Industry structure, as manifested in the strength of the five competitive forces, determines the industry’s long-run profit potential because it determines how the economic value created by the industry is divided—how much is retained by companies in the industry versus bargained away by customers and suppliers, limited by substitutes, or constrained by potential new entrants. By considering all five forces, a strategist keeps overall structure in mind instead of gravitating to any one element. In addition, the strategist’s attention remains focused on structural conditions rather than on fleeting factors. fleeting factors.
It is especially important to avoid the common pitfall of mistaking certain visible attributes of an industry for its underlying structure. Consider the following: