017 to $156 billion in 2022, yet PwC warned carmakers could become “dumb pipes on wheels” (Sull & Reavis, 2019, p. 9). Who captures the value?

Government

Trace each policy. Patents raise entry barriers; pro-union rules raise supplier power; bankruptcy rules that let failing firms reorganise rather than exit keep excess capacity in play.

GM and Chrysler went bankrupt in 2009; neither left the market, and none of the Big Three did even when capacity utilisation fell below 33% (Sull & Reavis, 2019, p. 3). That is rivalry, set by policy.

Complements

They can raise or lower entry barriers, ease or block substitution, and soften rivalry by raising switching costs or sharpen it by neutralising differentiation.

Porter’s own example: needing suitable fuelling stations makes it hard for alternative-fuel cars to substitute for conventional ones (Porter, 2008, p. 87). See EV charging, traced below.

Tracing one complement: EV charging, around 2018

Charging adds value to an electric car and is worthless without one. Follow it through the forces rather than adding it as a sixth box.

Force	What charging does to it	Evidence
Substitutes	Thin charging slows EVs replacing petrol cars: range anxiety.	16,000 public stations and 43,000 connectors against 112,000 petrol stations; building and running stations was unprofitable (Sull & Reavis, 2019, p. 7).
Rivalry	A network open to one brand raises switching costs and softens head-to-head rivalry.	Early 2019: over 1,300 Tesla stations and nearly 11,000 Superchargers, exclusively for Tesla drivers (p. 14).
Entry	Shared networks lower the bar for the next EV maker; a private network raises the fixed cost of matching the leader.	BMW and Nissan partnered with EVgo for stations open to all; Volkswagen was installing 2,000 fast chargers in 17 cities under its diesel settlement (p. 7).
Buyers	Cheap energy cuts the buyer’s other costs, so the purchase price matters less.	Five-year fuel for a Model S was put at $3,000 against $8,000 for a BMW 6 Series (p. 12).
Suppliers	Little direct effect on carmakers’ suppliers; utilities were testing charging as a business.	Utilities were running pilots with different business models (pp. 7–8).

The earlier deck also listed government incentives as a complement. Porter’s test puts them under government: subsidies can ease entry directly (Porter, 2008, p. 82), and the $7,500 federal credit for EV buyers was being phased down from 2019 (Sull & Reavis, 2019, p. 6).

From analysis to strategy: three things to do with the forces

Every company should know its industry’s average profitability and how it is changing; the forces explain why it is what it is. Porter then offers three ways to act, and says the best strategies use more than one (Porter, 2008, pp. 88–89). The 1983 note had named the same three: position the firm where its capabilities best defend against the forces, influence the balance through strategic moves, and anticipate shifts so as to exploit change before rivals see it (Porter, 1983, p. 17). The session script calls it the “so what?”: your actions can build a fortress or dig your own grave.

01 · POSITION

Find the foxhole where the forces are weakest

Heavy trucks are a hard industry: big fleet buyers, near-identical trucks, cyclical price wars, strong unions. Paccar, with about 20% of the North American market, serves owner-operators instead. They have little buying clout and an emotional and economic tie to their trucks, so they are less price-sensitive. Paccar tailors its whole value chain to them, earns a 10% price premium, and had been profitable for 68 years straight (Porter, 2008, p. 89). From 1993 to 2007 it earned a 31.6% return on invested capital against an industry average of 10.5% (Magretta, 2012, p. 25).

The script’s airline version: Ryanair and, historically, Southwest found a defensible position (low cost, point to point, one aircraft type) in an industry where the average firm struggles.

02 · EXPLOIT CHANGE

Claim the position a shift opens up

Analysts expected the internet to flood music with new labels. It did not, because distribution was never the real barrier: the majors pooled the risk of new artists and controlled promotion. The real shift was a substitute, illegal downloading. While the labels hesitated to sell through a rival’s platform, Apple’s iTunes (2003) became the new gatekeeper, and the majors shrank from six in 1997 to four. When structure is in flux, incumbents are often held back by their past strategies, and newcomers fill the gap (pp. 89–90).

