Don't be put off by the complex diagram. we are going to look at this one box at a time.
This model is a key tool used by Private Equity to see the attractiveness of a business. Hotels and Airlines are under far more pressure than say a chain link manufacturing company. That will impact on the value given to the business.
If you are a business owner, if you can show you know how to deal with each of the forces affecting your business, you will get a much higher price for your business and be able to persuade private equity to accept a higher mulitple.
If the forces are intense, as they are in such industries as airlines, textiles, and hotels, almost no company earns attractive returns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies are profitable. 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. While a myriad of factors can affect industry profitability in the short run—including the weather and the business cycle—industry structure, manifested in the competitive forces, sets industry profitability in the medium and long run.