Reflective piece on usefulness of Porter's Five Forces model.

Essay by WitekUniversity, Bachelor's February 2005

download word file, 4 pages 2.5

In the first seminar of the term, I was observing how Porter's 5 Forces model (5F) can be used to analyse the strategic business dynamics of the European Forestry/Paper sector in the post 2004 European Union.

5F is an analytical framework, which allows competitive dynamics to be systematically appraised in assessing existing and future profitability of markets/industries by analyzing the influence of particular characteristics of each of the five forces(2). Diagram below illustrates the forces and the effects of after-presentation discussion coupled with my additional insights.

Porter's 5 Forces applied to the European Forestry/Paper sector (post 2004 EU)

[Model about here. Extracted and adapted from]

Given that firm's profitability is influenced by the profitability of an industry it is crucial to analyse it. I assume that such an audit would follow PESTLE (it provides macro-environmental analysis, which 5F lacks) and SWOT analyses, and would be done by a company in order to establish whether or not to enter/stay in an industry.

Such tools are useful providing we recognise their limitations.

*The Forces are difficult to quantify and even if I applied a numerical scale to my analysis above, the overall industry score would be subjective and most likely differ from those of other students in the group, even though we sat in the same seminar.

*Government's influence although not represented in the model (it assumes a perfect market) may play an important role in some of the more regulated economies, especially in the acceding countries.

*5F mainly base on the economic situation in the 80's characterised by strong competition and relatively stable market structures, and is not able to take into account new business models (e.g. strategic alliances) and the dynamics of markets, therefore providing only snapshots of situation in today's dynamic industries.

*It focuses on industry as a...