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The five forces model has been one of the most influential frameworks for strategic management. In contrast to its importance as a centerpiece of textbooks, however, it has attracted less attention from both academic researchers and practicing managers. This is due to its innate weakness, difficulty in operationalization. The vital requisites for operationalizing the five forces model are to deal with it as a complex system composed of interrelated forces and their sub-forces, and to prioritize them with consideration of their interdependency. The tenet of this study is the requisites can be achieved through the analytic network process (ANP). The ANP, which is a generalization of the analytic hierarchy process (AHP), produces priorities of elements in a complex network model with consideration of interdependency among elements. The five forces model is transformed into a network model of the ANP. The ANP procedure is then carried out to obtain the priority weights of the forces. Combining the derived weights and ratings on the forces produces the state-of-industry-competition index (SICI) values that represent the overall competitive condition of a given industry. The working of the proposed approach is provided with the help of a case study example of the Web portal Industry of Korea. The proposed ANP approach is expected to expand the five forces model into a workable system of analysis by improving its analytical power.

Porter [1]’s five forces model has been one of the most influential frameworks for strategic management [2]. It has been considered a standard tool for analyzing industry attractiveness, building upon the assumption that the state of competition in an industry is determined by the five competitive forces. In contrast to its importance as a centerpiece of textbooks on business strategy and strategic management, however, the five forces model has attracted less attention from both academic researchers and practicing managers [3]. Although several attempts have been made to augment, refine, and reinterpret the model [2], [4], [5] and [6], it seems to have failed to spawn a considerable literature and retain wide currency in practice, compared with other frameworks such as balanced scorecard (BSC) and SWOT analysis. This may be due to its innate weakness that has often been pointed out by many researchers. Among others, the intrinsic limitation of the five forces model is its difficulty in operationalization; that is, its analytical power is limited in that the overall competitive condition as well as the degree of each force cannot be quantified. The simple three-level scoring (unfavorable/neutral/favorable) on the five forces has been prevalent, but it has the following problems. Firstly, it is not easy to draw the bottom line of analysis. The degree of each force can be easily captured in the three-level scoring; then, how is the overall condition of a given industry obtained? Simple average does not make sense since the relative importance differs across the forces. The forces do need to be prioritized for aggregation. An important thing that should be considered is the fact that the forces are themselves highly interdependent with each other; thus, the interrelationships among the forces should be captured in their prioritization [3]. Secondly, the degree of a force is also determined by its sub-forces solely as the overall attractiveness of an industry is determined by the forces. To be more systematic and objective, sub-forces should be measured individually, and then aggregated with their relative importance to gauge the degree of a force, rather than simple overall ratings on the forces. In sum, the vital requisites for operationalizing the five forces model are to deal with it as a complex system composed of interrelated forces and their sub-forces, and to prioritize them with consideration of their interdependencies. The tenet of this study is the requisites can be achieved through the analytic network process (ANP). The ANP proposed by Saaty [7] is a generalization of the analytic hierarchy process (AHP), which is one of the most widely used multiple criteria decision making method (MCDM) [8]. It produces priorities or relative importance of elements in a complex network model with consideration of interdependency among elements. Although the ANP was originally developed for selection and prioritization of alternatives as a MCDM method, it has widely been employed and proved to be effective for quantification of existing frameworks by prioritizing elements that are interrelated with each other [9]. Recent years have seen an increase in applying the ANP to various strategic management frameworks since there is a growing need of employing sophisticated mathematical modeling for strategic management [10]. The examples include the strategic service vision framework [11], the balanced scorecard (BSC) system [12], [13] and [14], the strategic management concept (SMC) framework [15], and strengths, weaknesses, opportunities and threats (SWOT) analysis [16]. This study also proposes an ANP approach to operationalization of the five forces model. The remainder of this paper is organized as follows. Section 2 briefly outlines the preliminaries of this study, the five forces model and the ANP. The proposed approach is explained in Section 3 and illustrated with a case study in Section 4. The paper ends with conclusions in Section 5.

This study proposed an ANP approach to operationalization of the five forces model. The five forces model was transformed into a network model of the ANP. The ANP procedure was then carried out to obtain the priority weights of the sub-forces. Combining the derived weights and ratings on the sub-forces produces the SICI values that represent the overall competitive condition of a given industry. A case of the Korean Web Portal Industry was provided to illustrate the proposed approach. It is shown that the ANP can be effectively employed to operationalize the five forces model. Since the ANP produces priorities of elements in a complex network model with consideration of interdependency among elements, it can fulfill the requisites for operationalization of the five forces model, prioritization of the forces with consideration of their interdependency. The proposed approach is expected to expand the five forces model into a more workable system of analysis by improving its analytical power. The clusters and elements of the ANP model are by no means exhaustive or fixed. Although the model was constructed based on the Porter’s original work, it can be variant depending on the industry or strategic context. The irrelevant sub-forces can be ignored, and additional sub-forces considered important can be added. The sixth forces such as complementers [18] and government regulations [4] can also be included in the model. When it comes to competitive dynamics, although the changes in the overall industry attractiveness of a given industry can be captured by analysis of multiple time points, the same set of weights was applied to analysis of different time points. However, the relative importance of forces is likely to change over time. When this is the case, pairwise comparisons should be made for each time point. One of the important tasks in analysis of competitive dynamics is to forecast the competitive conditions in future, how the industry competition is liable to change. This can also be achieved by making ratings on the degree of the sub-forces in future.