Analysis of Porters Theory of Competitive Advantage - Coursework Example

Discuss the strengths and weaknesses of one or more theory of competitive advantage Introduction The identification of an organization’s competitiveness is critical in order to understand the prospects of the firm in its industry, either in the short or the long term. Usually, the retrieval of a strategy that can help to measure competitiveness is related to a variety of barriers, such as the lack of adequate knowledge on the market/ industry involved or the lack of resources to support the particular initiative. The use of theories that are widely accepted can help to limit the risks involved. Current paper presents the strengths and weaknesses of a well-known theoretical framework, the Five Forces model of Porter in regard to industry competition. The Porter’s Five Forces model is based on the following rule: each organization is likely to face five forces; the ability of the organization to face these forces denotes the level of competitiveness of the particular organization (Onkvisit and Shaw 2004, p.33). The specific model is commonly used for estimating the level of competitiveness of organizations and nations. The Five Forces which each organization and nation have to face are the following: ‘industry competition, customers, suppliers, new entrants and substitute products’ (Onkvisit and Shaw 2004, p.32). The review of the literature related to this subject has led to the following assumption: the Five Forces model of Porter is a unique tool in measuring an organization’s or country’s competitiveness. Still, in the context of the international market, the use of the specific framework is not at the levels expected, a fact that it is rather related to the framework’s weaknesses, as discussed below. Moreover, the high level of criticism developed against the Five Forces model of Porter leads to the assumption that the particular framework should be reviewed and updated so that it responds to the current market conditions and demands. 2. Strengths and weaknesses of theories of competitive advantage – M. Porter’s Five Forces theory 2.1. Strengths The Five Forces model of Porter could be characterized as a unique strategic tool in terms of its value in measuring performance. The potentials of the specific model to be used as a tool for measuring performance are important, but not standardized, as also explained in the next section. One of the most important advantages of the particular model seems to be its simplicity. Indeed, as noted in Hill and Jones (2009) the Porter’s Five Forces model describes clearly the forces that each organization and nation is expected to face in regard to a particular industry/ market. There can be no misunderstanding in regard to the parts of the particular model since all these parts have certain characteristics that secure these parts’ uniqueness (Hill and Jones 2009). For example, when referring to the bargaining power of suppliers, a specific idea is implied: that suppliers can be more or less powerful in imposing particular prices, according to the level at which their products are unique or not (Hill and Jones 2009). In addition, the Five Forces model highlights the importance of ‘strategic position for the acquisition of a competitive advantage’ (Roy 2011, p.25). In fact, these two concepts, strategic position and competitive advantage are closely related to the Five Forces model that has emphasized, for the first time, on the potential value of strategic position for enhancing competitiveness, either at the level of organization or the level of nation (Roy 2011, p.25). Moreover, the Five Forces model refers, also for the first time, to the potentials of a nation to acquire a competitive advantage in the same context as an organization (Roy 2011, p.25). In other words, in regard to competitiveness, organizations are equalized to nations (Roy 2011, p.25). The above fact indicates the potentials of markets to act as bonds between frameworks of different characteristics, as in the case of organizations and nations (Roy 2011, p.25). An important advantage of the Five Forces model is also the following one: in order for this model to be effectively applied in a particular organization/ nation, it is necessary for the leader to interpret appropriately the trends in the organization’s/ nation’s environment (Hill and Jones 2009, p.43). In this context, the Five Forces model highlights the importance of leadership style as a factor that can influence the successful implementation of the above model (Hill and Jones 2009, p.43). However, in this way the potential value of leadership style for the successful implementation of other theoretical frameworks is made clear. 2.2. Weaknesses Despite its advantages, the Five Forces model of Porter has been also related to certain drawbacks. For example, Onkvisit and Shaw (2004) note that the Five Forces model is highly based on generalizations (Onkvisit and Shaw 2004, p.33). It is explained that such practice can set the credibility of the particular model in risk since the assumptions developed are often inaccurate, compared to the actual level of competition within a particular industry (Onkvisit and Shaw 2004, p.33). In the case of Sweden, the use of Porter’s model leads to an important contradiction: ‘in terms of its size, Sweden is a small country (Onkvisit and Shaw 2004, p.33). Yet, the above country has been found to be ‘the third largest exporter of music’ (Onkvisit and Shaw 2004, p.33), a fact that cannot be explained using the Five Forces model of Porter. Another important weakness of the Porter’s theory is that it is ‘static’ (Onkvisit and Shaw 2004, p.33). Since it is related to the competitiveness of organizations and nations, the specific theory would be expected to be dynamic (Onkvisit and Shaw 2004, p.33). The problem appears especially in regard to the competitiveness of nations. When referring to nations, the Porter’s theory promotes the idea that those nations that have just entered the market ‘face severe difficulties in becoming competitive’ (Onkvisit and Shaw 2004, p.33). In other words, the Porter’s Five Forces model does not favour new entries, either organizations or nations (Onkvisit and Shaw 2004, p.33). Instead, the specific model seems to promote the idea that only those organizations and nations that are well established in the market have prospects for continuous growth, a view that it is opposed to the ideas of fairness and equality, as key elements of competition. From a similar point of view, Gupta et al. (2005) note that the Five Forces model does