What is the relevance of Michael Porter's forces to modern day business?

Résumé du document

Before the early 1970s, making decisions and planning a strategy were not the same process as today. Managers who made long-term plans generally assumed that the future would lead to better times. Plans for the future were simply extensions of where the organization had been in the past. However, the energy crisis, accelerating technological changes, deregulation, increasing global competition and other environmental shocks undermined this approach to long-range planning. These changes forced managers to develop a systematic means of analyzing the environment, evaluating their organization's strengths and weaknesses, and identifying opportunities where the organization could have a competitive advantage. The value of thinking strategically began to be recognized. A strategy is the position that an organization will be able to achieve and the means to be unique in their chosen field. Each company tries to be the best in their industry and make as much profit as possible. But before establishing a strategy, several conditions have to be taken into account. In today's business environment, survival, growth and profitability are the essence goals of all industries. That's why Porter's five forces model is often being adopted as the powerful management tool of choice by many organizations. This tool allows companies to make right decisions and build and sustain competitive advantages, by taking into account five competitive forces. But, does Porter's model still apply to today's business world? In this report we are first going to present and explain Porter's model through examples, then look at the possible criticisms we can provide to this tool.

Extraits

[...] To conclude, we can say that Michael Porter's model is not as relevant at it used to be in the 80s. The business environment has changed; economic laws and other factors stared to transform markets. It does not mean that Porter's tool has became invalid but it has to be apply with the knowledge of its limitations in mind and use it as a part of a larger framework of management tools, techniques and theories (PESTEL analysis, BCG matrice, SWOT matrice Bibliography Web www.valuebasedmanagement.net www.themanager.org www.articlesbase.com www.strategy-business.com www.referenceforbusiness.com strategies4innovation.wordpress.com www.hbs.edu Books Fundamentals of management; Stephen P. [...]

[...] That is, management will select a segment or group of segments in an industry (such as product variety, type of end buyer, distribution channel) and tailor the strategy to serve them to the exclusion of others. The goal is to exploit a narrow segment of a market. Which strategy management chooses depends on the organization's strengths and its competitors' weaknesses. Management should avoid a position in which it has to slug it out with everybody in the industry. Rather, the organization should put its strength where the competition isn't. [...]

[...] Internal aspect Porter's model overemphasizes the importance of an industry structure as a determinant of company performance and underemphasizes the importance between companies within an industry. The model focuses on an industry as a whole not on individual firms. Each company has its own policy and internal functioning. Industry structure explains only 10 percent of the variance in profit rates across companies. Individual resources and capabilities of a company are more important. For example, it is really important to take into consideration the Human Resource service, to see how the employees are managed. [...]

[...] Porter 1999 Prospective stratégique d'entreprise ; J. Lesourne and C. Stoffaes The Driving Force of the Market; M. Kirzner 1997 Key management models; S.Ten Have, W. Ten Have, F. Stevens and M. Van der Elst 2003 The competitive advantage of nations; Michael E.Porter Articles The five competitive forces that shape strategy; Michael E. [...]

[...] Indeed, this tool allows companies to make rights decisions and build and sustain competitive advantages, by taking into account five competitive forces. But, does Porter's model still apply to today's business world? In this report we are first going to present and explain Porter's model through examples, then look at the possible critics we can provide to this tool. II. Porter's five forces model Michael E. Porter was born in 1947. After initially graduating in engineering, Porter achieved an economics doctorate at Harvard, where he was subsequently awarded university professorship, a position he continues to fulfil at Harvard Business School. [...]