03 · SHAPE STRUCTURE

Change the forces themselves

Either redivide profit towards the industry, by neutralising suppliers, countering buyers or powerful channels, tempering price rivalry, raising the fixed cost of entry or out-competing substitutes, or expand the pie for everyone, as soft-drink makers did by rationalising their bottlers. Sysco used private labels against supplier power and added credit, menu planning and inventory services to move competition off price; the industry consolidated (pp. 90–92).

Leaders have a special responsibility here: a better structure is a public good, and the leader usually captures most of it (p. 91).

The dark side of shaping

IBM entered personal computers late and opened its architecture to set the standard. In doing so it handed the operating system and the microprocessor to Microsoft and Intel, encouraged price rivalry and moved power to suppliers. It became the temporary leader of an industry with a lastingly poor structure (Porter, 2008, p. 92), and in 2005 sold its PC business to Lenovo (Magretta, 2012, p. 21).

Eliminating rivals is risky

Mergers meant to stop competition invite new competitors and backlash from customers and suppliers. New York’s banks consolidated through the 1980s and 1990s, yet Manhattan’s retail banking stayed as diverse as ever as new entrants arrived (Porter, 2008, p. 88).

Forecast the industry, not the year · Porter (1983), pp. 17–18

Industry evolution matters only where it changes the structural sources of competition. As minicomputer makers integrated vertically into manufacturing and software, scale economies and capital needs rose, raising barriers to entry. Structural analysis can then forecast an industry’s eventual profitability: examine each force, forecast each cause, and build a composite.

Porter’s example was solar heating: dozens, perhaps hundreds of firms, none with a major position, easy entry, all fighting to establish solar as a substitute for conventional heating. Its potential would depend on future barriers, brand identities, scale or experience in equipment, capital costs and buyer and supplier power. Run the same forecast for electric cars as they looked in 2018.

Activity · classify Tesla’s moves

Position, exploit change, or shape the structure?

Six moves from the cases. For each, choose the one of Porter’s three options it mainly represents. The feedback names the force each move targets, and where a second answer is defensible.

Where Session 4 picks up

Musk said Tesla was “open” to other carmakers using its Superchargers if they shared the cost (Sull & Reavis, 2019, p. 14). The moment a rival can also be a complementor, the five forces stop being enough: you need ecosystems, business models, game theory and competitor analysis. That is Session 4, Beyond the Five Forces, with Brandenburger and Nalebuff’s The Right Game (1995) and Courtney, Kirkland and Viguerie’s Strategy Under Uncertainty (1997).

Industry analysis in practice · Porter (2008), pp. 86–92

Eight ways to get the analysis wrong

Porter closes the article with a box of common pitfalls (p. 92). The eighth below comes from earlier in the article, where he calls mistaking a factor for a force a common pitfall (p. 86). The earlier deck listed six of the seven in the box; it left out paying equal attention to every force. Learn all eight, then check you can recognise them in the wild.

01 · Boundary

Defining the industry too broadly or too narrowly

02 · Lists

Making lists instead of analysing rigorously

03 · Equal weight

Giving all forces equal attention instead of digging into the important ones

04 · Effect for cause

Confusing an effect (price sensitivity) with its cause (buyer economics)

05 · Static

Static analysis that ignores industry trends

06 · Cyclical

Confusing cyclical or transient change with structural change

07 · Verdict

Declaring an industry attractive or unattractive instead of guiding choices

08 · Factor as force

Treating growth, technology, government or complements as structure

What good analysis does instead

Uses the full business cycle as its time horizon, usually three to five years, and looks at average profitability over it rather than any single year.
Quantifies: the share of the buyer’s costs the product represents, the share of industry sales needed to fill an efficient plant, the switching cost an entrant must overcome.
Sees the industry as a system: which forces support today’s profits, and how a shift in one triggers the others.

Porter (2008), p. 87, “Industry Analysis in Practice”.

Porter’s sequence

Define the relevant industry: products and geography.
Identify and segment the buyers, suppliers, competitors, substitutes and potential entrants.
Assess the drivers of each force: which are strong, which weak, and why.
Determine the overall structure and test it: is it consistent with actual long-run profitability? Are the more profitable players better positioned?
Analyse recent and likely changes in each force.
Identify what competitors, entrants or you could influence.

