when published michael porter s framework marked a departure from the then dominant models of business strategy steeped in classic competition theory 4
those models still echoed in economics 101 textbooks rested on several key if questionable assumptions markets as arenas for many small firms with no significant market power homogeneous products perfect information symmetry and no barriers to market entry or exit while helpful for learning basic principles this idealized view could be taken to an extreme when strategizing with neatly constructed supply and demand curves assuming for instance new market entrants would stabilize rising prices by increasing supply business strategists need to deal with sectors where information asymmetry product differentiation and significant entry and exit barriers are common firms do have some control over prices contradicting classical assumptions in short where economists assumed most markets acted like the model for porter most firms are in industries with entrenched interests and different supplier and customer relations they need strategies for dealing with anything but perfect competition 5porter s five forces come together in different ways for any given sector he labeled industry competition as ranging from intense to mild with profits harder to achieve as the intensity in a sector rises in intensely competitive industries all or most of the five forces have a strong influence 1the fast food industry is porter s own example which still remains the case 1in this sector there s a fierce rivalry among established players like mcdonald s and burger king high bargaining power for suppliers and customers and a relentless threat of new entrants and substitutes all of which means profits are constantly getting squeezed for anyone in the sector meanwhile in mild industries such as commercial aircraft manufacturing there are weaker forces here low supplier bargaining power a minimal threat of new entrants and a lack of direct substitutes like commercial aircraft for long distance travel help form a sector more conducive to higher profits applying the modelsince his 1979 harvard business review article porter has published many books on strategic analysis including works where he has expanded on his five force model he s also become very concise in providing the specific steps in performing an industry analysis 3critiques of the five forcesporter s model helped reframe the understanding of competition it wasn t confined to direct rivals but extended to suppliers and customers traditionally viewed in a transactional light suppliers especially those with unique resources or enjoying a monopoly could dictate terms lower profits or in extreme cases forward integrate into the buyer s industry customers too wield power especially when buying in bulk or when they can just go elsewhere quickly or choose to bypass companies for in house products 2but the model has its pitfalls for example many have critiqued the model s emphasis on sector affiliation porter concentrates on industry wide forces which can sideline an individual company s unique strategies and advantages this industry centric view may not fully capture how distinct company characteristics can change the game not just play within an industry s preset rules 6the model assumes clear lines among sectors which may not be tenable given the increasingly blurred lines in today s business world where companies are simultaneously in several sectors industries are no longer isolated silos instead they often intersect and interact leading to a far more complex environment than the model suggests 4porter s five force model has also been critiqued for not adequately addressing the role of partnerships and collaboration 6while porter certainly entertained a competitive model where rivalry wasn t just a war to the death the problem is that he didn t go far enough in an interconnected global economy alliances and cooperative strategies are often as pivotal to success as having a competitive advantage a factor that the model doesn t explicitly consider another critique that can be filed under going in the right direction but not far enough is that the model is too static and fails to account for industries with rapid changes in technology and consumer preferences while effective in stable sectors critics say it doesn t apply well to industries marked by fast paced innovation and shifting demand 2most strikingly porter s model generalizes competition implying a seemingly uniform industry structure for every market 2this might overlook the unique competitive scenarios in different sectors and the increasing importance of the nontraditional strategies involved in digital transformation and platform based competition 