Porter's Five Forces Model: Critical analysis and contemporary relevance

¶ … Competitive Forces That Shape Strategy

Accurate comprehension of the article = blue

Critical analysis of the strengths and weakness of the ideas, concepts or theories = yellow

* Provision of specific comments in the form of criticism, disagreement, synthesis, paradox, curiosity or genuine confusion= green

Assessment of Five Competitive Forces That Shape Strategy

In the article The Five Competitive Forces that Shape Strategy (Porter, 2008) the well-known framework of the Five Forces Model originally defined by Dr. Michael Porter in 1979 is updated to reflect the current realities and uncertainties of industries included in his original article and book that expanded on the model's core concepts (Porter, 2008). The value of the Five Forces Model has been questioned over the last two decades, and several of the most valid criticisms of the framework are analyzed and responded to by Dr. Porter in this article. He also brings in an analysis of Return on Invested Capital (ROIC), in insightful analysis of how the Five Forces Model can be an accurate predictor of long-term profitability and performance of an enterprise in a given industry. There are still shortcomings with the model as it doesn't reflect the chaotic and fluid nature of business models today; however it does serve as a highly effective platform for analyzing enterprises and industries.

Conclusion

The Five Forces Model continues to serve a useful purpose in explaining the forces that shape the competitive environment of an industry, with equal applicability to enterprises. It is becoming increasingly static as the chaotic nature of businesses changes; it shows signs of being anachronistic as it does not have a component or assumption to show fluidity of rapid, even disruptive change. It is also limited in terms of how effectively it can explain the reshaping of industries based on factors outside of its scope. In the industries that have these five dimensions as relevant, the model works. Yet increasingly there are industries and business models that don't align as neatly into these categories as Dr. Porter originally designed the model to support.

Reference

Porter, M.E. 2008, The Five Competitive Forces that Shape Strategy, Boston, United States, Boston.