Porter (2008), p. 92; Magretta (2012), pp. 22–23. The exhibit workshop below follows these steps.

Activity · mistake spotter

Audit an analyst’s memo on US autos, 2018

The memo is invented for this exercise; the facts it leans on are from the cases. Each excerpt commits one of the eight mistakes. Name it, read the fix, move on.

Pick the mistake you think the excerpt commits.

Activity · Porter-correct or a misread?

Twenty-four claims you will hear about the five forces

These come from the professor’s quiz sets on common misreads and second-order effects, each turned into a single claim. Judge it, then read why; every reason points to the page in the reading that settles it.

The case · Elon Musk at Tesla (2024)

Arguing all three questions on one company

Bring the case having formed a view, not a summary. Serafeim and Migdal (2024) tell Tesla’s story to 2024; the companion case, Sull and Reavis (2019), supplies the industry data a five-forces analysis needs. The prompts below are written for this session and map onto the three questions.

Note on the case. “Elon Musk at Tesla” (Serafeim & Migdal, 2024) is a Harvard Business School case and is not reproduced here; obtain it through the course pack. Sull and Reavis (2019) is published under a Creative Commons BY-NC-ND licence. The prompts and analysis are original to this session; full references are at the end.

Against Q1

Pick the two PESTEL trends of 2018 that mattered most to Tesla and name the force each moved: the dealer lobby’s franchise-law fight, the phase-out of the $7,500 credit, battery prices down 80%, car-free households in cities? Then do the same for 2022, when rising interest rates cut Tesla’s valuation by more than 60%. Which trends were opportunities for an entrant and threats for incumbents?

Against Q2

Rate the five forces on a US carmaker in 2018 from their determinants, not their labels. Which is the strongest force, and does what carmakers actually earned agree with you? The exhibit workshop below makes you compute it. Then ask Porter’s second test: were the more profitable carmakers better positioned against the forces?

Against Q3

Is the Supercharger network a complement, an entry barrier or a source of switching costs? Classify Tesla’s main moves as positioning, exploiting change or shaping structure. Which forces did Tesla shape, and which did it simply survive?

Porter’s sequence, run on US autos

STEP 1 · BOUNDARY

New cars sold in the United States: nearly 7 million in 2016, 60% of them pickups and SUVs (Sull & Reavis, 2019, p. 2). Luxury, mass-market and electric may be segments with different forces; keep that open.

STEP 2 · PLAYERS

Buyers: households, fleets, and over 18,000 dealers as intermediate buyers. Suppliers: over 11,000 firms in three tiers. Rivals: GM, Ford, Fiat Chrysler, Toyota and the rest. Entrants: Tesla, technology firms. Substitutes: ride-hailing, transit, bikes and scooters, keeping the old car (pp. 3–10).

STEPS 3–6 · RATE, TEST, TREND, ACT

Rate each force from its determinants and test the rating against the margins in the exhibit workshop. Trends (step 5) are in the workshop’s “what happened next”; influence (step 6) is question 3’s moves classifier.

Supplier power · two ways to build a car

The traditional carmaker

Carmaker → Tier 1 systems (Bosch, Continental, Magna, Denso, ZF) → Tier 2 parts → Tier 3 raw materials. Ford bought 80% of its parts from 100 suppliers (Sull & Reavis, 2019, p. 4).

Tesla’s Model 3

Up to 80% of components in-house: battery, power electronics, drive-train, cables, displays, fuses and, after quality problems, seats. Battery packs and motors from the Gigafactory, built in partnership with Panasonic (pp. 12–13).

The earlier deck added Tesla’s later in-house cells and AI hardware, the script’s examples of the same logic. Risk and benefit are the question: control and cost against capital and execution risk.

Why incumbents did not simply copy

Dealers made 45–60% of their profits from service and parts, which electric cars need less of, and a 2016 study found dealers steering customers away from EVs (Sull & Reavis, 2019, pp. 5–6). An incumbent selling through franchised dealers could not move to direct sales or push EVs hard without fighting its own channel. That is Porter’s “constrained by past strategies” in a sentence.

