Dynamic Firm the Role of Technology

Competitive advantages develop from strengthening their own position within this Five-Forces-Framework. Hence, Porter’s models cannot explain or analyze today’s dynamic
In fact, digitalization, globalization, and deregulation have become powerful forces during the last years, but Porter’s models rarely take them into consideration. Today’s markets are highly influenced by technological progress, especially in information technology. Therefore, it is not advisable – if not to say impossible – to develop a strategy solely on the basis of Porters models. Shapiro and Varian explain in their book "Information Rules" that the economic laws that apply to products and services cannot be simply transferred to the new category information well. Production, marketing, etc are different for products and services and, hence, are different for information too ".
Moreover, the latest shift from dot-com-hype to dot-com-crashes has given evidence that the basic laws of economics are viable for the new economy or information economy too. Even in the eighties, it was not advisable to build a strategy on nothing but Porters models. Every strategy should base on a careful analysis of all internal and external factors and on their potential future development. This is no new insight.
Michael E. Porter is an economist. His Five Forces model is based on microeconomics. It just describes them in a more understandable way. Porter talks about the attractiveness of an industry that is influenced by the shape of five forces. In economics, the constellation of factors determines issues like profit maximization or supernormal profits.
Porter’s Model and Microeconomics
Porters Five Forces
Areas of Microeconomics
Bargaining Power of Suppliers
Supply and demand theory, cost and production theory, price elasticity
Bargaining Power of Customers
Supply and demand theory, customer behavior, price elasticity
The rivalry between Existing Players
Market structures, number of players, market size and growth rates
Threat of Substitutes
Substitution effects
The threat of New Entrants
Market entry barriers
Source: Primary
Michael Porter’s models do not have the influence they used to have anymore as the economic model has changed to the Internet economy in the past decade. Now with the emergence of Global companies and Dot Com companies, considering only the economic perspective for a nation’s advantage or corporate strategies or the growth and development of industrial clusters is not sufficient. New economic laws came up and other drivers started to transform markets.
Drivers transforming Markets beyond Porter’s Model:
Digitalization: As the power of information technology grows, all players in a market will have access to far more information. Thus, totally new business models will emerge in which even players from outside the industry are able to vastly change the basis of competition in a market. The rise of electronic shopping malls operated for instance by telecom operators or credit card organizations is an example of this.