Reevaluating Michael Porter's Five Forces: Navigating Limitations in a New Normal Landscape

As a strategy executive and lecturer on the subject, I continue to be surprised by the fact that Michael Porter's Five Forces framework, introduced nearly 45 years ago, remains a cornerstone in strategic development and management, as well as business analysis, despite significant changes in the business environment, in the way we think, manage, and execute strategy.

Porter's framework undeniably possesses its beauty in simplicity and clarity in evaluating the competitive dynamics of an industry, as well as ease in generating insights (when applied correctly), thus providing valuable didactic and practical value, especially in companies without a tradition of strategic thinking or a practitioner in the field.

However, Porter's Five Forces model is not exempt from limitations and criticisms, especially in a digital world where disruption is constant. My goal in this short text is not to exhaust the subject, and for those who wish to delve into the criticisms, I recommend starting with the work of D?lken (2014), where he presents a detailed analysis of the framework's limitations, especially from the perspective of digitalization.

My aim here is to present a personal and practical viewpoint on this matter. Therefore, I believe that the main limitations of the framework may be in five key areas: its static nature, lack of depth in macroenvironmental analysis, simplification of supply chain relationships, downplaying the role of the consumer, and the absence of an execution approach.

• Static Nature: Porter's Five Forces framework focuses on analysing the current state of the industry and the company. Today, the rapidly changing dynamics of the business environment quickly render analyses that do not consider the future landscape obsolete. To mitigate this limitation, one can create different future scenarios and use the framework conventionally. However, this is complex and requires experienced analysts, as the number of iterations can grow exponentially as parameters change.

Porter's framework undeniably possesses its beauty in simplicity and clarity in evaluating the competitive dynamics of an industry, as well as ease in generating insights (when applied correctly).

• Lack of Depth in Macroenvironmental Analysis: Porter's framework does not provide a solution for macroenvironmental analysis of the business environment and its interactions with the industry. For this purpose, other analysis models have been developed, with PESTEL being the most popular. However, when assessing an industry's competitiveness without considering macroenvironmental factors, the Five Forces model becomes incomplete and, consequently, can lead to erroneous assessments. To mitigate this risk, integrated and simultaneous approaches can be adopted, providing a holistic analysis and more accurate decision-making.
• Minimization of the Role of the Consumer: Porter's Five Forces downplays the role of the consumer, seemingly reducing their sphere of influence to the end of the value chain and attributing limited influence (bargaining power) as either strong or weak. This approach is losing relevance in a digital, multifaceted, and open world. Currently, consumer-centric strategies have been developed, and initiatives such as active consumer involvement in development stages and communication actions have become increasingly common, yielding significant financial results. The supplier-buyer relationship is shifting from transactional to collaborative, and an analysis that does not take this into account can hinder an organization's ability to identify and respond to emerging opportunities and threats.

Action-oriented thinking is vital at any stage of effective strategy development, and Porter's model delegates this task to executives.

• Simplification of Supply Chain Relationships: Porter's binary approach to competitiveness, which classifies relationships as either weak or strong in terms of supplier/customer bargaining power, is overly simplistic in a contemporary context where interactions are notably complex and influence relationships are not so evident. In the current business environment, many of these interrelationships are based on fluid and multifaceted structures, such as ecosystems and networks, where power relations are often shared, and interactions between players are more collaborative and less transactional. When analysing competitiveness, these new models should be identified, and new paradigms should be considered.
• Absence of an Execution Approach: It is known that Porter developed his competitiveness model with the aim of diagnosis and as a tool for analysing the industry's environment, leaving the task of proposing actions to executives. However, practice shows that an experienced strategist, with the right approach and pertinent questions, can, even during the analysis phase, obtain insightful information about possible initiatives, resources, and capabilities needed for strategy execution. Action-oriented thinking is vital at any stage of effective strategy development, and Porter's model delegates this task to executives who may not have the experience or knowledge to adapt the framework for such purposes.?

In conclusion, while Michael Porter's Five Forces framework has immense value and continues to contribute to understanding competitive dynamics in industries, its limitations need to be acknowledged and considered when applying it. In a digital, collaborative, and dynamic business environment like today's, executives are required to have a critical mindset, analytical ability, and adaptability, even when using widely tested and established frameworks, to develop a solid and lasting competitive advantage.

?

Reference: D?lken, F., 2014. Are Porter’s five competitive forces still applicable? A critical examination concerning the relevance for today’s business (bachelor’s thesis, University of Twente).