The earlier deck’s three takeaways, stated as claims to test: Tesla created a new basis for rivalry (technology, software and performance rather than fuel economy); it neutralised buyer and supplier power through direct sales and vertical integration; and it built a moat of complements with its Superchargers.

What a better analysis concludes

The structure was poor for the average firm, and the margins confirm it. But Porter is explicit that the framework can reveal an industry that is unattractive for the average entrant yet worth entering for a firm that can get past the barriers more cheaply than others, or cope with the forces better (Porter, 2008, p. 89). The right question in 2008 was therefore not “is this industry attractive?” but “is there a part of it where the forces are weaker, and can Tesla reach it at a cost incumbents cannot match?”

Porter’s 1983 note supplies the mechanism. Post-war automation and vertical integration had raised scale economies in cars until they virtually stopped successful entry (p. 7). But a scale or experience barrier can be nullified by a new technology that starts a new experience curve, on which entrants leapfrog leaders poorly placed to jump, and a leader’s commitment to scale in the old technology can cloud its view of the new one (pp. 8–9). Battery-electric drive was that new curve; whether Tesla could ride it down faster than incumbents could jump onto it was the bet.

The question the room usually splits on

Did Tesla improve the structure of the industry it entered, or start a race on a single dimension that no one wins? By 2018 GM, Ford, Toyota and BMW were all committing to electric models (Sull & Reavis, 2019, p. 7), and Porter warns that as an industry matures, competitors become more alike and rivalry intensifies (Porter, 2008, p. 88). The script reads the 2024–25 EV price war as exactly that zero-sum turn.

Take a side before class. You will be asked which specific evidence would change your mind; a position you cannot imagine losing is not an argument, it is a preference.

Discussion questions

Come with a written answer to the first two. The others are for the room.

01
Porter says the framework can reveal an industry that is unattractive for the average entrant but worth entering for a firm that can surmount the barriers more cheaply. Make that case for Tesla as it stood in 2008. What would have had to be true, and which of those things could you have checked at the time?
02
On Porter’s concentration test, traditional auto suppliers look weak: the top five held 8.1% of the business. Yet the battery was a third of a Bolt’s price and three firms made over 60% of battery sales. Which supplier group controls an EV maker’s profitability, and did the Gigafactory solve that problem or move it?
03
Use the determinants of buyer power for intermediate customers to explain why dealers, not households, were the buyers that mattered most to an entrant. Then explain why the dealers’ power also protected the incumbents.
04
Is Tesla’s Supercharger network a complement, a barrier to entry or a source of switching costs? Trace it through all five forces, then say what changes if Tesla opens it to other carmakers that share the cost.
05
Incumbent margins mostly rose between FY2017 and FY2021. Structural or cyclical? Name the evidence that would separate the two, and say where you would find it.
06
Pick the PESTEL trend from the sorter that you think matters most for an EV maker over the next five years. Which force does it move, in which direction, and how would you measure “how much”?
07
Has Tesla’s entry made it easier or harder for the next electric entrant, such as Rivian or Lucid? Answer barrier by barrier: capital, scale, brand, distribution, charging.
08
Who are Tesla’s most significant rivals today: Ford and Volkswagen, or new EV makers such as BYD and Rivian? Justify the boundary you draw before you name a single firm.

The exhibit workshop · 25 minutes

Should a newcomer enter the US car industry?

It is mid-2018. You sit on the board of a well-funded company from outside the car industry that is weighing entry into US car-making with an electric model. The company and the boardroom debate are invented for this workshop; the numbers are not. The chief executive says: “Tesla got in, so the barriers are a myth.” The finance director says: “Carmakers earn single-digit margins. Why would we want to be one?” You have the two cases’ exhibits in front of you. Decide which of them the evidence supports, and what you would recommend.

Figures come from the exhibits of Sull & Reavis (2019), that case’s workbook, and Serafeim & Migdal (2024). Compute before you reveal: the reveal is worth nothing if you have not committed to an answer first.

Your four steps

1 Read four exhibits, one per force.
2 Rate the forces and test the rating against what carmakers earned.
3 Check one number before you trust a chart.
4 Only then: what happened next.

Step 1 · Four exhibits, four forces

The earlier deck’s data deep dive, rebuilt from the cases’ own exhibits. Answer each prompt in a sentence before you reveal.

