ACCA Strategic Professional · Strategic Business Leader · Competitive forces
A consultant advises Orion Textiles, which operates in several segments with very different customers and rivals, to produce a single Five Forces analysis for the whole company. Which criticism of this approach is most valid?
Five Forces is best applied to a clearly defined industry or segment because buyer power, rivalry and entry barriers differ between them. A single company-wide analysis for a diversified firm averages out these differences and can mislead managers about where the business is actually attractive.
- AFive Forces should be applied at the level of an industry or segment, since force strengths differ by segment, so one company-wide analysis may misleadCorrect
- BFive Forces must always be applied at whole-economy level
- CFive Forces can only be used by not-for-profit organisations
- DA single analysis is preferred because segment differences are irrelevant
Explanation
Forces vary between industries and segments, so the model is most useful when applied to a defined industry or segment. Aggregating across diverse segments blurs the picture and can lead to wrong conclusions about attractiveness.
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