Assignment 1 Describe Porter’s Five–Force model and how it is helpful when developing one’s international strategy. Do you see any limitation to Porter’s modeling techniques? Michael Porter’s Five-Force model, as described and illustrated in “Porter’s Five Forces: A Model for Industry Analysis (Article from QuickMBA. com)”, goes beyond the traditional industry competitive analysis that would just compare Rivals, both current and potential, to include Suppliers and Buyers and also Product or Service Substitutes.
I have not yet read Porter’s “Competitive Strategy” (1980), but understand that it is the definitive work on the introduction of the Porter Five-Force model (1979) and describes how the model can be used as a tool to not only determine the “attractiveness” of an industry, but also how a company can develop its eponymous competitive strategy.
Accordingly, this five-force framework, if correctly applied according to Porter’s prescript, should help a company to better understand the forces at work in that industry and also assist in focusing the company’s management strategic vision on those forces that require special attention in the development of their international strategy. I have read the most recent update of Porter’s initial 1979 Harvard Business Review (HBR) on the Five-Force Model titled “The Five Competitive Forces That Shape Strategy: Porter HBR January 2008”.
This recent article aspires to help a company to “stake out a position that is more profitable and less vulnerable to attack”. Porter thoroughly re-addresses the Rivals and the four additional competitive forces: Buyers, Suppliers, Threat of New Entrants, and Substitutes (products or services) and also addresses “fleeting factors” such as growth rates, technology, government and complementary products and services in this article. He cautions strategists to “avoid the common pitfall of mistaking certain visible attributes of an industry for its underlying structure. ” p. 10.
Porter’s proposal is that, given a thorough analysis using the five-force model properly, a company will be able to see the key forces and factors affecting success in its industry and that this initial analysis is the first step in developing its business strategy. He also emphasizes that a thorough analysis should be conducted on each of the five forces rather than simply listing the forces and their attributes. Porter succinctly addresses the application of the five-force analysis and suggests that additional business strategy clarity can be derived “through the lens of the five-force model”.
The five forces are identified as the basic tool to analyze and address the buyers, the suppliers, the competitors, the substitutes and the potential new entrants. The strategist must assess each competitive force to determine which forces are the key determinants to the individual business competitive success and profitability in the specific industry. Porter’s five-force model is strategic analysis tool for companies who want to not only evaluate their position in an industry but also apply the results of that evaluation to the strategic business planning process.
This process is key in developing the company’s international strategic management plan so that the management team can better understand their own tailored five competitive forces and how best for them to select a path to profitability. I can see where the five forces framework can be used to gain insight into those forces and how they can be factored in the development of strategy, but I have not been able to determine where this methodology has been applied successfully. Has the five forces framework proven itself in helping develop and implement strategic options that actually improved relative performance in the industry?
Finding the answer to that question in on my “to do” list for the remainder of this course. The confidentiality of business processes may limit one’s ability to learn the actual success rate. Since it appears that Porter’s five-force model is somewhat agnostic about the nature of the business, a limitation on the model’s application may be how individual company strategists in the same industry could interpret the results differently and the companies may also execute their resultant competitive strategies differently using the same framework analysis model.
There also may be a timing and applicability challenge given that any of the five forces may change through time because of emergent factors which will require a revalidation of the strategy due to a change in one or more of the five forces. Another limitation on the model may be that Porter’s perspective appears to be at the Industry level. Dr. Aktouf, in his article “The False Expectations of Michael Porter’s Strategic Management Framework: 04/11/2004” stated that Porter’s work is at the meso-economic level and that the type of business itself is “kind of a black box”.
The model seems to emphasize and evaluate an industry holistically and not on the strengths and weaknesses of individual firms. He concludes that Porter’s model overemphasizes the importance of industry structure as a determinant of company performance and underemphasizes the importance of differences between companies within an industry. However, Dr. Aktouf also commends Porter for going beyond the existing models in 1979 such as the Boston Consulting Group’s portfolio model “based on an analysis of advantages and disadvantages which limited them to the microeconomic level”.
His most serious objection to what is called the “Porterian” approach is that “its formalism yields an analytic approach which has no prescriptive power” (p. 17). Given my novice status with just having begun my MBA journey, I view Porter’s Five- Force model and its potential use when developing one’s international business strategy as another tool to help managers determine opportunities that will allow the firm to gain a competitive advantage.
In summary, just because the model indicates that your company is based in an “attractive industry”; it still may not be optimizing its profits due to execution challenges. Just as implementation of a global business strategy is commonly considered to be more challenging than its development, so too challenges occurring during the analyses and subsequent implementation of strategy emerging from Porter’s Five Forces model must be overcome in order to execute an astute business strategy and sustaining competitive advantages rather than simply list the forces.