Reclassifying Risks Using Porter’s 5 Forces & Competitive Advantage
We align risks with each of Porter’s five forces and add internal business capabilities and external uncontrollables to reflect the full landscape. Each risk is tagged as:
Controllable by Business Owner
Structurable by Banker
Uncontrollable (Monitored Only)
If we use first principles grounded in Michael Porter’s Five Forces and competitive advantage theory, we can reclassify risks based not just on surface symptoms (e.g., “FX risk”) but based on the structural drivers of profitability and control.
1. Threat of New Entrants
Risk
Control by Business
Bank Structuring?
Commentary
Low barriers to entry
Partial (brand, IP, scale)
No
Competitive moat strength matters. Weak moat is a structural risk.
Rapid innovation pace
Partial (R&D, agility)
No
Must evaluate how nimble the company is to defend its turf.
Capital intensity to scale
Yes
Yes (bank can influence via financing structure)
Financing capital investments may support barriers.
2. Bargaining Power of Suppliers
Risk
Control by Business
Bank Structuring?
Commentary
Concentrated key suppliers
Partial (diversification)
No
Risk of price hikes or disruptions. Banker can’t fix this.
Vertical integration by suppliers
No
No
Industry-wide structural risk, must monitor only.
3. Bargaining Power of Buyers
Risk
Control by Business
Bank Structuring?
Commentary
Customer concentration
Yes
Yes (loan structuring, covenants)
Track customer churn, industry cycles.
Pricing pressure from buyers
Partial (value proposition)
No
Key risk for commoditized industries.
4. Threat of Substitutes
Risk
Control by Business
Bank Structuring?
Commentary
Product commoditization
Partial (branding, IP)
No
Competitive advantage based on differentiation matters here.
Tech-driven disruption
Partial (investing in future)
No
Important to evaluate responsiveness, not mitigation claims.
5. Industry Rivalry
Risk
Control by Business
Bank Structuring?
Commentary
Margin compression
Partial (efficiency, pricing power)
No
Sustainable cost advantage or differentiation is key.
Price wars or overcapacity
No
No
Purely structural; only scenario planning applies.
6. Internal Capabilities (Competitive Advantage)
Risk
Control by Business
Bank Structuring?
Commentary
Poor management or governance
Yes
Partial (covenants, board representation)
Often claimed “mitigated,” but must assess depth of team.
Lack of scale or scope
Yes
Yes (finance scaling, M&A support)
Scale can create cost advantage or network effects.
Operational inefficiency
Yes
No
Compare peers, benchmark KPIs.
Weak digital capabilities
Yes
No
Key vulnerability in modern sectors.
7. External Uncontrollables
Risk
Control by Business
Bank Structuring?
Commentary
Macroeconomic recession
No
No
Only resilience can be evaluated.
FX / commodity volatility
Partial (hedging)
Yes (structure, hedging solutions)
Control is imperfect, even with hedging.
Regulatory/political risk
No
No
Best addressed via diversification of jurisdictions.
Climate events or pandemics
No
No
Contingency planning is critical, not “mitigation.”
How to Use This
You can use this framework to:
Diagnose risks structurally (not just list them)
Anchor mitigation strategies to actual leverage — i.e., is it a moat, or a wish?
Train bankers and credit approvers to stop greenlighting weak mitigation narratives
