Porter’s Five Forces, Updated

5 February 2008 at 11:55 am 4 comments

| Peter Klein |

The current issue of HBR features Porter’s “The Five Competitive Forces That Shape Strategy,” a review and update of his famous framework (via Luke). The revision doesn’t include a sixth force, but Porter does add some refinements and clarifications (e.g., the differences between an industry’s underlying structure and observable attributes like the number of firms, industry growth, etc.), and he includes some discussion of dynamics. There’s also a video. Here’s the introductory blurb:

In 1979, Harvard Business Review published “How Competitive Forces Shape Strategy” by a young economist and associate professor, Michael E. Porter. It was his first HBR article, and it started a revolution in the strategy field. In subsequent decades, Porter has brought his signature economic rigor to the study of competitive strategy for corporations, regions, nations, and, more recently, health care and philanthropy. “Porter’s five forces” have shaped a generation of academic research and business practice. With prodding and assistance from Harvard Business School Professor Jan Rivkin and longtime colleague Joan Magretta, Porter here reaffirms, updates, and extends the classic work. He also addresses common misunderstandings, provides practical guidance for users of the framework, and offers a deeper view of its implications for strategy today.

There is of course a huge secondary and practitioner literature on the five-forces framework and its applications. A main complaint is that Porter downplays internal, or firm-specific sources of competitive advantage (resources, capabilities, and the like). On the other hand, the other main framework for strategic analysis, the resource-based view, is said to downplay external or market factors. As one sage put it a decade ago:

On the whole there is now — both within economics and within strategic management — a growing realization that essential firm heterogeneity is surely the most important basic assumption that is needed for building strategically relevant models of the firm.

At the face of it, this may seem obvious, even trivial: of course, firms have to be different in some way in order to obtain a competitive advantage! However, the increasing emphasis on firm heterogeneity should be seen against the intellectual background of almost complete concentration on industriesin economics, rather than on firms — a tendency that has also raised its head in strategy thinking (Porter, 1980). To the extent that firms in an industry-level approach are seen as different, it is because they bear the stamp of the industry they operate in, not because they have themselves created differences relative to other firms in the industry. Therefore, what is crucial in an industry approach is structural differences between industries, not differences among individual firms. The pendulum would seem to have swung in almost the opposite direction.

For more on firm heterogeneity and its relationship to Porter’s industry-based approach see the October 2003 special issue of SMJ edited by Tammy Madsen, Gordon Walker, and former O&M guest blogger David Hoopes. Oh, and for a chuckle, see this “postmodern reading” of Porter in something called the Electronic Journal of Radical Organization Theory.

Entry filed under: - Klein -, Strategic Management.

The Original Corporate Raider Choosing a Dissertation Topic

4 Comments Add your own

  • […] 05, 2008 by abusinessprofessor Professor Klein’s blog drew my attention to a new Harvard Business Review article by Michael Porter, who many believe is […]

  • 2. Ian Pratt  |  11 June 2008 at 5:50 am

    It is always fascinated to read debate and discussion around strategic theory. However, I am curious why there is a reference to Porter down playing the relevance of internal resources.

    In recent times, I have always completed the industry analysis using Porters Five Forces and then completed the internal analysis looking at the firm’s resources.

    However this does raise the question, if you truly have a competitive advantage do you really have any competitors and if you have differentiated your business based on, say, customer service what is the role of the industry analysis?

  • 3. John Mathews  |  17 August 2008 at 1:32 am

    Peter

    I can’t resist retailing the comment that there is an outstanding candidate for the much pursued and discussed “sixth force” (government? complementors?) — and that is “going to jail.” This was an apposite observation made at the time of the Enron affair, pointing to the fact that there are no restraints in the Porter model of competitive forces: the more that a firm can keep the competitive forces at bay, the better! If cheating and foul play can be used, then so much the better — according to the Porter framework. A more refined, yin and yang approach would respect the power of countervailing forces. But going to prison seems to capture the spirit of this critique. Anybody know who first formulated it?

  • 4. Porter’s Five Forces, Updated – No Merit  |  5 December 2018 at 8:23 pm

    […] Porter’s Five Forces, Updated […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Authors

Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts

Guests

Former Guests | posts

Networking

Recent Posts

Recent Comments

Categories

Feeds

Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).