A · Rivalry · Exhibit 4

US car market share by volume, March 2018 (%)

Seven of the sixteen makers in Sull & Reavis (2019), Exhibit 4; the other nine hold 20.5% between them.

What share do the top four hold? One dominant leader, or several rivals of similar size?

B · Entry · Exhibit 11a

Tesla’s deliveries, the first four years of the Model S

Year	Vehicles delivered
2013	22,477
2017	103,184

Serafeim & Migdal (2024), Exhibit 11a.

Compute Tesla’s compound annual growth in deliveries from 2013 to 2017. Then set it against the barriers in the case. Does the growth prove the barriers were low?

C · Suppliers · pp. 2–7

Who is more concentrated than whom? (%)

Different bases, so read the order, not the decimals: carmakers’ share of US volume (Exhibit 4); top five suppliers’ share of global auto-supply revenue (p. 4); top three makers’ share of lithium-ion battery sales, “over 60%” (p. 7).

Porter’s test: a supplier group is powerful if it is more concentrated than the industry it sells to. Which supplier group passes?

Trace one causal chain. Suppose carmakers could qualify a second cell supplier with equal performance, low switching costs and spare capacity. Which force moves first?

D · Buyers · Exhibit 9

Most important factors when buying a car, 2017–18 (% of buyers)

Survey of over 2,000 US car buyers aged 18–64, Sull & Reavis (2019), Exhibit 9 and p. 5. Two labels are cut short in the exhibit itself.

Where does low price rank? Does that make car buyers weak?

Step 2 · Rate the forces, then test against what carmakers earned

Each force runs from 1 (weak: good for incumbents’ profits) to 5 (intense: bad for them). Read the evidence on both sides first; a rating without a reason is a guess. The page combines your ratings into a profitability-pressure score. Porter says the strongest force sets the ceiling, so the score is the average of your mean rating and your highest rating. Then compare with the verdicts of Session 2’s quick read and test both against the margins.

Your read

Your rating

Step 3 · Check one number before you trust a chart

Serafeim and Migdal’s Exhibit 11a lists Tesla’s deliveries year by year. Before you plot them, reconcile one year with the companion case’s workbook, which records deliveries quarter by quarter from Tesla’s press releases. For 2014 the workbook gives:

6,457

7,579

7,785

9,834

Add them up and compare with Exhibit 11a’s FY2014 figure of 56,768. Then compare 56,768 with the 50,580 the exhibit gives for 2015.

Step 4 · What happened next

Decide on the board’s question first. Then look at what Serafeim and Migdal (2024) report for the years after 2018.

Entry, completed

Tesla’s deliveries, 2012–2021

Serafeim & Migdal (2024), Exhibit 11a, except 2014 (outlined), the quarterly total from the Sull & Reavis workbook. Tesla’s EBIT margin, −13.9% in 2017, turned positive in 2019 (0.3%) and reached 12.1% in 2021 (Exhibit 11a).

Step 5 of Porter’s sequence · change over time

Two snapshots, four years apart

FY2017 operating margin FY2021 EBIT margin

Show the figures as a table

Firm	FY2017 operating margin	FY2021 EBIT margin

FY2017 is operating income over revenue from the Sull & Reavis workbook; FY2021 is EBIT over revenue from Serafeim & Migdal, Exhibit 11b. The measures are close but not identical, and the 2021 figure for Daimler is Mercedes, after the group split, so read the direction, not the decimals. Two things moved. Tesla went from losing 13.7 cents on every dollar of revenue to earning 12.1, above every incumbent shown. And the incumbents’ margins mostly rose too, in a year of chip shortages across the whole industry (Serafeim & Migdal, 2024, p. 13). Before you call that structural change, check it against pitfall 06.

One more number: regulatory credits, revenue that exists because of emissions regulation rather than car sales, were 2.4%, 5.0% and 2.7% of Tesla’s revenue in 2019, 2020 and 2021 (Exhibit 11c). A government policy moving profit from incumbents to the entrant is Porter’s “trace the policy through the forces” in one line.

