6 Forces - Critique

'Six Forces Model' The five forces model was originally developed by Michael E. Porter of Harvard Business School.
The six force model later came in the mid-1990s and added complementary products. It is used to evaluate a firm's strategic position in a particular marketplace. The Six Force Model can also be used to determine the market's overall attractiveness in relation to profitability and competition. A strategic business tool that helps businesses evaluate the competitiveness and attractiveness of a market. The six force model provides an industry-view and analyzes six key areas: Competition Information regarding present competition New Entrants - Information regarding the ease with which new competition could enter the market End Users/Buyers - Information regarding the buyers' abilities to affect price Suppliers The number and type of sellers Substitutes - The ease by which a product or service can be substituted Complementary Products - The impact of related products and services already in the market
Porter's Sixth Force Definition Complementary, Porter's sixth force, are companies or entities that sell or offer goods or services that are compatible with, or complementary to, the goods or services produced and sold in a given industry. Complementary goods offer more value to the consumer together than apart. When one product or service complements another there exists a condition called complementarily; a sort of commercial symbiosis. Complementary are often considered the sixth force of Porters industry analysis framework. The presence of Porter's complementary can influence the competitive structure of an industry. Porter's Complementary Analysis Porter's six forces provide a method for industry analysis. The presence of the sixth force of Porter, complementary, can benefit or hurt the firms competing in an industry, depending on the circumstances. If business is booming for the complementary, this could positively affect the business of the firms in the given industry. On the other hand, if business is slow for the complementary, this could adversely affect the business of the firms in the given industry. So, complementary and complementary goods do not necessarily increase or decrease the competitiveness of an industry, they merely add another layer to the structural complexity of the competitive environment. According to Porters six forces, complementary goods offer more value to the consumer together than apart. When one product or service complements another, there exists a condition called complementarily. A very simple example of complementary goods, the sixth force of Porter's framework, complementary industries is the tourism industry and the airline industry. When a consumer heads to a tourist destination, he or she often gets there on an airplane. Similarly, whenever a
consumer travels on an airplane, that consumer is most likely going to visit a destination which is a part of the tourism industry, such as a hotel or a rental car agency. These industries are proved complementary by the six forces analysis. Porters sixth force has become a central theory to in business management
CRITIQUE Porters model of Five Competitive Forces has been subject of much critique. Its main weakness results from the historical context in which it was developed. In the early eighties, cyclical growth characterized the global economy. Thus, primary corporate objectives consisted of profitability and survival. A major prerequisite for achieving these objectives has been optimization of strategy in relation to the external environment. At that time, development in most industries has been fairly stable and predictable, compared with todays dynamics. In general, the meaningfulness of this model is reduced by the following factors: The model assumes a classic perfect market. The more an industry is regulated, the less meaningful insights the model can deliver. The model is best applicable for analysis of simple market structures. A comprehensive description and analysis of all five forces gets very difficult in complex industries with multiple interrelations, product groups, by-products and segments. A too narrow focus on particular segments of such industries, however, bears the risk of missing important elements. The model assumes relatively static market structures. This is hardly the case in todays dynamic markets. Technological breakthroughs and dynamic market entrants from startups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times. The Five Forces model may have some use for later analysis of the new situation; but it will hardly provide much meaningful advice for preventive actions. The model is based 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. With this focus, it does not really take into consideration strategies like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks or others. Overall, Porters Five Forces Model has some major limitations in todays market environment. It is not able to take into account new business models and the dynamics of markets. The value of Porters model is more that it enables managers to think about the current situation of their industry in a structured, easy-to-understand way as a starting point for further analysis.

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'Six Forces Model' The five forces model was originally developed by Michael E. Porter of Harvard Business School.

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