Porter five forces model, developed by Michael E. Porter of Harvard University in 1979, holds the purpose to analyse the industry in order to determine the level of intensity regarding the competition and attractiveness of the industry. The attractiveness of an industry is measured in terms of profit; more profitability means a more attractive industry and low profitability means a low attractive industry. Porter’s Five Forces model is a powerful management tool for analysing the current industry profitability and attractiveness by using the outside-in perspective. Within the last decades, the model has attracted some criticism because of the developing Internet economy. Due to an increasing significance of Digitalization,Globalization and Deregulation, the industry structure of the ‘Old Economy’ changed fundamentally. The ‘New Economy’ is not comparable with the ‘Old Economy’, which is the basis of the Five Forces model. Moreover, the last decades have shown that Information Technology became more and more important. Nowadays, Technology is one of the most important drivers for change and not only important for the implementation of change. The outcome of this critical literature review shows that the three new forces changed the industry structure, but they do not restructure the model. Porter’s Five Forces cannot be considered as outdated. The basic idea that each company is operating in a network of Buyers, Suppliers, Substitutes, New Entrants and Competitors is still valid. The three new forces just influence each of the Five Forces. An example is that the Bargaining Power of Buyers increased due to the access to much more information because of the Internet. Furthermore, the Threat of New Entrants decreased since companies have to make high investments in Technology which has a deterrent effect on new potential market entrants. The Emergence of the digital firm and globalisation are two of the three factors which have fundamentally altered the process between analysing a company in the “Old Economy” and analysing a company in the “New Economy”. Analyse and explain the effects of these two factors in the context of Porter’s Five Forces Model.
Porter five forces model, developed by Michael E. Porter of Harvard University in 1979, holds the purpose to analyse the industry in order to determine the level of intensity regarding the competition and attractiveness of the industry. The attractiveness of an industry is measured in terms of profit; more profitability means a more attractive industry and low profitability means a low attractive industry. Porter’s Five Forces model is a powerful management tool for analysing the current industry profitability and attractiveness by using the outside-in perspective. Within the last decades, the model has attracted some criticism because of the developing Internet economy. Due to an increasing significance of Digitalization,Globalization and Deregulation, the industry structure of the ‘Old Economy’ changed fundamentally. The ‘New Economy’ is not comparable with the ‘Old Economy’, which is the basis of the Five Forces model. Moreover, the last decades have shown that Information Technology became more and more important. Nowadays, Technology is one of the most important drivers for change and not only important for the implementation of change. The outcome of this critical literature review shows that the three new forces changed the industry structure, but they do not restructure the model. Porter’s Five Forces cannot be considered as outdated. The basic idea that each company is operating in a network of Buyers, Suppliers, Substitutes, New Entrants and Competitors is still valid. The three new forces just influence each of the Five Forces. An example is that the Bargaining Power of Buyers increased due to the access to much more information because of the Internet. Furthermore, the Threat of New Entrants decreased since companies have to make high investments in
Technology which has a deterrent effect on new potential market entrants.
The Emergence of the digital firm and globalisation are two of the three factors which have fundamentally altered the process between analysing a company in the “Old Economy” and analysing a company in the “New Economy”. Analyse and explain the effects of these two factors in the context of Porter’s Five Forces Model.
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