As a ground-breaking advancement in the field of strategic management, Porter’s Five Forces model is a natural pick for evaluating an industry’s strategic perspectives. The basic premise of the theory is that competitiveness within a given industry is the defining factor for strategic planning, and there are five forces influencing it. These forces are the bargaining power of suppliers, the bargaining power of buyers, competitive rivalry, the threat of substitutes, and the threat of new entrants (Porter 2008, pp. 80-85).
While the longevity and popularity of the Five Forces model testify for its applicability, there are still some limitations to it. Porter’s theory interprets competitive strategy exclusively in terms of the external operating environment, focuses on the competition within the firmly set existing markets, and might be less suitable for emerging markets.
The first critique of Porter’s Five Forces model that came up in the group’s discussion of its case was the fact that it concentrates solely on the external competitive environment. It aims to evaluate the competitiveness of the industry as a whole or a large segment of it and, by doing so, concentrates on the external operating environment. As a result, if the firm uses the Five Forces model in its strategic planning, its analysis concentrates solely on the factors external to the firm’s own performance (Davis 2017, p. 4).
Such an approach tends to reduce the firm’s internal resources, such as the employees, to a mostly inconsequential factor. Admittedly, this criticism does not undermine the value of Porter’s Five Forces model for assessing the external environment a firm operates in. Still, one should be aware that it does not account for the internal factors just as well, which means other theoretical tools should be used for this purpose.
As the group continued its work, another criticism of potential weakness in the Five Forces model came up: Porter’s theory tends to evaluate competition in terms of firmly set existing markets. The essence of this criticism is that many companies aim to beat their competitors in an existing market space with the already known players and products, which is a mistake. According to this critique, a more efficient solution is creating a new market space (Wee 2017).
This is different from Porter’s threat of substitutes, as it implies creating a new market for a new product, rather than offering a new product to a pre-existing market (Porter 2008, p. 84). Apparently, there is research confirming the validity of this criticism and the advantage of this approach (Burke, van Stel, and Roy 2016; Orlov & Chubarkina 2017). As in the above-mentioned case, this critique does not make the Five Forces less applicable to the analysis of a given market space but points to one of its limitations nevertheless.
Another consideration that rose up in the group’s work was that Porter’s theory emerged from the analysis of industrial markets in developed countries and, as such, might be less suited to the emerging markets. The group was not unanimous with regards to this criticism, as the forces examined in the model should, in one way or another, be present in any market, whether developed or emerging. Some authors apply Porter’s theory to the emerging markets directly (Ogutu 2015; Adi 2015). There are also those who recognize the possible pitfalls of doing so but claim to circumvent them (Mukherjee 2018). All in all, the support for this particular criticism is mixed at best.
As a group, we were able to not only apply the theory to a given case but also to think beyond it, as when identifying the criticisms not related directly to the group’s case. For instance, the limitation of focusing on existing markets was not an issue with our case in particular, as the market evaluated in it is a firmly established one, but we still considered the possibility of such a critique. The same applies to the criticism regarding the emerging markets.
The main problem we encountered was not analysing the assigned theory, but combining the results. While every participant provided a certain contribution, organizing those into a coherent paper was a challenge, as the criticisms proposed were of varying validity. Additionally, the results provided by different participants were not always in line with each other – as with the criticism regarding emerging markets. This required additional effort for the evaluation of the materials gathered. Thus, an obvious advantage and benefit of the group work was the ability to look at more aspects of the case simultaneously, but it came with the disadvantage or having to align numerous perspectives.
To summarize, the group’s work allowed identifying several actual or potential limitations of the Five Forces model. We have established that it focuses on the external operating environment, concentrates on the existing market spaces, and might be less applicable to emerging markets. The group performed fairly well, but it would benefit from a more efficient and well-though organization of the work process and a more thorough planning.
Reference List
Adi, B. (2015). An Evaluation of the Nigerian Telecommunication Industry Competitiveness: Application of Porter’s Five Forces Model. World Journal of Social Sciences, 5(3), 15-36.
Burke, A., van Stel, A., & Thurik, R. (2016). Testing the Validity of Blue Ocean Strategy versus Competitive Strategy: An Analysis of the Retail Industry. International Review of Entrepreneurship, 14(2), 123-146.
Davis, P. (2017). How HR Can Create Competitive Advantage for the Firm. Human Resource Management International Digest, 25( 2), 4-6.
Ogutu, F. (2015). Porter’s Five Competitive Forces Framework and Other Factors that Influence the Choice of Response Strategies Adopted by Public Universities in Kenya. International Journal of Educational Management, 29(3), 334-354.
Orlov, A. & Chubarkina, I. (2017). Blue Ocean Strategy application in the Course of Planning and Implementation of Construction Projects in the Area of SMART Housing and Social Infrastructure. MATEC Web of Conferences, 106(08015).
Mukherjee, I. (2018). Applying Porter’s Five Force Framework in Emerging Markets—Issues and Recommendations. In Adhikari, A., ed., Strategic Marketing Issues in Emerging Markets. Singapore: Springer, 307-316.
Porter, M. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review, 86(1), 78-93.
Wee, C. (2017). Think Tank – Beyond the Five Forces Model and Blue Ocean Strategy: An Integrative Perspective From Sun Zi Bingfa. Global Business and Organizational Excellence, 36(2), 34-45.