What the numbers do and do not settle

The finance director is right about the average firm. Thin margins, and a return on invested capital that the case’s Exhibit 8 shows below the industry’s estimated cost of capital in every year from 2006 to 2016, are what a hostile structure predicts. The chief executive is wrong about the barriers: Tesla got past them at a cost few firms could bear, and Porter allows exactly that exception (2008, p. 89).

What the numbers do not settle is whether a newcomer in 2018 could find a part of the industry where the forces were weaker, and reach it more cheaply than incumbents could. That requires a position, not a rating.

Name the force

Which one would cap your margins first, and on what evidence?

Name the segment

Where are the forces weaker, and why can you reach it more cheaply than incumbents?

Give the number

What figure would change your recommendation?

In the room

Workshops & simulations

Three decisions with the outcome revealed, a branching simulation built from the course’s ride-hailing exercise, and the course’s Five Forces Challenge. Each scenario is stylised unless a source is cited, and any invented number is labelled as one.

Simulation 2 · 15 min · the course’s Five Forces Challenge

Five years as chief executive: earn a profit against the forces

Pick an arena. Each year you fund one of four initiatives on offer; your rival, Apex Dynamics, answers; and some years the market shocks you. Consistent choices build strategic focus; switching between differentiation and cost leadership costs you, Porter’s straddling penalty. Every number here is a game parameter, not data.

In the room

Studio: two rounds, one decision each

Round 1 · 12 min · pairs

Breakout: one force per pair

The earlier deck’s group breakout, run in pairs. Each pair takes one assignment (with more than six pairs, double up), finds its evidence in the cases, and reports a rating in one sentence.

Entry: how high were the barriers before Tesla, how did Tesla get past them, and has its entry made it easier or harder for the next entrant?
Buyers: how much power does a typical car buyer have, what did direct sales change, and how do households differ from fleets such as Hertz?
Suppliers: how powerful are traditional suppliers, and what are the benefits and risks of Tesla’s vertical integration?
Substitutes: what replaces owning a car, what does ride-hailing do to the industry, and how does Master Plan, Part Deux answer it?
Rivalry: what is rivalry like among traditional carmakers, how did Tesla change the basis of competition, and who are its main rivals now?
Bonus, complements: what are Tesla’s key complements, how has it used the Superchargers, and are tax credits a complement or a policy to trace?

Keep two claims apart: what the force predicts for the average firm, and what it predicts for Tesla’s position; a hostile industry can hold an unusually well-placed firm. In the last four minutes, swap ledgers with the next pair and challenge only the link between evidence and mechanism: “five competitors” is a fact until you say when and why they would compete prices down, and a growth forecast is not a profit forecast. Revise your weakest link.

What to hand in

One ledger line, boundary and date → structural driver → force → profit channel, with a case page or exhibit; a rating from 1 to 5; one response for management (position away from the force, anticipate a shift, or change the structure); and one fact that would overturn your diagnosis.

Round 2 · 15 min · fours

Role play: the franchise-law hearing

A state legislature must decide whether a carmaker may sell straight to consumers. Roles: Tesla’s head of retail (company stores, salaried staff, online orders); the state dealers’ association (defends franchise law); a legislator (jobs, tax base, voters’ complaints); a consumer advocate (price, choice, the buying experience). Every speaker must name the force their argument is really about. The legislator may not vote without saying which force the law changes, and for whom.

Evidence to use: dealers partially blocked Tesla’s direct sales in Connecticut, Wisconsin, Texas and Michigan; they made 45–60% of their profits from service and parts; most buyers disliked haggling and 75% would consider buying online (Sull & Reavis, 2019, pp. 5–6, 14); dealers became a lobbying bloc in their own right (Serafeim & Migdal, 2024, Exhibit 2).

What to hand in

The vote, the force it moves, and the piece of case evidence that decided it.

Last 12 minutes — the in-class quiz (graded)

Outline v0.3 makes the last 12 minutes of every class a graded quiz. Today’s covers the three questions — which trends in the environment move which force, what sets an industry’s profitability, and whether complements are a sixth force and how the analysis becomes a strategy — and the Tesla case. To prepare: read Porter (2008) and the 1983 note before class; be able to name each force’s determinants without notes and trace growth, technology, government or a complement through the forces; and bring two numbers from the case, each with the force it evidences. The quizzes on this page are practice; the in-class questions are not published.

