Question

Why does Micheal E. Porter's Five Forces that shape strategy fail in today's digital economy ?

Answer 1

The five forces model provides a framework for analysing the nature of competition within an industry.

The five forces are :

1.)Threat of new entrants to a market

2.)Bargaining power of suppliers

3.) Bargaining power of customers ("buyers")

4.)Threat of substitute products

5.)Degree of competitive rivalry

Porter’s model is based on the approach that a corporate strategy should meet the opportunities and threats in the organizations external environment.

Five Forces framework is a static model, which does not include consistently changes of the competitive environment

Porter’s model fails bcoz of the missing attention to
‘Digitalization’, ‘Globalization’, and ‘Deregulation’.

the static structure of the model fails to notice the today's dynamic markets. Technological breakthroughs and dynamic market entrants from start-ups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times.

The model reiles on the idea of competition. It assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. Hence it fails to take into consideration the strategies, like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks or others.

Hence The model is most applicable for analysis of simple market structures, & fails in today's complex & integrated market structures.