Beyond Porter Five Forces

Topics: Strategic management, Management, Porter five forces analysis Pages: 6 (1891 words) Published: August 5, 2010

Beyond Porter – A Critique of the Critique of Porter
The writings of the American managementguru and Harvard-Professor Michael E-Porter are considered to be among the most influential of their subject – and among the most critiqued ones. Porter had a lasting influence on strategic management with his books about competitive advantages on industry level and on global level, which were written in the eighties. Porter’s models like the Five Competitive Forces, the Value Chain or Porters Diamond have become standard equipment of the manager’s toolbox. Porter’s ideas became more and more subject of critique under the impression of the developing Internet economy during the last decade. Critics point out that economic conditions have changed fundamentally since that time. The rise of the Internet and of various e-business applications has strongly influenced nearly all industries. In fact, Porters theories base on the economic situation in the eighties. This period was characterized by strong competition, cyclical developments and relatively stable market structures. Porter’s models focus on the analysis of the actual situation (customers, suppliers, competitors etc) and on predictable developments (new entrants, substitutes etc). Competitive advantages develop from strengthening the own position within this FiveForces-Framework. Hence, these models cannot explain or analyze today’s dynamic changes that have the power to transform whole industries. tools: digitalization, globalization, and deregulation. Digitalization: As power of information technology grows, all players in a market will have access to far more information. Thus, totally new business models will emerge in which even players from outside the industry are able to vastly change the basis of competition in a market. Downes gives the example of the rise of electronic shopping malls, operated for instance by telecom operators or credit card organizations. Those who use the Five Forces Model and who base their thinking on today’s industry structure would never see these changes coming in time. Globalization: Improvements in distribution logistics and communications have allowed nearly all businesses to buy, sell and cooperate on a global level. Customers, meanwhile, have the chance to shop around and compare prices globally. In the result, even locally orientated mid-sized companies find themselves in a global market, even if they do not export or import themselves. One can add here, that global and networked markets impose new requirements on organizations' strategies. It is not enough any more to position oneself as a price-leader or quality-leader (like Porter suggests in his Generic Strategies model). Rather competitive advantages emerge now from the ability to develop lasting relationships to more mobile costumers and to manage far-reaching networks of partners for mutual advantage. Deregulation: The past decade has seen a dramatic shrinking of government influence in many industries like airline, communications, utilities and banking in the U.S. and in Europe. Fuelled by the new opportunities of information technology, organizations in these industries were able and forced to completely restructure their businesses and to look out for alternatives.

Downes’ Three new Forces Larry Downes, co-author of “Unleashing the Killer App: Digital Strategies for Market Dominance” states in his article “Beyond Porter” that these assumptions are no longer viable. He identifies three new forces that require a new strategic framework and a set of very different analytic and business design

© Dagmar Recklies, June 2001 Recklies Management Project GmbH § Tel. ++49/391/5975930 § Fax ++49/721/151235542 § mail:


Downes summarizes that the role of information technology is the foremost difference between strategy what he calls the ‚Porter world’ and in the new world of the new forces. The old economy used IT as a tool...
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