Knowledge check

Final quiz

Score: 0 / 0

Test your grip on the session’s core ideas, including the workshops and simulations above. Each answer explains itself. The full practice bank for this session is at /teaching/quiz/1yr-04.

Concept check

Twelve questions, with reasons

0 / 0 correct

Answer first; the reasoning appears immediately. A wrong answer here is cheaper than a wrong answer in the exam.

See it · explain it · test it

From an environmental signal to a strategic choice

A trend is a starting point, not a verdict. Follow the mechanism into the income statement, then propose a response that could be disproved by evidence.

Original teaching diagram. Read the same reasoning in the numbered explanation beside it; arrows are propositions to test.

Read the diagram as a story

An environmental signal becomes strategically useful only after a causal chain is specified: an event changes a force, the force changes achievable prices, costs or required investment, and the firm chooses a response with a test. The arrows represent hypotheses to investigate, not automatic effects.

Signal: a fictional Nila Mobility customer now has reliable public transport for daily city journeys.
Mechanism: with passenger-car manufacturing as the industry boundary, public transport is an alternative outside the industry; improved convenience may strengthen substitution.
Economics: lower willingness to pay for car ownership or additional differentiation costs could reduce what Nila retains.
Decision and test: test a differentiated commuter offer against transport alternatives. Compare conversion, total journey cost and contribution; account for selection and rival reactions.

One concept, three business contexts

Hypothetical · original teaching scenario

Nila Mobility: demand does not settle profitability

Nila sells a fictional electric family car. More households want EVs, but cell suppliers are concentrated and buyers can compare many models. Growing demand can coexist with strong supplier power and rivalry. The recommendation is a hypothesis: secure alternative cell sources and serve a use case where reliable charging matters. Test whether the resulting price and cost changes exceed the investment required.

Discuss: Which force does your proposed move address, and which force could absorb the benefit? Why?

Global · case period: mid-2018

Tesla: industry structure meets execution

The Sull and Reavis case places Tesla in a changing US auto industry while Model 3 production and cash demands strain the company. A difficult industry does not imply that every entrant must fail; strong demand does not guarantee cash generation either. Separate structural pressures from Tesla-specific execution. Our teaching inference is to compare a proposed position against both the forces and the resources needed to occupy it.

Discuss: What evidence would distinguish an unattractive industry from a firm temporarily executing badly?

MIT Sloan case overview (2019; situation in 2018)

Indian · structure illustrated in Amul’s 2024 brochure

Amul: whose bargaining power are you analysing?

Amul’s published model links village dairy societies, district milk unions and a state federation. A farmer-member is not simply an anonymous outside supplier in this arrangement. First define whether your focal unit is a farmer, a district union, the federation or the dairy industry. Teaching inference: pooling procurement and marketing may change bargaining relationships, but the structure alone proves neither the strength of a force nor an industry profit margin.

Discuss: If you change the focal unit from federation to farmer, how does the supplier analysis change?

Amul model and distribution brochure, p. 2 (2024)

Four diagnostic decisions

Choose an answer, read the reason and compare it with the diagram. Start a fresh attempt when you want to revisit all four decisions.

Practice score: 0 / 4.

Discuss, then defend a decision

A force, or merely a trend?

Choose a PESTEL signal from the Tesla case. Write a chain with an affected player, a bargaining or substitution mechanism, and a price, cost or investment consequence. Another pair must identify the weakest causal link.

Disprove your recommendation

Argue for one move in the Nila scenario. Then name a customer observation and a rival action that would make your recommendation fail. A testable recommendation is stronger than a force labelled “high”.

Use the supplied resources with this lab

The guide below maps the supplied filenames to their teaching purpose. Read the authorised course-pack originals alongside the existing reading list; the lab provides original explanations and practice.

The_five_competitive_forces_Porter.pdf
Porter (2008): use the definitions, determinants and industry-boundary guidance to support each causal link. Work the existing five-forces map and memo audit. Obtain the assigned article through the course pack.
TheStructuralAnalysisOfIndustries_Porter.pdf
Porter’s revised 1983 note: compare entry and exit barriers and the causes of bargaining power. Use it to challenge your first force rating; do not substitute a company SWOT for industry analysis. Course-pack access remains the route to the original.
Session1_Case Study2_Recommended_Tesla's Entry into the U.S. Auto Industry.pdf
The supplied 2019 industry companion is stored in the Session 1 resources folder but is also relevant here. Analyse its mid-2018 situation and exhibits as historical evidence; use the existing readings list for the assigned HBS case and textbook.

