The Advantages and Disadvantages of Porter’s Five Forces

The Advantages and Disadvantages of Porter’s Five Forces

The Five Forces Framework is an analytical model developed and advocated in 1980 by Harvard professor Michael Porter. It can be used for analyzing the external situation or the competitive environment of a business and the actual competitive landscape of an entire industry. It is specifically designed to understand and examine the nature of the five forces that govern competition. These are (1) the intensity of rivalry among competitors; (2) the threat of potential entry; (3) the bargaining power of suppliers; (4) the bargaining power of buyers; and (5) the threat of substitutes. This article lists and describes the pros and cons or advantages and disadvantages of Porter’s Five Forces Framework.

Pros: Advantages of Porter’s Five Forces Framework and Notable Applications

1. Ease of Use

One of the main advantages of the Five Forces Framework is ease of use. Using this model does not require advanced technical skills or special training. An individual or a team with the right amount of knowledge or extensive familiarity with a particular industry or sector and strong research and writing skills can easily use this analytical tool.

2. Precision

This framework is also more precise than other analytical frameworks or models such as the SWOT model and PEST or PESTEL model. This advantage centers on the fact that this model provides a framework for determining the level of competition in a particular industry or market and how external forces affect the performance of the business

3. Compatibility

Another advantage of Porter’s Five Forces Framework is that it can be used with other analytical frameworks. It can be used to substantiate a SWOT analysis or PEST analysis. This framework can also be used with the VRIO framework when determining and analyzing the resources and capabilities of industry rivals or competitors and new entrants.

4. Versatile

The wide applications of this framework also make it versatile. It can be used for organizational diagnosis or determining the strengths and weaknesses of an organization. This framework also serves as a guideline for market research. It can also help leaders devise informed decisions or substantiate their business or more specific marketing plans.

Cons: Disadvantages of Porter’s Five Forces Framework and Key Limitations

1. Simplistic

One critical disadvantage of Porter’s Five Forces Framework is that it only serves as a starting point for a more detailed analysis of performance. It provides a mere checklist of external forces that can be beneficial or detrimental to a firm. It also ignores internal factors and other external and non-competition factors such as regulations and trends.

2. Qualitative

This framework is also geared toward qualitative evaluation. It does not provide a mechanism for quantifying how each force and its factors affect the business or which factor has more weight. The absence of a quantifying mechanism or the inclination toward qualitative evaluation can foster subjectivity or promote general descriptions or statements.

3. Incompatibility

Another disadvantage of using the Five Forces Framework is that it cannot be used to analyze the external situation of a business with diversified products or with business interests across different industries and markets. It is also limited to businesses in matured industries with simpler market structures. It might not be applicable to emerging markets.

4. Shortsighted

This framework can produce outdated conclusions because it cannot take into account the fact the rapid change in competition and market dynamics. It also disregards the interactions and possible collusion among buyers, competitors, and suppliers. This framework is more ideal for analyzing the current competitive landscape. It cannot predict future trends.

Conclusion: Advantages and Disadvantages of Porter’s Five Forces Framework

The central advantage of Porter’s Five Forces Framework is that it serves as a guideline and an analytical tool for analyzing the competitive environment of a business and the competitive landscape of an entire industry. This makes it applicable in both organizational diagnosis and market research. However, because it is fashioned as a general checklist, its main disadvantage is that it is too simplistic and produces shortsighted conclusions.

Nevertheless, based on the aforementioned, this framework is best applied in the analyses of businesses operating in matured industries or the actual matured industry with a simpler market structure. The conclusions that can be drawn from these analyses can provide a snapshot of the state of competition. However, because of the limitations of Porter’s Five Forces Model, these conclusions cannot be used for long-term and in-depth planning.