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Essay / The Limitations of Porter's Six Forces Model in Industry
Managers and strategists are often faced with a dilemma when trying to understand the determinants of profitability of the industries in which they compete as well as potential sectors in which they wish to compete. For this purpose, several analytical frameworks are used; the most widely used is Porter's Six Forces model. This article seeks to highlight the drawbacks of using Porter's six forces model as an analytical framework to determine which industries are profitable or unprofitable. Until the introduction of a "sixth force" in the mid-1990s, the "Porter Five Forces Model" as originally developed by Michael E. Porter in 1979 explained how "five forces" competitive” determine the attractiveness of the industry. Porter believed that in the struggle to maintain long-term profitability, a company must be strategic toward the competition and, beyond competition, keep an eye on a broader set of competitive forces; customers who can lower prices, suppliers who wield a certain level of power, new entrants who could compete for profits and replace products and services which essentially impose constraints on the profitability and growth of any industry . With the extension of this model, the sixth force (as shown in Figure 1) included showed the impact of complementary products and services on the overall attractiveness and profitability of an industry. In general, the Six Forces model proposes that the underlying structural factors of any industry determine the performance of players. To support the implications of the model, Porter explained why the airline industry is the least profitable among industries due to the high threat of the crisis. competitive forces. Players in the airline sector compete strongly on prices. Most personalized...... middle of paper ......012/12/12/us-india-walmart-probe-idUSBRE8BB0A120121212. Last evaluation on 05/02/2014. • Rumelt, RP, “How much does the industry count? Journal of Strategic Management 12 (1991): 167-185. See also Mauri, AJ, Mauri & Michaels, MP, “Firm and Industry Effects Within Strategic Management: An Empirical Examination,” Strategic Management Journal 19 (1998): 211-219• Shearman & Sterling LLP: Elevators and Escalators. Available: http://www.carteldigest.com/cartel-detail-page.cfm?itemID=7. Last reviewed 02/05/2014.• Wickham, PA (2006), Strategic Entrepreneurship, 4 ed, Prentice Hall.• Y. Li and S. Deng, “A methodology for analyzing competitive advantages and formulating strategies: an example in a context of transition Economy, European Journal of Operational Research 118 (1999), 259-270. • Yoffie DB and Kim K., Cola Wars Continue: Coke and Pepsi in 2010, Harvard Business School, 2011