Porter’s Five Forces

Among the most widely used frameworks in business management that has also been widely criticized is the Porter’s five forces model. Generations of MBA students have grown up reading his books, applying his framework and they continue to do so. Porter was a micro economist and his theories were based on his views of how markets work.

I would consider his contribution to management thinking to be seminal. Criticisms of his theory and framework -like this mainly focus on the fact that the framework assumes perfect competition, assumes a relatively static view of industry, disregards inter-linkages, and is rather high level. I have read articles ridiculing the framework and blaming it for failures in industry as well as the ultimate collapse of Porter’s own consulting outfit- Monitor Group. At the outset I find many of these criticisms unduly harsh and insufficiently appreciative of the underlying principles in Porter’s work. Anyone who has read his classic- “Competitive Advantage” cannot fail to be impressed with his exhaustive analysis of forces that shape businesses and the strategic choices that businesses make in choosing an industry.

Much of the criticism seeks to detract from the value of the work. Of course the framework has limitations, as anyone who has used it will know. It is largely applicable for analysis at an industry level rather than at a firm level. However, to indicate that the framework has a static view of industry and disregards inter-linkages in industry and across firms misses the point of Porter’s construct. No doubt dynamic changes and inter-linkages are important, but I would argue that trying to develop a framework that captures all the complexity only reduces its usefulness. Just as in physics, use of point-mass simplifications in analysing forces is essential and useful, ignoring certain factors or holding them constant while analysing cause-effects is the essence of management science.

Porter’s generic strategies are possible rather broad and hard to discern in many industries where positions shift in a rapid manner, or where there is a variety of gradations and refinements in the strategies adopted. Still I would argue that there are established cases of cost leaders and product companies that one can point to. I would further argue that in absence of such a framework and these concepts, making sense of strategy would be a lot more challenging. As in using any other model, we have to keep in mind the simplifications.