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Figure 4From “Porter's five forces: industry explains less than the firm does”

Five forces and the middle of the pack: variance components after removing each industry's leaders and losers

Without each industry's two leaders and two losers, firm differences shrank to a fifth to a third of their level; the stable industry component stayed between 91 and 115 percent of its own.

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Figure 4Five forces and the middle of the pack: variance components after removing each industry's leaders and losers

Five forces and the middle of the pack, computed from Hawawini et al. (2003), US listed firms 1987 to 1996. After removing each industry’s two leaders and two losers, the firm variance component was 30.9% of its all-firm level for economic profit, 21.2% for market value and 27.6% for return on assets; the stable industry component was 91.3%, 107.9% and 115.2% of its all-firm level.50%100%Firm component, economic profit31%Firm component, market value21%Firm component, return on assets28%Stable industry component, economic profit91%Stable industry component, market value108%Stable industry component, return on assets115%UnchangedComponent in the trimmed sample, % of the all-firm componentFive forces and the middle of the pack, computed from Hawawini et al. (2003), US listed firms 1987 to 1996. After removing each industry’s two leaders and two losers, the firm variance component was 30.9% of its all-firm level for economic profit, 21.2% for market value and 27.6% for return on assets; the stable industry component was 91.3%, 107.9% and 115.2% of its all-firm level.50%100%Firm component, economic profit31%Firm component, market value21%Firm component, return on assets28%Stable industry component,economic profit91%Stable industry component, marketvalue108%Stable industry component, returnon assets115%UnchangedComponent in the trimmed sample, % ofthe all-firm component

Source: Computed by this essay from Hawawini et al. (2003), Strategic Management Journal 24(1): absolute variance components for 562 US listed firms, 1987 to 1996 (Table 4, p. 11), and for 342 firms without each industry's two leaders and two losers (Table 7, p. 13). Each bar is the trimmed-sample component as a percentage of the all-firm component for the same measure.

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  • A A verified against the printed page of the primary sourceB primary source, text layer onlyC authoritative secondaryD reported Leaders and losers: a leader has the best result in its industry for the most years (ties by cumulative value), a loser the worst; the reduced sample drops each industry’s top two and bottom two by the measure used, leaving 342 firms and 3,420 observations (pp. 10, 11, 13): "a reduced sample that excludes the top two value leaders and bottom two value losers in the industry"; "The reduced sample contains 3420 observations for 342 firms across the 55 industry classifications"; "a firm’s performance must be the highest in its industry for the maximum number of years over the sample period"; "excludes each industry’s top two leaders and bottom two losers according to the performance measure used"Hawawini, Subramanian and Verdin (2003)
  • A A verified against the printed page of the primary sourceB primary source, text layer onlyC authoritative secondaryD reported Absolute components, Tables 4 and 7: the firm component falls on all three measures while the industry component rises for ROA and TMV/CE and stays about the same for EP/CE; a few firms dominate intra-industry variance and firm effects (pp. 11 to 13): "In terms of variance component estimates, the firm factor contributes less across all three measures of performance, while industry factors increase for ROA and TMV/CE, and remain almost the same for EP/CE"; "only a few firms that capture or destroy a large part of industry’s value dominate intra-industry variance and firm effects"Hawawini, Subramanian and Verdin (2003)
  • B A verified against the printed page of the primary sourceB primary source, text layer onlyC authoritative secondaryD reported Figure 4 arithmetic from Hawawini Tables 4 and 7: firm 0.000820/0.002650 = 30.9%, 0.232559/1.095386 = 21.2%, 5.697587/20.643661 = 27.6%; stable industry 0.000578/0.000633 = 91.3%, 0.412727/0.382606 = 107.9%, 5.413565/4.700882 = 115.2%; the stable-only comparison from Table 8 (G5 F1); what collapsed was the firm component, the industry component changed little and rose on two measures as the authors note (G5 F7); trimming by the outcome narrows dispersion by constructionAuthor computation

From the essay

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APA 7

Isoglu, S. (2026). Five forces and the middle of the pack: variance components after removing each industry's leaders and losers [Figure]. isoglu.com. https://isoglu.com/insights/exhibits/isoglu-2026-porters-five-forces-fig04/

BibTeX
@misc{isoglu-2026-porters-five-forces-fig04,
  author = {Isoglu, Sinan},
  title = {{Five forces and the middle of the pack: variance components after removing each industry's leaders and losers}},
  year = {2026},
  howpublished = {Figure 4, isoglu.com},
  url = {https://isoglu.com/insights/exhibits/isoglu-2026-porters-five-forces-fig04/},
  note = {From the essay {Porter's five forces: industry explains less than the firm does}}
}
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  <a href="https://isoglu.com/insights/exhibits/isoglu-2026-porters-five-forces-fig04/">
    <img src="https://isoglu.com/social/isoglu-2026-porters-five-forces-fig04.png" alt="Figure 4: Five forces and the middle of the pack: variance components after removing each industry&#39;s leaders and losers" width="3200" height="2400">
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  <figcaption>Figure 4: Five forces and the middle of the pack: variance components after removing each industry&#39;s leaders and losers. Source: Computed by this essay from Hawawini et al. (2003), Strategic Management Journal 24(1): absolute variance components for 562 US listed firms, 1987 to 1996 (Table 4, p. 11), and for 342 firms without each industry&#39;s two leaders and two losers (Table 7, p. 13). Each bar is the trimmed-sample component as a percentage of the all-firm component for the same measure. <a href="https://isoglu.com/insights/exhibits/isoglu-2026-porters-five-forces-fig04/">View exhibit</a>.</figcaption>
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