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Porter's Five Forces Model Criticism

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Porter's Five Forces Model Criticism

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  • November 8, 2010
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Porter’s theories are based on the economic situation in the eighties. This period was characterized by strong competition, cyclical developments and relatively stable market structures. This is hardly the case in today’s dynamic markets. The rise of the Internet and of various e-business applications has strongly influenced nearly all industries. The model simply provides a shapshot of an industry, rather than a more dynamic picture which says something about the future, and can be more readily translated to strategy. Porter also does not consider the non-market forces. It assumes that the organisation’s own interest comes first; for some charitable institutions and government bodies this assumption may be incorrect. Likewise the issues of corporate social responsibility and business ethics are missing. Strategy relates both to the economics of a firm’s situation and to the very identity and purpose of the firm. This second dimension of strategy might explain why some firms stick in industries that Five Forces suggest are deeply unattractive and why some firms are rule breakers or innovators. Another factor is that the model is based on the idea of competition. In general its starting point is that the environment poses a threat to the organization – leading to the consideration of suppliers and buyers as threats that need to be tackled. It assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. With this focus, it does not really take into consideration strategies like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks or others. Such strategies may be excluded if they are regarded purely as threats. It also assumes that buyers have no greater importance than any other aspect of the micro-environment. Other commentators such as Aaker or Baker would fundamentally disagree on this point: they argue that the...