Evaluation of the Five Forces Theory

Porter’s five forces theory is a valuable contribution to the market competition study. It provides important information for three aspects of organization’s planning:

1.Statical analysis. Porter’s model determines industry’s attractiveness. It gives an overview of profitability. Consequently, the model helps in entry and exit question in a market segment. Besides, it can be used to compare the influence of competitive forces on the company with their influence on competitors. Competitors may have various options to react to changes in competitive forces from their different resources. This may impact the structure of the entire industry.

2.Dynamical analysis. Five forces model helps to understand the potential future attractiveness of the industry. Possible political, economical, socio-demographical and technological changes can impact the five competitive forces and the industry structure in general.

3.Analysis of options. The knowledge of intensity and power of competitive forces helps a company to develop options to impact them so that the position of the company will improve. The result could be a new strategic direction, for instance, new differentiation for competitive products of strategic partnerships.

Thus, Porters model of five forces gives a systematic and structured analysis of market structure and competitive situation. The model can be applied to particular companies, market segments, industries or regions. However, it is obligatory to define the scope of the market to be analyzed in a first step.

Summarizing, a company has to understand the dynamics of its industries in order to be competitive in a market. Any company must understand the nature of its competitive environment in order to be successful in achieving its aims and in establishing right strategies. A company must understand the nature of Porter’s five forces model. This will lead to a stronger position in a market. The situation is changeable, and the nature and relative power of the forces will change. Consequently, the need to control is continuous.

Successful implementation of Porter’s Model includes identifying competition sources, the strength of competition existing, and strategies for the action a company should take to in order to develop barriers to competition. Some issues during the implementation of Porter’s five forces model are very important for companies to build future-oriented business strategy and to uphold competitive advantages. Porter’s five forces theory that is based on the intensity of competition and the determination of relative strengths of these forces is a helpful guide towards this aim if it is used in a combination with other models.