Porter’s Five Forces: Benefits and Limitations

One of the widely used tools in analyzing the competitive external environment of an industry is Porter’s Five Forces.  Porter arranged the model and classified the five fundamental forces into two, vertical and horizontal forces. Vertical forces include the bargaining powers of both the suppliers and buyers. Horizontal forces include threats due to numerous substitutes and new entrants and rivalry from competitors (Porter, ‘The five competitive forces that shape strategy’). The five forces influence any business sector in almost all commercial enterprises. It is such strengths that decide the amount of rivalry that will exist in a corporate sector and thus determining the competitiveness of an organization. Through sound corporate systems, an organization will plan to shape the five forces further so as to bolster its good fortune to fortify the associations’ position in the business. The external environment in any industry is portrayed by competition that originates from threats from new items that form perfect substitute of the company’s products, bargaining force of both the suppliers and purchasers and entry of new members.  According to Aguilar, an industry structure can show in the five forces recommended by Porter with a specific end goal to increase competitiveness and accomplish productivity. A good competitive framework should be effective in assessing an organization’s current competitiveness and in predicting its future position in the market. Any organization can choose to apply the theoretical explanations behind competitive frameworks, including Porter’s model and key achievement variables and perhaps expand on the concepts behind the competitive assessment model. The paper will analyze the benefits and limitations of utilizing Porter’s Five Forces strategic model.

Benefits

One of the significant benefits of Porter’s five forces is that forms a good basis for sizing up the weaknesses and strengths of an organization. Secondly, the model assists in determining the profitability and competitiveness of an organization faster (Porter, Porter, M. E. (1980) ‘Industry structure and competitive strategy: keys to profitability). It also assists in tracking how profitability changes over time. Porter’s model provides a baseline for further analysis since the framework used in the models is easy to comprehend and is structured in a simple manner. It also needs one to identify the position that a company holds regarding the five forces. The model also can be used alongside other analysis tools such as PESTEL and SWOT tools (Kluyver). The utilization of the model enhances the identification of key success factors and opportunities that prevail in the market. Porter’s model is also beneficial regarding selecting the appropriate market segment as it acts as the baseline for analyzing the market trends. The ability to include the analysis of threats from substitutes helps an organization to change its strategies regarding technology, environment concerns, and other aspects that make the substitute outdo the organization’s products….

Order a Similar or Custom Paper from our Writers