Porter’s Five Forces – The Missing Link
Porter's Five Forces
Perhaps one of the most celebrated tools in the kitty of any marketer or strategist trying to analyze an industry is the Porter’s five forces model.
For the uninitiated, here’s how wiki defines it –
“Porter’s five forces” is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developing Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An “unattractive” industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching “pure competition”.
In very simple terms Porter’s theory says that if any organization keeps tabs on the bargaining power of its buyers, suppliers and customers and accounts for the threats from its competitors and potential substitutes, a very strong business can be put in place. It would be worthwhile to mention here that this theory has been celebrated for long and is widely considered as one of the earliest insights into how any industry and the competition in it can be analyzed.
But this is where I see a gap. With the advancement of technology, especially computers, we nowadays see rapid development taking place and product life cycles have grown smaller and smaller. The average life-cycle of software or hardware is extremely short and in most cases organizations develop technologies way ahead of the time they are actually launched. Another very important change that has come about with newer technology is the realm of possibilities available today to most companies. Even the biggest organizations are not safe as they know there may well be a small start-up somewhere which may come up with an idea which will not only change the face of the industry but also make you extinct.
In such a scenario, how relevant is it to only analyze the bargaining power of suppliers/ buyers or customers. This is because for all you know within a matter of days some change may come about which makes my supplier, buyer or customer extinct. Even if we avoid taking an extreme view, what is more probable is that as a marketer you may not find the relationship with your buyer/ supplier or customer as lucrative as before. E.g. Dell maybe buying its chips from an Intel today. But what if tomorrow AMD suddenly comes with a product which not only threatens the chip industry in its present form but also makes Dell seriously consider forging relations with AMD instead of Intel?
A little brainstorming and probably this scenario won’t seem all that improbable anymore. Even as we speak today, the SaaS (Software as a Service) Industry seems as a very real challenge to the traditional software vendors. One outstanding invention here and the traditional software vendors will be gone before you can say “Microsoft Windows”.
In such a situation what does one do?
While there may not be a very obvious answer to this question, one answer that intuitively springs up in my mind is – it is not enough for any organization to do a Porter’s five forces analysis only for itself. In today’s fast evolving world at least companies in technology intensive industries must play it safe and apply Porter’s five forces from the perspective of all its critical stakeholders!!!
And what do I mean by a “critical stakeholder” you ask? The simplest answer to that is someone who has a very direct and sizeable impact on my bottom-line. But it may well be interpreted in various ways depending on the nature of the business and it is this analysis which may eventually separate the men from the boys.
Do you think this is possible? Or do you feel that it is theoretically possible but not practically feasible? Are firms already engaging in such analysis? Are there other solutions you have in mind? Or do you think the whole exercise of doing a Porter’s Five Forces is not worthwhile! Think about it…
Let us know your opinions through comments on this post. If you would like to share your views in the form of an article in reply to this post, you can email it to us at themarketers.iimc@gmail.com and we might add your insights to this post.
(Harish Seshadri Sarma is a PGDM (2011) student at IIM Calcutta. Apart from having utopian thoughts and cracking jokes which can make anyone sick, Harish kills his time reading about whatever he can lay his hands on and thinking about varied topics like strategy, marketing, finance, HR and how these different disciplines interact. Write to him at harishs2011@email.iimcal.ac.in).
Related posts:
