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Introduction to Porter’s Five Forces Model
The Porter’s Five Forces Model was developed in the year 1979, as a tool for strategic analysis of the organization based on analysis of the competitive environment. These five forces provide the organization with the economic potential and the competitiveness of the industry. These include (Porter, 1979)
Figure 1: Porter’s Five Forces Model
(Source: Porter, 1979)
The Critical analysis of the model is as under. (McGahan, 2000).
Critical Analysis: Positive Aspects of the Model
The five-force model of Porter provides the organizations with a better understanding of the segment under consideration.
The numerous division of the complicated markets and variety of circumstances prevailing in the market are most relevant to five forces proposed by Portor which provides with the complete analysis of the attractiveness of the market segment before the firm enters the market segment.
It also provides the organizations to decide and formulate their effective market strategies keeping in view the external factors in the industry.
Model acts as a baseline and provide with the required and useful data input for other strategic analysis and strategic tools, like SWOT analysis, PESTLE analysis, etc.
The model has been observed to be influential framework for strategy development to provide the firms with investigation pertaining to the profitability, competition and the investment related attractiveness of the industry. (Campbell et al, 2002)
Negative Aspects
The first limitation of the model is that its evaluation is limited to the whole industry rather than one single firm. That is, the firm would not get to know market attractiveness of its firm, but for the entire industry or market segment, it intends to enter. (Johnson, Scholes and Whittington, 2009)
Another point of criticism is that the model fails to treat the dynamic nature of the business that is changing which may lead to change in the fundamental circumstances, overall capabilities of the business and the individual capabilities.Reflective account pertaining to the advantages and disadvantages
This may result in the merger of two industries, whereas the model defines every firm to have natural competition which is not true in most of these case, as more and more firms are collaborating and merging to work collateral. (Van den Berge and Verweire, 2000)
Another limitation of the model is that it can only provide with the analysis of the existing industry and is unable to provide the analysis for the potential new business markets. The model completely ignores one of the most important external force, the government regulations, and policies.
Some of the industries are completely dependent on government regulation and decisions, making the bargaining power of the government making it essential for analysis purpose.
Value Chain Strategy
The value chain strategy is one of the tool that is used for analyzing the activities of the company that are conducted internally to increase the effectivity, efficiency and the competitiveness with an aim to increase profitability.Reflective account pertaining to the advantages and disadvantages
Introduced by Porter (1985), the value chain strategy provides the company with sequence of activities that are supportive of the company’s primary activities. The model provides for the complete analysis of the human resources management, technology development, procurement, technology, service, marketing, sales, outbound Logistics and the sales marketing.
Aston’s Martin Value chain strategy is based on delivering the value through efficient and seamless integration, prompt and accurate decision making and process efficiency. The company’s investment in IT integration and the partners of supply chain integration will result in boosting the company’s financial conditions. (Sehga……
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