Business Strategy

Topics: Strategic management, Management, Porter five forces analysis Pages: 6 (1692 words) Published: May 19, 2013
Critical Analysis and Evaluation of Porters Five Forces in today’s Dynamic Business Environment

The environment in which organisations operate, changes day after day, with growing competition among its competitors for greater market share. As a result of intense competition among these organisations, it becomes very necessary for both new entrant and the incumbent organisations to periodically carry out analysis to ascertain strengths and the weaknesses are. This assay will focus mostly on the criticisms and evaluation of Porter’s Five Forces model in today’s dynamic business environment.

For better understanding, this assignment has been organised in four sub- headings, they are as follows: the general overview of Porter’s Five Forces model; the importance or usefulness of Five Forces model; the criticisms and evaluation of Porter’s model; the recommendation and finally the conclusion.

Overview of Porter’s model
Johnson et al (2011) described Porter Five Forces as a strategic tool that helps identify the attractiveness of an industry in terms of five competitive forces: the threat of new entry, the threat of substitutes, the power of buyers, the power of suppliers and the extent of rivalry between competitors. Porter (1980) argues that this model is based on the insight that a good business strategy should meet the opportunities and threats in the organizations external environment. Particularly, competitive strategy should be based on an understanding of industry structures and the way they change.

From the above explanation we can see that Porter’s Five Forces is a simple tool that supports strategic management in decision making through understanding where strength and weaknesses lie.

Importance of Porter’s Five Forces
The Porter’s Five Forces is a simple but powerful tool that supports strategic understanding where power lies in a business situation. It also helps to understand both the strength of the firm’s current competitive position, and strength of a position a company is looking to move to.

This model also emphasizes extended competition for value rather than just competition among existing rivals, and the simplicity of its application inspired numerous companies as well as business schools to adopt its uses as suggested by Wheelen and Hunger (1998).

With clear understanding of where power lies, it will enable a company to take fair advantage of its strengths and improve on its weaknesses and off cause avoid taking wrong steps. Therefore to apply this planning tool efficiently, it is important to understand the situation and look at each of the forces individually.

Criticisms and Evaluation of Five Forces
Porters Five Forces is no doubt a powerful framework in determining the competitive nature of an industry. However it has been criticised by various commentators regarding its usefulness in today’s dynamic business environment. Although, Wheelen & Hunger (2002) recognised the five force they both thought that Stakeholders influence should have been included as the sixth force. This is because interest groups like the government, local communities, creditors, trade associations, special interest groups, unions and shareholders all have big influence on how the organisation operate. For instance, financial policies such as interest rates are being regulated by the government and may have a negative or positive effect on the organisation. Also as part of the stakeholders if creditors refuse to provide credit facilities for some firms could force them into liquidation.

Porter’s model assumed that all businesses are competing against each other while in the actual sense some complement each to provide a better product, which are known as complementors. Complementors in this sense are businesses that provide complementary services to each other. These companies form strategic alliance to enhance the services that they provide either for the purpose of...
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