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Porter's Five Forces Essay

803 words - 4 pages

Introduction

Competition in the business environment and strategies to counter that competition has existed and evolved for centuries, however a true revolution in the strategy field did not occur until relatively recently by a Harvard University professor and economist by the name of Michael E. Porter. According to Porter, "the job of the strategist is to understand and cope with competition" (Porter, 2008), however Porter observed that competition was often too narrowly defined, and that managers almost always neglected other competitive forces such as customers, suppliers, other marketplace entrants, and the potential for substitutes products. Consequently, in 1979, Porter published ...view middle of the document...

145).

The Five Forces and Operating Overseas

Over the past twenty years, technologically advances has led to a boom in globalization, which in turn has dramatically increased international competition. Porter's Five Forces model was never intended to be a domestic or regional only tool for strategic managers. In fact, it is an excellent tool for an organization to utilize to determine one's international strategy. The results from assessing the forces driving industry competition will ultimately determine an organization's profit potential, which is the bottom line for all businesses. In other words, "a high competitive force can be regarded as a threat and a low competitive force can be considered as an opportunity as it allows a company to earn high profits" (Jeyarathmm, 2008, pg. 70). It is important to remember that Porter's Five Forces is just a model to assist strategic managers and should not be relied on exclusively.

Five Forces Limitations

As with any model or theory, Porter's five competitive forces that shape strategy has its limitations. One of the primary limitations of the Five Forces is subjectivity. When strategic managers assess each force and their corresponding sub-component, there is basically no right or wrong answer. The experience and expertise of the strategic manager will play a large role, and a less experienced manager can greatly affect a company's control of their specific market (Mawhinney, 2008).
A second primary limitation of the Five Forces is innovation. Industry structure is often reshaped as a result of continuing...

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