FUN FACTS

Three decades after Michael E Porter broke new ground with his industry analysis framework, it remains a force to be reckoned with. Sarah Coles, online editor at the SPS, talks to leading academics about its relevance today.

A lot can change in 30 years. In 1979 we had unemployment hitting new records, the economy in severe difficulties, and everyone was talking about a brand new strategic theory, Porter’s Five Forces. Plus ça change – plus c'est la même chose. Porter’s work remains as much a talking point now as it did all those years ago. A recent thread on the SPS LinkedIn group about the theory sparked record numbers of responses within the group. It clearly remains a vital issue, but the question is whether a 30 year old theory remains an appropriate model.

There are still plenty of strategists who subscribe to the theory. Robert MacIntosh, professor of strategic management at Glasgow Business School, says: “It is without doubt one of the most influential pieces of strategy theory out there. Huge numbers of managers know it and I have met several senior executives that apply it and work with the conclusions that they reach.”

But in the years since the strategy first gained currency, it has faced its share of criticism. One issue is those factors that do not feature in the model. Thomas Lawton, professor of strategic management at Cranfield, says: “The question I have always had is a lack of consideration of non-market forces. The traditional view is that governments stay out of the market. In today’s world, clearly the parameters have changed.” Likewise, he points out that issues of corporate social responsibility and business ethics are missing, and suggests: “In a sense transposing the PESTLE ideas onto the Five Forces is the best way.”

Joseph Lampel, professor of strategy at Cass Business School, adds that there are a host of other factors that can be considered alongside the forces, including government regulation or the interaction between buyers and sellers. MacIntosh points out that this doesn’t necessarily mean the forces themselves are redundant, saying: “Porter himself has argued that these things can be factored into the model and don’t require 6th or 7th forces.”

Further criticism comes from those who say the model simply provides a snapshot of an industry, rather than a more dynamic picture which says something about the future, and can be more readily translated to strategy. Lawton argues, however, that the idea of assessing substitutes does bring dynamism, highlighting where the challenges will come from.

Then there are those who criticise the model for having missed out a vital stage in the process of assessing the market. Lampel says: “It doesn’t explain how to define the industry, and sometimes that is a tricky question. Porter picked industries that were easy to identify, but a lot of people get the industry wrong, so the analysis is worthless. Some people argue that defining the industry is the critical input of knowing where you stand.”

Finally, the model can also be criticised for its failure to consider less tangible factors. MacIntosh says: “Strategy relates both to the economics of a firm’s situation and to the very identity and purpose of the firm. Five Forces deals with the former better than any other form of analysis. However, it doesn’t consider those aspects of the firm which are embedded in its social fabric and shared history. This second dimension of strategy might explain why some firms stick in industries that Five Forces suggest are deeply unattractive and why some firms are rule breakers or innovators. So for some, strategy is also about the higher purpose of the organisation and this just doesn’t come out in Five Forces.”

These weaknesses in the theory are overcome by taking a multi-pronged approach to industry analysis. Mark Jenkins professor of business strategy at Cranfield School of Management explains: “It is one of those frameworks that is simple and useful if used in the right way. It’s a simple tool in the toolkit. You have fancier tools for more complex things like looking at trends and dynamics and how change is going to occur.” The experts argue that this tends to be how strategists approach the task, and therefore the weaknesses in Five Forces are overcome by the way in which the theory is applied.

However, there are potential dangers among those using the tool less effectively. There is always a risk that a theory will not be applied so vigorously when it has become institutionalised, and this is bound to happen when it has been part of the furniture for 30 years. Lampel says: “There’s a danger if people use it mechanically. You see it a lot with students when they go through the motions of ticking the boxes. If it becomes a ritual you feel like you have a grasp of the situation when in reality you are suffering from myopia.”