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Assignment 1 Michael Porter’s Five-Force model provides a simple method for assessing and analyzing the competitive strengths, weaknesses, and position of a business organization. These forces are: Competitive rivalry Threat of substitute products Power of customers Power of suppliers Threat of new entrants and entry barriers into industry These forces assist businesses to identify whether potential high returns exist in the marketplace.
The stronger the forces, the greater the competition; conversely, the weaker the five forces, the greater the opportunity for businesses in an industry to experience higher profitability. Understanding how these forces affect competition within a global industry, provides an organization the ability to identify the most advantageous strategic position. Jeffrey Phillips, a regular blogger on the Innovate on Purpose website, believes that there are a few gaps in Porter’s model “from an innovator’s perspective” (Phillips, 2010, ¶ 6).
Firstly, Porter believed the business strategy and model should contain a plan to build competitive barriers to the five forces. Although the organization should place a great emphasis in developing its business model, it should also pay attention to the “evolution or dramatic shifting of its business model as competitive pressures ramp up and the pace of change increases. ” Phillips didn’t think that Porter’s model responded well to the increase in the pace of change and global competition. He believed that “sense must introduce nimbleness and agility into the model. Phillips second point is also supported by Dagmar Recklies (Recklies, 2001), owner and contributor to an online management portal, TheManager. org. They believe that Porter’s model, developed back in the 80’s, reflected an era of “increasing systemization and process definition” (Phillips, 2010, ¶ 7). The primary corporate objectives consisted of profitability and survival. To achieve these objectives, an organization had to “optimize their strategy in relation to the external environment” (Recklies, 2010, Ch. 5).
During that time, development in most industries had been fairly stable and predictable. But now, compared with today’s dynamics, “firms must differentiate by improving customer experience—designing and innovating the customer interaction and experience rather than simply optimizing it” (Phillips, 2010, ¶ 7). With the abundance of products and services, customers want individual service and attention, and have high expectations for the goods and services they buy and the organizations with which they do business.
Porter’s model regards buyers and suppliers as “neutral third parties, which they no longer are. They are now extended relationships” (Phillips, 2010, ¶ 7). Phillips, J. (2010). Innovation Excellence. Innovation and Porter’s Five Forces. Retrieved January 7, 2012, from http://www. innovationexcellence. com/blog/2010/09/18/ innovation-and-porters-five-forces/ Recklies, D. (June, 2001). Porters 5 Forces. Retrieved January 8, 2012, from http://www. themanager. org/Models/P5F_2. htm.