Five Competitive Forces That Shape Strategy

Porter Five Forces Model The Five Forces Model has over the last two decades become one of the most cited and used strategic frameworks relied on by both academicians and practitioners globally to explain the dynamics of their enterprises. It's pervasive use can be attributed to the ability to quantify the five forces that define the competitive dynamics that affect industries and enterprises, as the framework is used for evaluating each (Porter, 2008).

The intent of this analysis is to evaluate the strengths and weaknesses of this framework, in addition to making recommendations for how it can be improved given the exceptional uncertainty and chaotic nature of many industries today.

Analysis of the Five Forces Model The strengths of this model include the ability to quickly analyze complex industries and quantify the effects of the five forces that define their competitive dynamics, in addition to the ability to project the relative level of Return on Invested Capital (ROIC) based on an analysis of the five factors (Porter, 2008). Porter has updated the model to reflect the competitive dynamics that have a direct impact on overall profitability and long-term barriers to entry in industries as well (Porter, 2008).

The model also is capable of being used for defining the competitive dynamics a given enterprise faces over time, capturing the bargaining power of suppliers vs. buyers, showing how the value chain of an enterprise needs to change over time to survive (Porter, 2008). All of these factors are evident in how Dr. Porter has constructed the model.

His latest edition of the analysis supporting this model also shows a strong focus towards creating interlinking points to the an analysis of Return on Invested Capital (ROIC) by industry as well, with the most defensible having the greatest performance based on his model's constraints (Porter, 2008). The five forces of the bargaining power of suppliers, threat of substitute products or services, bargaining power of buyers, and threat of new entrants all impact and are impacted by the rivalry among existing competitors.

The dynamics of the model capture the focus on profitability exceptionally well. There is also the potential to drill down into the specifics of a specific pricing, product or supply chain strategy as well, using the techniques Dr. Porter lists in this expanded explanation of the model. Finally Dr. Porter includes a thorough analytical framework for completing a market analysis as well. For all of these benefits however, the model still doesn't scale or stay in step with the sheer velocity and speed of change in many industries.

In the fast-moving social media industry for example, this model is too formalistic and structured to deal with.