Return to the learning outcomes · Continue the existing workshops · Open the complete reading list

Preparation

Readings for Session 3

Read Porter (2008) first, then the 1983 note for the causes beneath each force. Reread the industry chapters of Sull and Reavis (pp. 1–10) with the five forces in hand, and the Tesla case last: it is the material you argue with, and the readings are the tools. Readings and cases are obtained through the course pack; none is reproduced or linked here.

Case
Serafeim, G., & Migdal, A. (2024). Elon Musk at Tesla (HBS Case No. 9-123-044). Harvard Business School.

The session’s case, continuing from Session 2. Exhibits 1, 2 and 11 are used here.
Required · Q2 and Q3
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78–93.

Read it all, including the boxes on industry analysis in practice, defining the relevant industry, and the typical steps and common pitfalls. Pages cited here are the issue’s; the course-pack reprint numbers from 1.
Required · the original note
Porter, M. E. (1983). Note on the structural analysis of industries (HBS No. 9-376-054). Harvard Business School.

The determinants in depth: scale against experience, exit barriers, the entry-deterring price, buyer selection, government, and industry definition. Chapter 1 of Competitive Strategy (1980).
Supplementary · industry companion
Sull, D., & Reavis, C. (2019). Tesla’s entry into the U.S. auto industry (Case No. 18-186). MIT Sloan School of Management.

The industry data: pp. 1–10 and the exhibit workbook. Licensed CC BY-NC-ND 3.0.
Supplementary · the plain-language version
Magretta, J. (2012). The five forces: Competing for profits. In Understanding Michael Porter: The essential guide to competition and strategy (Chapter 2). Harvard Business Review Press.

Profit as price minus cost, why only five forces, CEMEX, Paccar’s returns. Start here if Porter feels dense.
Supplementary · textbook
Rothaermel, F. T. (2024). Strategic management (6th ed.). McGraw Hill. Chapter 3, sections 3.1–3.2.

PESTEL, industry versus firm effects, and the case for complements as a sixth force.

References

APA 7th edition. Cited in the text by author and date.

Kaplan, R. S., & Norton, D. P., with Barrows, E. A., Jr. (2008). Developing the strategy: Vision, value gaps, and analysis. Balanced Scorecard Report, 10(1), 1–5.
Magretta, J. (2012). The five forces: Competing for profits. In Understanding Michael Porter: The essential guide to competition and strategy (Chapter 2). Harvard Business Review Press.
Porter, M. E. (1983). Note on the structural analysis of industries (HBS No. 9-376-054). Harvard Business School.
Porter, M. E. (1996). What is strategy? Harvard Business Review, 74(6), 61–78.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78–93.
Rothaermel, F. T. (2024). Strategic management (6th ed.). McGraw Hill.
Serafeim, G., & Migdal, A. (2024). Elon Musk at Tesla (HBS Case No. 9-123-044). Harvard Business School.
Sull, D., & Reavis, C. (2019). Tesla’s entry into the U.S. auto industry (Case No. 18-186). MIT Sloan School of Management.

Earlier interactive decks

Everything in the first deck is now on this page; open the decks for their original layout or for wider practice.

Porter’s Five Forces: Industry Analysis, Tesla This session’s earlier deck, built as Session 4 in the old numbering: briefing, force cards, data deep dive, breakout and quiz, all merged above. Check its delivery chart against step 3 before citing it.
Industry Analysis Fundamentals (2-year MBA, Session 5) Adds an industry-score builder for any industry you choose and Indian cases (quick commerce, Paytm). Its 2025 ROIC chart is not from the course readings.
Industry Structure and Firm Strategy (2-year MBA, Session 8) PESTEL against the five forces, then what the forces miss: ecosystems, co-opetition, a capacity game and uncertainty. A preview of Session 4; open it after class.

Back to the course outline More practice questions