not lead to accurate assumptions in regard to an organization’s or nation’s competitiveness because of the following reason: the above model is based on ‘a static view of the industry involved’ (Gupta et al. 2005, p.149), a criterion that needs to be reviewed. In fact, all industries worldwide have become interactive, at the level that ‘actions of each player are depended on the actions of other players’ (Gupta et al. 2005, p.149). Thus, the measurement of an organization’s competitiveness using only information related to the particular and without referring to information related to its rivals, it would lead to false assumptions as of the organization’s actual status in the market but also its future prospects. At this point it should be noted that the use of Five Forces model can lead to an important advantage: because the specific model has been extensively used in the literature for studying the performance of organizations and nations, the availability of information related to the practical implications of the particular model is high (Gupta et al. 2005, p.149). This means that in case of inconsistency of findings or of lack of adequate material for measuring performance, material from studies related to organizations with similar characteristics/ market position would be used (Gupta et al. 2005, p.149). The availability of literature related to the specific model is quite important since it could help to avoid critical mistakes and delays when trying to implement the specific model in a particular organization or nation. The fact that the studies related to the Five Forces model lead to findings that are not fully aligned should be taken into consideration when using the Five Forces model as a tool for measuring performance. It should be also noted that the Five Forces model of Porter cannot respond to the needs of all organizations. In fact, it seems that the particular model has been introduced for measuring the competitiveness of firms that are already well established in their market (Henry 2008, p.69), an issue that it is also discussed in the study of Onkvisit and Shaw (2004) presented above. However, the potential use of Porter’s model for estimating the performance of an organization in case that its entrance in the market is attempted cannot be rejected (Henry 2008, p.69). Still, the terms under which Porter’s Five Forces model can be alternated in order to be used for firms that have just entered the market are not clearly described in the particular model, which only explains the general context in which each of its parts is developed. From a similar point of view, Stonehouse et al. (2007) has explained that the use of the Five Forces model of Porter can be problematic in regard to the following point: the competitiveness of organizations and nations is not always related just to their environment; it can be also related to other factors, such as certain strategies or policies implemented (Stonehouse et al. 2007, p.119). At this point, the view of Porter that competitiveness is defined by the environment of an organization or nation can be doubted (Stonehouse et al. 2007, p.119). Moreover, the Five Forces model of Porter does not refer to the case of radical changes in an organization’s/ nation’s environment (Stonehouse et al. 2007, p.119). The above model defines the criteria on which the competitiveness of organizations and nations can be measured but does not explain whether the model would be alternated, and at what level, in case of unexpected changes in the environment of the organizations/ nations involved. At the next level, the Five Forces model does not refer to the potential effects of structural changes on an organization’s and nation’s performance (Roy 2011, p.25). Under current market conditions, structural changes can be quite common, on the basis that new market rules tend to appear almost on a daily basis (Roy 2011, p.25). As already noted, the Five Forces model is limited due to its strong dependency on environmental conditions, meaning that internal changes are not likely to be used as criteria for measuring performance. However, in this way, the value of strategies for overcoming strong market turbulences is eliminated; since the organization/ nation is considered as depended on the market’s conditions and rules, the willingness of leaders to propose strategies that would increase organizational or national competitiveness would have no particular value. 3. Conclusion The examination of the strengths and weaknesses of Porter’s Five Forces model leads to the following assumption: the specific model is a unique tool for measuring competitiveness. Still, its use in a particular case needs to be carefully organized at the level that certain requirements need to be met: a) the conditions in an organization’s/ nation’s environment need to be carefully checked as of their status but also as of their potential alterations through the years; b) the simultaneous use of other theoretical frameworks (e.g. the SWOT analysis) for verifying the potentials of the organization to face market challenges would help to increase the credibility of the assumptions produced through the Porter’s Five Forces model; in fact, the above practice has been quite common since the effectiveness of the Five Forces model in highly dynamic markets has been often proved to be problematic, as explained above; c) the findings of the Five Forces model reflect the current level of competitiveness of an organization/ nation. They cannot be used for identifying the potential prospects of an organization or nation in terms of their future performance. Of course, the Five Forces model remains a highly popular strategic tool for measuring competitiveness, as related to a particular industry. Still, the survival of this model as a tool measuring performance is related to its alteration so that its flexibility is increased. References Gupta, V., Gollakota, K. and Srinivasan, R., Business Policy and Strategic Management: Concepts and Applications, New Delhi: PHI Learning Pvt. Ltd., 2005. Henry, A., Understanding Strategic Management, Oxford: Oxford University Press, 2008. Hill, C. and Jones, G., Strategic Management Theory: An Integrated Approach, Belmont: Cengage Learning, 2009. Onkvisit, S. and Shaw, J., International Marketing: Analysis and Strategy, London: Routledge, 2004. Roy, D., Strategic Foresight and Porters Five Forces: Towards a Synthesis, Berlin: GRIN Verlag, 2011. Stonehouse, G., Campbell, D., Hamill, J., and Purdie, T., Global and Transnational Business: Strategy and Management, Hoboken: John Wiley & Sons, 2007. Read More