|
Jane, US
|
Assumptions of the Five Forces Model. Limitations
The Five Forces model has two basic premises:
The first one is that the goal of a business is long-term profitability.
The second one is that the intensity of competition in an industry is neither a matter of coincidence or bad luck: Competition is rooted in an industry's economic structure.
X
Sign up for free
Welcome to the Five Forces (Porter) | Five Forces Analysis best practices of 12manage.
Here we exchange knowledge and experiences in the field of Five Forces (Porter) | Five Forces Analysis.
❗Sign up now to gain access to 12manage. Completely free.
X
Continue for free
Please sign up and login to continue reading.
Here we exchange knowledge and experiences in the field of Five Forces (Porter) | Five Forces Analysis.
❗Sign up now to gain access to 12manage. Completely free.
| |
|
|
| |
|
Tom, US
|
|
Assumption in Porter's 5 Forces: Competition Yet another major assumption of Porter's Five Forces Framework is that he views all industries as based on COMPETITION. However there are important exceptions on this view, such as for example in the automotive industry, where strong COLLABORATION between assemblers and their suppliers have turned out to be very beneficial for all parties. The same may be the case for knowledge-intensive industries, since knowledge sharing increases its overall value. Furthermore, Edward Freeman argues that the economic paradigm of competition should be replaced by the more sustainable paradigm of collaboration with stakeholders.
|
| |
|
Danny, UK
|
|
Assumption: Product (and Services) Markets... There is yet another important assumption in the Porter Model: that firms are competing only in PRODUCT AND SERVICES MARKETS (where firms compete for customers).
However firms are actually competing in two types of markets, the other type being: FACTOR MARKETS (where firms compete for resources). These resources can include a variety of tangible and intangible assets, and even stakeholders such as shareholders-investors, banks-creditors, employees-talent, managers, the media,etc.
Note that the competition in factor markets is often cross-industry.
|
| |
|
Dino
Student (University), United Kingdom
|
|
Limitations of Porter's 5 Forces Model One more limitation that clearly stands out is that the model does not consider micro, meso or macro economic factors.
For example: an airline provides flights to various destinations across many countries. However, due to an overall economic crisis many flights are getting dropped, even though there is nothing wrong with the service.
Therefore, Porters 5 forces relies heavily on other models such as SWOT Analysis, STEEPLE Analysis and the Arthur D. Little Matrix to fill in the gaps. As a result, there is not one single industry analysis model that covers everything.
|
| |
|
Kurt Ludikovsky
Consultant, Austria
|
|
Economic Crisis in Five Forces Then you have not asked all questions. You might be right if you don't consider all factors.
An economic crisis sounds in your example as an inescapable fact. But in reality, in an economic crisis all suppliers should visit their customers and try to make deals. This would then lead to less dropping of flights.
Another effect might be that many companies switch to alternate communication tools like tele-or videoconferencing, so it's somewhat of substitution and that may also present an opportunity.
|
|
Log in
Comments by date▼