Question

In Michael Porter's article, The Five Forces, list any examples of bias or faulty reasoning that you found? Are the results/implications still valid? Explain?

Answer 1

Porter’s five forces is a widely used framework for analyzing industries. It refer to the competitive influences shaping the corporate strategies that are likely to be successful. The framework has held up well over time and continues to be a staple of the coursework for business classes. There are, however, some blind spots that you should be aware.

1. The first is the model only provides the list of the external forces that can give benefit to the firm.
2. The model only focused on the qualitative analysis of the strategic position of the firm. It does not tell in a qualitative manner that how each factor is affecting the firm’s performance. It does not also have a mechanism for determining which of the factors within each force have more weight.
3. In addition, the inclination toward qualitative evaluation can create ambiguity or foster subjectivity.
4. 5 forces model cannot be used to analyze the external situation of an organization with diversified products and service offering or in other words, of a firm with business interest across different industries or markets.
5. The model only lists down the factors, which are favorable or unfavorable to firm performance, it does not enlightening the factors which can give competitive advantage for the sustainability of the firm over its competitors.   
6. The model is useless tool for analyzing the situation of non-profit organizations and government institutions. It simply works best for profit-oriented organizations.
7. The model is also not considering the dynamic competition. Forces such as barriers to entry and threats of substitute are generally assumed as static. The model is not seeing that competition is actually dynamic. Globalization has also demonstrated that certain firms have continuously neutralized or destroyed the competitive advantage of other firms through innovation.