Porter’s Five Forces Model
Application and Critique – How can it be used to gain a competitive advantage
Michael Eugene Porter is a professor at Harvard Business School. He is renowned for his research and numerous writings on strategic management, corporate strategy and competitiveness of industry and nations. In 1980, Porter put forth a framework that describes how competitiveness and profitability are influenced as a result of interaction of five forces: the bargaining power of suppliers, the bargaining power customers, the availability of substitutes, the threat of new entrants and rivalry among existing competitors. During 1980s the framework or model devised by Porter was widely acknowledged by business managers as a simple yet powerful tool and was vastly regarded as a well-known theory in business management in general and in the field of strategic management in particular.
Analysis, Application, Usage and Critique
A considerable research has been conducted on strategic management and competitive advantage by many reputed authors during past three decades. Although a number of these researchers have disagreed with Porter’s over-simplistic and down playing view about some other critical factors, yet they have recognized this model as being still relevant and useful in development of marketing strategy in a highly competitive business environment. Porter’s standpoint about the reliability of five forces model is that extensive research evidence has established the effectiveness of the framework for having a textured understanding of an industry. An organization can use it to determine attractiveness and profitability of a particular industry by taking into account the pattern of interaction between the five competitive forces.
One of the major critiques on the five forces model is that it only envisages the zero-sum game, i.e. an organization can succeed at the expense of its competitors. However, organizations are widely recognizing the importance of the value that other players e.g. suppliers can add. This has encouraged the establishment of a collaborative relation that can be beneficial for both parties. For example Toyota and Honda coordinate closely with the suppliers for ensuring timely delivery of parts at right time, cost and best quality. Another criticism of the model is that it only considers the impact of substitutes, whereas several products- both goods and services have a complementary correlation. Influence of the complements on competition and profitability has been overlooked altogether. The role of dynamic forces such as innovation and entrepreneurship has also been ignored considering that industry structure is substantially stable and competitive behavior is predictable. On account of rapidly changing customer preferences and expectations the organizations resort to perpetual creative destruction for retaining their market share and sustainable growth. Hence, the model can be termed as a static analysis representing a traditional view of strategy. This retards its capability to cope with the dynamism of contemporary business environment.
Micheal E. Porter’s contribution for development of concepts pertaining to industry and competitive analysis is immensely lauded and acclaimed. He promotes the idea of conducting structural analysis of industries so as the firm can have a better understanding of its strengths and weaknesses. After having a pragmatic self-assessment and a clear view of prevailing business conditions, the organization will be in a better position to harness its potential for profitability and attaining competitive edge over competitors at the same time it can develop a strategy for minimizing adverse impacts of various threats. Although the five forces model has been broadly appreciated by business managers the world over, yet as a result of extensive research on strategic management and competitive advantage during past three decades several authors have presented divergent views on the subject. Some researchers with dynamic and progressive thoughts have criticized Porter’s model on a number of counts such as stagnant view, over simplification and underplaying relevant industry factors.
In nutshell, irrespective of a few shortcoming and drawbacks, Porter’s five forces model is still commended by modern researchers for its practicality and utility for development of a business strategy aimed at enhancing profitability and achieving competitive advantage.