Reflecting on Porter's Work
As one of the world's best known management strategists, Porter has significantly contributed to our understanding of organizational strategy and the competitiveness of nations and regions. Porter's five forces model, in particular, has established itself as a leading strategic tool that enables managers to determine whether new businesses, products, or services have the potential to be profitable.
It comes as no surprise that Porter's work has been subject to much criticism over the years. The main criticism stems from the historical context in which his models were created. Back in the 1980s, the global business landscape was characterized by strong competition, relatively stable market structures, cyclical developments, and predictable growth. Thus, the key focus was on the optimization of strategy in relation to the external environment, with the primary business tenets constituting profitability and corporate survival. Second, Porter's background is business economics and his theoretical work assumes a perfect market. Thus, it seems that his models are most applicable for analyses of simple market structures. Third, some authors have criticized Porter's work for its simplicity and unrealistically basic assumptions, which seem unable to deal with dynamic environments characterized by complex industries with a multitude of interrelations, products, and by-product groups. Fourth, the model is based on the notion of competition presupposing that firms try to obtain competitive advantages over all players in the market, including suppliers and customers. Thus, Porter's model does not take into consideration corporate strategic endeavors, such as strategic coalitions and alliances, as well as the pursuit of virtual enterprise-type networks. Fifth, Porter's work focuses upon the analysis of the actual situation (e.g., customers, suppliers, and competitors) and on predictable developments (e.g., new entrants and substitute products). Thus, Porter claims that competitive advantages develop from strengthening a firm's position within the framework. These criticisms suggest strongly that the models lack the capacity to explain today's unrelenting and ever-changing environment where seemingly subtle changes have the power to transform entire industries.
Beyond Porter
Porter's work was extended by Brandenburger and Nalebuff in the 1990s who added the concept of "complementary," enabling the authors to explain the reasoning behind the emergence of strategic coalitions and alliances. This sixth force is the relative power of other stakeholders, including "complementers" (i.e., businesses providing complementary products and services), the government, the public, and a firm's employees and shareholders.17
Downes claims that the basic assumptions underlying Porter's work are no longer viable. He identified three forces that necessitate a new framework and a new set of tools: digitalization, globalization, and deregulation. First, digitalization recognizes that the power of information technology will continue to expand and that all players in the market will have increased access to information. As a result, new business models will emerge, enabling external players—even rivals from outside the industry— to transform completely the basis of competition. Second, businesses and consumers are in a position to operate on a global scale. Therefore, everybody with access to modern-day technology can participate in the global marketplace even if they do not export or import themselves. Third, deregulation has taken place in many industries and countries, forcing businesses to restructure their businesses and to reemerge with new business plans and models. Downes concludes that the difference between the current technologically driven world and the old "Porter" world is technology. Furthermore, whereas in the past technology was used as a tool for implementing change endeavors, it is now the most important driver for change.18
Others have been more pragmatic about the limitations of Porter's work stating that it is not prudent to develop a strategy solely on the basis of Porter's model. What needs to be done is to adopt the model with the full knowledge of its limitations and utilize it as part of a larger framework of management tools, techniques, and theories, which is advisable for the application of any business model.19
