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Reflective Piece On Usefulness Of Porter's Five Forces Model.

893 words - 4 pages

In the first seminar of the term, I was observing how Porter's 5 Forces model (5F) can be used to analyse the strategic business dynamics of the European Forestry/Paper sector in the post 2004 European Union.5F is an analytical framework, which allows competitive dynamics to be systematically appraised in assessing existing and future profitability of markets/industries by analyzing the influence of particular characteristics of each of the five forces(2). Diagram below illustrates the forces and the effects of after-presentation discussion coupled with my additional insights.Porter's 5 Forces applied to the European Forestry/Paper sector (post 2004 EU)[Model about here. Extracted and adapted from]Given that firm's profitability is influenced by the profitability of an industry it is crucial to analyse it. I assume that such an audit would follow PESTLE (it provides macro-environmental analysis, which 5F lacks) and SWOT analyses, and would be done by a company in order to establish whether or not to enter/stay in an industry. Such tools are useful providing we recognise their limitations.*The Forces are difficult to quantify and even if I applied a numerical scale to my analysis above, the overall industry score would be subjective and most likely differ from those of other students in the group, even though we sat in the same seminar.*Government's influence although not represented in the model (it assumes a perfect market) may play an important role in some of the more regulated economies, especially in the acceding countries.*5F mainly base on the economic situation in the 80's characterised by strong competition and relatively stable market structures, and is not able to take into account new business models (e.g. strategic alliances) and the dynamics of markets, therefore providing only snapshots of situation in today's dynamic industries.*It focuses on industry as a determinant of company's profitability underestimating firm's core competencies as a source of competitive advantage. A company won't be profitable just because it's based in an attractive industry(3).Overall though, 5F is a powerful analysis tool, which offers good explanation for the profitability of an industry, allows to identify the source of competition and compare the impact of competitive forces on the firm and on its rivals. It is of great importance when setting out firm's strategic options.Most importantly, in my opinion, it enabled me to analyze the current situation of the industry in a structured and easy-to-understand way.After reflection and further research I think that the belief in a model's ability to provide a solution is too great. No model can be complicated enough to simulate and/or predict reality, and although 5F's simplicity sometimes works against it in the modern world, generally simplicity of a model aids to its usefulness(4). Although 5F offers good analysis of external environment, strategy shouldn't...

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