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Critically evaluation of Porters five forces, Value Chain Analysis, Balanced Scored Card
Given the demands of todays competitive and dynamic environment, it is quite challenging
to understand strategic issues facing organizations and develop the capability for long term
organizational success. This report aims to present a critically analysis of three frameworks
across organizations: Porters Five Forces, Value Chain and Balanced Scorecard. Such
critical evaluation includes identifying the benefits and limitations of three frameworks
and considering some implementation issues within organizations.
As powerful strategic management tools, Porters Five Forces, Value Chain and Balanced
Scorecard frameworks are linked and interacted each other in a wide circle of business in
context. Porters Five Forces and Value Chain both help strategic managers to make
decision on the basis of organizational external environment and internal analysis. The two
frameworks are especially valuable for managers to develop and implement long-term
strategy for organizations so as to build and maintain competitive advantages in the long
run. And Balanced Scorecard can ensure and monitor the executions of strategy made by
managers in a set of well-structured measures.
However, beyond the linkage between them, these three respective frameworks do have its
own particular emphasis which is applied in different directions among organizations.
Porters Five Forces mainly focuses on the industry structure analysis in the organizations
external environment. It reveals the source of competition in an industry and external
influence including the threats and opportunities of the industry that organization has to
face to obtain competitive advantage. Value Chain highlights the explorations of internal
analysis of a chain of business activities. It explores the role and contribution of
organizations resources corresponding to primary and support activities in a cost-effective
way to gain cost advantage. As for the Balanced Scorecard, it emphasizes the evaluation of
organizational overall performance by integrating financial measures with other key
performance indicators. And measuring overall performance in organizations balanced
scorecard is directly linked to its strategy to make profits in the long run.
All in all, it is important to be aware of their benefits and weakness as well as the potential
problems of three approaches when applying them real business operations, and it largely
relies on successful implementation by senior managers in organizations.
Introduction In todays dynamic and competitive business environment, survival, growth
and profitability are the essence goals of all industries. Nowadays, Porters Five Forces,
Value Chain and Balanced Scorecard frameworks are currently being adopted as the
powerful management tools of choice by many organizations. The essence of these three
frameworks is that they can help senior managers to make right decision and build and
sustain competitive advantages in the organization level. This report presents the overview
approach of these three frameworks across organizations. And critically evaluation of three
frameworks mainly focused on identifying the benefits and limitations of three frameworks
and exploring some perceived issues or problems regarding implementation. Finally the
linkage and dissimilarities between three frameworks are concluded in the last section of
this report.
Porters five forces, as a powerful analysis tool, enables managers in corporations to
analyze the current situation of their industry in a structured, easy-to-understand way.
From a strategic management perspective it is useful for managers in any organization in
the same industry or sectors to understand the five competitive forces acting on and
between organizations in the same industry and or sector since this will determine the
attractiveness of that industry and the way in which individual organizations might choose
to compete( Johnso and Scholes, P.116).
2.1 Claimed benefits First of all, Porters five forces framework provides one simple
approach to analyze industry structure. The five forces analysis helps in identifying and
determining the attractiveness of an industry, the source of competition. And because
Porters five forces reveal insights on profitability, it can inform important decision
decisions about whether to leave or enter industries or sectors. Moreover, the model can be
used to compare the impact of competitive forces on the own organization with their
impact on competitors. Competitors may have different options to react to changes in
competitive forces from their different resources and competences (Pearce and Robinson,
P.92). This may influence the structure of the whole industry.
The five forces framework can be used to gain insight into the forces at the work in the
business environment of a strategic business unit which need particular attention in the
development of strategy. Porters five forces framework is of great importance in
developing strategic options to improve relative performance in the industry or influence
relative position in industry. (Johnson and Scholes,P.119).Because strategic choices need to
take account of the external environment especially pay attention on Porters Five Forces in
which the organization operates: competitive advantage may be eroded as substitute
products due to technology changes or as new competitors enter market.( Porter, 2001) For
example: a leading manufacturer of vacuum tube with strong position in the electronic
product industry unthreatened by potential entrants will gain low returns if it competes
with silicon chip or new semiconductor. In this circumstance, how to compete with the
substitute product becomes the first strategic priority for the leading manufacturer of
vacuum tube to maintain competitive advantage.
And another value of five forces is as a thought provoking theory to help strategic
managers arrive at a shared understanding of the threats and opportunities facing the firm
to gain competitive advantage (Porter, 2001).Within Porters framework, a strong
competitive force can be viewed as a threat since it depresses profits. And a weak
competitive force can be regarded as an opportunity for organizations to earn great profits.
