Porter’s Five Forces Analysis: Drawbacks and Limitations

Porter’s Five Forces Analysis: Drawbacks and Limitations

The Five Forces Model is an analytical framework first introduced by Harvard business professor and management consultant Michael E. Porter. It is specifically a tool for examining a particular industry or market and can also be used for analyzing the competitive situation of an organization in consideration of the sector or industry in which it operates. However, despite the advantages and corresponding widespread utilization of this model, it has drawbacks and limitations.

The Criticisms: Drawbacks and Limitations of the Five Forces Model of Porter

1. Too General Analytical Framework

A key drawback of the Five Forces Model is that it simply provides a list of factors that can be advantageous or disadvantageous to an organization. Similar to other analytical frameworks, such as the SWOT Analysis model, this tool only serves as a starting point for a deeper investigation of organizational performance.

2. Predisposition to Subjective Results

Susceptibility to subjectivity is another problem with the Five Forces Model. The framework promotes the identification of qualitative data. For untrained individuals, sources of these qualitative data might be based merely on anecdotes, hearsays, or superficial observations.

3. Lack of Quantitative Dimensions

Take note that quantitative analysis can be integrated into the model. However, it does not have a built-in mechanism on how to so. In addition, it does not have any guideline for ranking factors or so-called external factors in terms of importance.

4. Susceptibility to Biased Results

In consideration of subjectivity, it is also important to highlight the fact that bias can affect the integrity of the analysis. Regardless of whether the bias is intentional or unintentional, lack of proper training in research and analysis, as well as the absence of proper evaluation can produce results that are too shortsighted.

5. Unsuitable for Complex Firms

Another notable limitation of the Five Forces Model is that it is almost impossible to apply generally to organizations with a large portfolio of products or those operating in multiple industries and markets. The framework is more suitable for a firm operating in a single industry or market or to a subsidiary and a specific line of business.

6. Inapplicable Non-Profit Organizations

Note that the framework is also only applicable to profit-oriented organizations. Unlike SWOT Analysis or the VRIO Framework, a Five Forces analysis cannot be readily applied to most non-profit organizations because of the simplest fact that the framework centers on identifying competitors and intensity of rivalries in the market, threats from product substitutes, as well as threats or risks from the bargaining power suppliers and the bargaining power of buyers or consumers.

7. One-Dimensional Framework

The tool also disregards collusion among suppliers, competitors, and buyers; strategic alliances; and/or dynamism of the competition. These limitations of the Five Forces Model stem from the fact that it is a simple and one-dimensional framework that disregards complexities.

Posted in Articles, Business and Economics and tagged .