Revisiting Porter's Five Forces Theory: A Critical Analysis - Part Two

Jan 1

21:25

2024

Olivia Hunt

The Porter's Five Forces Theory, despite its well-structured model, has been the subject of considerable criticism. The primary weaknesses of the theory stem from the historical context in which it was developed. During the 1980s, the world economy was characterized by cyclical growth, and the primary corporate objectives were profitability and survival. The key to achieving these goals was optimizing strategy in relation to the external environment. However, the dynamics of most industries during the 1980s were relatively stable compared to today's rapidly changing business landscape.

Limitations of Porter's Five Forces Theory

The relevance of Porter's Five Forces Theory is diminished by several factors:

The model assumes a classic perfect market. The more regulated an industry is, the less insightful the model becomes.
The model is most effective when analyzing simple market structures. It becomes challenging to apply when dealing with complex industries with multiple interrelations, product groups, and segments. Focusing too narrowly on specific segments can lead to overlooking significant elements.
The model assumes relatively static market structures, which is not reflective of today's dynamic markets. Technological advancements and the emergence of start-ups can drastically alter business models, entry barriers, relationships, and supply chains.
While Porter's Five Forces Theory can be used for further analysis of a situation, it does not provide substantial guidance for preventive actions.
The model is based on the concept of competition. It assumes that companies strive to gain competitive advantages over competitors in a market, as well as over suppliers and consumers. However, the theory does not account for strategies such as strategic alliances, electronic linking of data systems of companies, value chains, virtual enterprise networks, etc.

A Foucauldian Perspective on Porter's Theory

Knights (1992, pp. 514-536) offers a unique perspective on Porter's theory, stating that 'strategy is a form of imperialism located within a discourse which cloaks the power of managers as a class in culturally acceptable clothing of science and objectivity'. He interprets Porter's theory through the lens of Michel Foucault's ideas. Knights argues that while generic strategies are difficult to implement, they remain the preferred discourse for many managers. To attempt implementation, 'managers require a sense of 'reality' which is based on the effects of forgetting, neglecting or denying the subjectivity, which is the obligatory condition to render the generic strategies possible' (Knights 1992, pp. 514-536).

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