The 5-forces Model: obsolete.

The Five Forces Model: Obsolete.

Obsolete [ob-suh-leet, ob-suh-leet]
Adjective | no longer in general use; fallen into disuse:
Source: dictionary.com

Based on the Preface of the book: Managing Supply Chain Networks: Building Competitive Advantage in Fluid and Complex Environments. Alexandre Oliveira and Anne Gimeno. Pearson FT Press, NY, 2014.

During the past few decades, academics and practitioners have debated about the best approach to define a firm’s strategy. The model based on the dynamics of competition within an industry called the Five Forces That Shape Strategy (Porter, 1985) has been largely accepted despite several dissonant opinions. Approaches based on the economic model of imperfect competition suggest the market winner is the best competitor among all firms that dispute space in a dynamic and competitive environment.

But a dramatic change in the business environment destroyed the fundamentals of traditional value chain management and the very basic principles that supported previous strategic thinking. In addition, technology omnipresence is the underlying mechanism that has altered the dynamism of the business environment and shrunk both the economic and industry cycles: (i) barriers to entering new markets have reduced, (ii) new entrants have multiplied, and (iii) substitution of products and service is customers’ expectation in most industries.

These factors have reduced the importance of the rivalry among existing competitors because these have developed external alliances in order to survive. Companies no longer compete; supply chains do. In fact, the supply chains’ networks compete with each other. This scenario has distanced the Five Forces Model from applicability as it reduces the effects of each of the forces.

The ability to design businesses capable of elasticity, resilience, and responsiveness requires an environment triggered by constantly updated market knowledge. The only asset that matters is people. The only strategy that delivers long-lasting shareholder value is the innovation-enabled knowledge leadership. The only business model that enables a truly innovative environment is the management of supply chains’ networks. It is necessary to perceive (sense based on knowledge) the next market changes and anticipate the new strategy.

Excellence in managing supply networks creates wise competitors - a conglomerate of complementary businesses that work together to win in the market and deliver value to shareholders and stakeholders.
The challenge is then to identify the mechanisms that enable market changes’ responsive strategies for fluid and complex supply networks. This new business environment has no longer the premises that sustained the arguments for the value chain. A new paradigm exists. Previous dynamism and volatility has been overcame by market fluidity, complexity, and unpredictability. While the traditional value chain approach prepares for competitiveness, the value chain prepares for innovation. The ability to change and simultaneously add value represents the ultimate competitive leadership.

The organization must be able to concurrently deliver a groundbreaking cost-benefit environment to shareholders and stakeholders. Some firms previously ignored during traditional strategic thinking models are now influential stakeholders. The governance structures that balance shareholder value and stakeholder interest need to review their policies because their relative importance is now very similar. Once the single firm no longer has the resources to compete in its industry sector and given that only through alliances will this firm shape high-performance supply networks capable of beating other equally designed supply networks, it is possible to understand the power these elements external to the firm have.

Given the multiplication of players that influence the supply network of which a firm is a part, and because many of these players are influential enough to be considered stakeholders, there is a multiplying effect of externalities within the wise competitors. This massive effect of externalities is associated with the reduction of suppliers’ bargaining power, the reduction of barriers to entry in the markets, and the reduction of barriers to create substitute products or services, as explained previously, disabling any competition theory (perfect or imperfect) from explaining the new economy business environments.

It is during this period that the wise competitors start to create a common governance structure, represented by the Supply Network Governance Diamond (SNG Diamond Model). Each firm assigns one or more representatives to build a multicompany structure focused on the long-term success of the entire network environment. The diversity of ideas forms the premium raw material to deliver innovation.

The wise competitors collaborate and build a common governance structure capable of promoting knowledge transfer and strategic decision making. This creative environment continuously produces new ideas to respond to all sorts of challenges that test the performance of the supply networks. Risks, opportunities, problems, and trends are the filters to select the most appropriate ideas that are tested, deployed, and experienced by the wise competitors.
The value-added innovation rate is proportional to the ability of transferring knowledge within supply network firms—the wise competitors.

The players of the innovative supply network are the wise competitors capable of creating permanent knowledge flows that allow business visibility to the point of sensing even the smallest environment oscillation. Therefore, innovative supply networks anticipate strategy adjustments prior to the creation of disruption valleys by preserving and increasing shareholder and stakeholder value.