Larry Downes published an article titled Beyond Porter in which he claimed that Porter’s Five Forces, while adequate for the 80s & 90s, did not work in the new millennium. He introduced three new forces that reflected the competitive nature of today’s economy. His theory initially brought criticism. More recently experts incorporate his three forces into Porter’s Five Forces to create a new 8 Forces Model.
Downes’ Three Forces
- Digitalization—Growing technology provides more access to information both as suppliers and consumers. He proposes that digitalization will create totally new business models which give people outside the industry power to pressure and change the industry. He cites an example of electronic shopping malls operated by credit cards and telecom companies (think apps stores for example).
- Globalization—Improvements in distribution and communications plunge even local distributors into global markets. Technology gives almost any customer the ability to identify and compare prices from vendors anywhere in the world. Downes assert that Porter’s suggestion to position oneself as the price- or quality-leader seems outmoded. Business must develop lasting relationships to an increasingly mobile and transitory audience to succeed.
- Deregulation—Decreased government oversight and regulation, claimed Downes, also changed the world Porter described. Technology accelerated, non-regulated opportunities changed the competitive environment. Collusion by competitors was long seen as a weakness of Porter’s framework. Deregulation allowed for even more collusion. We must remember, however, that Downes and his critics wrote their articles in the late 1990s and early 2000s. Their comments reflect the deregulation that typified those years up until the recent reaction to the excesses that led to the Great Recession.
Lack of Implementation Instructions
Larry Downes identified potential holes in Porter’s Five Force Framework. He failed to provide a decent, operational set of instructions to conduct a three forces analysis.
I suggest that you
- Incorporate Porter’s 5 Forces with Downes’ 3 Forces into the 8 Forces model pictured above.
- Use Porter’s instructions to identify and analyze all 8 competitive forces.
Join me on Saturday when we analyze the PROACT decision making model
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