The problem with this kind of thinking is: once it begins to spread within an organization, it is only a matter of time until the entity will be slow to respond to changes that are take place. Once this happens, it can mean that a company can go from dominating their competitors, to becoming a cautionary tale. A good example of this can be seen with Sony's obvious lead with Betamax. This was the forerunner to the VCR and was believed to the future of the video cassette industry. Because of these perceptions, the managers and executives believed that their success in the past would translate into future success. What they were not taking into account, was a strategic partnership that a weaker competitor made to develop an alternative model, VHS. In this situation, JVC (the weaker competitor) would form an alliance with Matsushita. This would give the company the capital and exposure they needed to market their competing product to Betamax. Within a few short years, the VHS format would dominate Betamax and would eventually become the standard video cassette recorder that was most commonly utilized. (Pech 2005, pg. 40) This is significant, because it shows how managers and executives must be prepared for changes. Otherwise the underlying levels of complacency will act like a cancer and eat away at the most successful organizations, as they are unable to effectively respond to change. When you apply this to Porters model, it is clear that the above example identifies how an alternative product would eventually replace Betamax. If the model is applied properly, it can help an organization be able to see changes when they are coming early. During times of long economic expansion, this will allow a company to reduce the underlying amounts of risk, before it becomes a problem. At the same time, it helps an organization to be able to see new opportunities that could be presented during periods of economic contraction.
However, to fully determine if Porters Five Forces Model is effective requires comparing this with another strategic management theory. This will provide the greatest insights as to the underlying strengths of the model and if they are effective at helping a business, to adapt to various changes. In this case we will be comparing the Five Forces Model with the Balance Scorecard. This is where managers / executives will use various non-financial and financial performance measures, to determine the underlying strengths / weaknesses in an organization. To examine the various challenges facing an organization, the Balanced Scorecard will establish a procedure for monitoring changes that are taking place. Where, managers would use four different elements to assist them these include: translating various ideas into operational objectives, communicating these ideas / linking them to individual performance, effective planning and adjusting your strategy for to the environment. When you compare these different pieces with the Five Forces Model, it is clear that all of the different elements are focused on providing managers with an effective way of keep the organization focused, on various changes that could impact the overall bottom line. As both provide effective mechanisms for monitoring and adapting to various changes that are taking place. This is significant, because it shows how the Five Forces Theory can be able to help an organization be able to evolve. While, avoiding the common situations that can often occur, when a company begins to become too successful. (Tofler 2010)
Next an organization must be able to evaluate the internal environment. This is where you are examining various internal issues that could affect the underlying levels of competiveness within an organization. At the same time, you are seeking possible solutions that could address these underlying issues. To conduct an effective analysis of the internal environment requires that you examine the relative challenges in comparison with possible solutions. Then, be able to define these solutions through different tools including: goals / values, resources / capabilities and the overall structure / systems. Goals / values is when you are laying out objectives for the organization and determining what are the most important aspects of the different products / services to customers. Resources / capabilities are: the total amount of materials, man power and financial resources the company has available in the production of different goods / services. The overall structure / system is when you are examining the how the atmosphere and the chain of command; could be help to alleviate or contribute to various underlying issues. This is significant, because it will allow an organization to be able to identify what kind of issues could be affecting their ability, to adapt to changes in the marketplace or the economic conditions. Those organizations that have an effective understanding of the internal environment can be able to design strategies that will help it to identify changes early. This is the key to being able to prosper during time of economic expansion and to seize market share from weaker competitors. When you use this in conjunction with Porters Five Forces model, this will help provide businesses with an overall understanding of: what possible issue could be affecting their organization and how they can overcome them. (Understanding the Internal Environment 2010)
The external environment is when you are looking at the total impact that: competitors, customers and suppliers will have on the underlying business. In this particular case, managers / executives would want to examine how the combination of these factors can be changing demand or the marketplace. Competitors provide an excellent way of being able to see how the market place is changing, based upon prices that they are charging for similar goods and services. The customers will highlight how their tastes could be changing and what products or services they are looking for. Suppliers will determine if the cost to produce various goods or services could be rising. As any kind of price increase, could have a ripple effect on customer demand. Once this takes place, it will help an organization identify what changes are occurring and how they can be prepared for them. This could be utilized with Porters Five Forces Model to identify specific issues in the external environment, and then help provide an effective way for adapting to these changes. (Understanding the Internal Environment 2010)
Clearly, the Porters Five Forces Model provides an effective way of identifying changes that are occurring in business. Where, it will help an organization be able to see the overall scope of possible challenges in the future. At the same time, it is conducting an internal and external analysis, which can identify specific issues that could be affecting the company. Once this takes place, is when an organization has the possibility of being able to address these changes, by providing effective strategies that can be implemented into the business model. As a result, those companies that utilize this kind of an approach can see record profits during times of economic expansion. While at the same time, having the ability to, seize upon opportunities during times of economic contraction. This is because those organizations that use this strategy have the ability to adapt to change quickly. In many ways one could argue that this is the key to long-term success in business, as the ability to identify to changes quicker than everyone else will determine how profitable a company will be in the future.
Famous Companies Founded During an Economic Recession, 2009, Resource Nation. Available from [27 August 2010].
Understanding the Internal Environment, 2010, lecture notes.