Disadvantages of five forces model by Michael porter?
In the economic sense, 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 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
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 dos 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
today's 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.