Poter's Five Forces in Corporate Strategic Planning

The Validity of using Michael Porter's

in Modern Corporate Strategic Planning

In 1980, a Harvard economist, Michael Porter published a book called Competitive Advantage in which he analyzed the different ways in which companies can win long-term competitive advantage. The primary thrust of the book (at least the part which has been quoted for so long that it has become a management mantra) is Porter's "Five Forces Theory." In this Five Forces model, Porter assumed that companies, when planning strategic survival, must do so within the framework of five forces: the force of suppliers, the force of buyers, the force of potential new entrants, the force of substitute products, and the force of the competition level. This paper will analyze each of these forces in turn, while showing the strength of companies that have made use of this theory and the weakness of companies that have ignored the ramifications.

According to an article in The Economist, when Porter wrote his seminal 1980 work, business strategy theory was dominated by two conflicting schools. On one side, "the Harvard Business School urged companies to adjust to their unique circumstances" (Professor Porter, PHD..., 1994, 75). On the other side, "the Boston Consulting Group argued that planning can be based on a universal principle, the experience curve: the more a firm knows about a market, the more it can lower its price and increase its m

the force of buyers, although it is sometimes forgotten that there are two classes of buyers to be considered: the general consumer and the business consumer. If the business buyer is relatively powerful, say a McDonalds or a Wal-Mart, they it demand higher quality, more services or force prices down by playing competitors off against each other. A supplier company has many ways to protect against this. It has these options available: a) differentiate the product from the competitors, b) work harder to improve buyer selection, c) make it difficult for customers to switch brands or raise the barriers of entry into the market. The most usual barrier strategies available are: * Economies of scale * Specialized know-how * Experience curve effects * Brand loyalty * Capital requirements * Access to distribution channels * Regulation The expanded chart below shows the Five Forces in detail. Force of Threat of Entry by a New Competitor When Porter penned this idea, he had ample historical precedent to draw upon. A new competitor faces several barriers to entry into a new market. For example, capital requirements or switching costs may be prohibitive, the product might be proprietary and not easily copied, or perhaps the bra

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