PORTER'S 5 FORCES

Porter's 5 Forces

Porter's 5 Forces

Introduction

In today's dynamic and competitive business environment, survival, growth and profitability are the essence goals of all industries. Nowadays, Porter's Five Forces, Value Chain and Balanced Scorecard frameworks are currently being adopted as the powerful management tools of choice by many organizations. The essence of these three frameworks is that they can help senior managers to make right decision and build and sustain competitive advantages in the organization level. This report presents the overview approach of these three frameworks across organizations. And critically evaluation of three frameworks mainly focused on identifying the benefits and limitations of three frameworks and exploring some perceived issues or problems regarding implementation. Finally the linkage and dissimilarities between three frameworks are concluded in the last section of this report.

Porters five forces, as a powerful analysis tool, enables managers in corporations to analyze the current situation of their industry in a structured, easy-to-understand way. From a strategic management perspective it is useful for managers in any organization in the same industry or sectors to understand the five competitive forces acting on and between organizations in the same industry and or sector since this will determine the attractiveness of that industry and the way in which individual organizations might choose to compete (Johnso and Scholes, P. 116).

Claimed benefits

First of all, Porter's five forces framework provides one simple approach to analyze industry structure. The five forces analysis helps in identifying and determining the attractiveness of an industry, the source of competition. And because Porter's five forces reveal insights on profitability, it can inform important decision decisions about whether to leave or enter industries or sectors. Moreover, the model can be used to compare the impact of competitive forces on the own organization with their impact on competitors. Competitors may have different options to react to changes in competitive forces from their different resources and competences (Pearce and Robinson, P.92). This may influence the structure of the whole industry.

The five forces framework can be used to gain insight into the forces at the work in the business environment of a strategic business unit which need particular attention in the development of strategy. Porter's five forces framework is of great importance in developing strategic options to improve relative performance in the industry or influence relative position in industry. (Johnson and Scholes,P.119). Because strategic choices need to take account of the external environment especially pay attention on Porter's Five Forces in which the organization operates: competitive advantage may be eroded as substitute products due to technology changes or as new competitors enter market.( Porter, 2001)

For example: a leading manufacturer of vacuum tube with strong position in the electronic product industry unthreatened by potential entrants will gain low returns if it competes with silicon chip or new semiconductor. In this circumstance, how to compete with the substitute product becomes the first strategic priority for the leading manufacturer of vacuum tube to maintain competitive advantage.

And another value of five forces is as a thought provoking theory to help ...