Porter’s Five Forces Model: Benefits and Applications

Although it has some drawbacks and limitations, it is still impossible to discredit the benefits and practical applications of the Five Forces Model of Michael E. Porter. This analytical framework is used for examining an entire industry or market and it can also be useful for examining the external situation and competitive situation of an organization. The results can help an organization understand the opportunities and threats to come up with strategic solutions.

The Benefits and Applications of the Five Forces Model of Porter

1. For started, the Five Forces Model is a tool for identifying mission-critical factors based on so-called five forces that govern competition. These forces are: (1) the intensity of rivalry among competitors or industry rivalry; (2) the threat of new entrants; (3) the bargaining power of suppliers; (4) the bargaining power of buyers; and (5) the threat of substitutes.

2. One of the benefits of the Five Forces Model is that it provides a framework for assisting an organization evaluate its competitive situation based on the five categories above. Doing so can be helpful in identifying opportunities and threats from the external environment needed to make informed strategic decisions and solutions.

3. Take note that examining how the five forces of competition as it applies to a particular organization can also help in determining the effects on organizational performance and understanding the level of competition within the industry or market in which it operates.

4. Another key advantage of the Five Forces Model is that it does not require specialized or technical skills. It is also inexpensive. An organization can simply choose individuals from its pool of workforce. Take note that these individuals should have established familiarity about the organization and over the industry and market, as well as strong research competencies.

5. Integration with other analytical frameworks or tools is another benefit of the Five Forces Model. The framework can be used to expand the SWOT and PEST analytical frameworks, particularly by providing a specific guideline for external situational analysis. It can also help expand the VRIO framework, particularly when it comes to analyzing the capabilities and resources of existing and emerging competitors.

Posted in Articles, Business and Economics and tagged .