Almost 30 years ago, Michael Porter identified the five competitive forces that shape business strategy. This ground-breaking work was a holistic way of looking at industry/business. Porter focuses on the need to step back from the details of running your business so that you can identify the strategic objectives that will deliver value across your organization.
This is a particularly important skill for leaders — after all, it is easy to be caught up in the detail of running a business. Some even find it enjoyable. But leading a business also means being able to operate, like Richard Branson, at 30,000 feet.
To recap, Porter’s five forces are:
- Rivalry among existing competitors
- Bargaining power of buyers
- Bargaining power of suppliers
- Threat of new entrants
- Threat of substitute products or services
The Harvard Business Review have published a reaffirmation and extension of Porter’s five forces. In this 12 minute video from HBR you can hear Porter speak about the five forces, or, you can see an edited, 5 minute version, on YouTube.
Nina Nets It Out: Despite being written 30 years ago, Porter’s five forces still provides a solid framework for thinking through business strategy. No matter where you are in your career, understanding this framework can provide you with a way of understanding the trends, opportunities and challenges faced by your company and your industry.
Excellent Nina – thank you!
A minor point is that Porter’s five-forces model is really for a single industry (single business unit).
Most organizations compete in many industries – so each business unit should analyze its respective industry. Corporate planning should help the analyze linkages among the business units.
In our research of the largest global 1000 companies, the average company competes in approximately 52 industries, with the global IT companies competing in the most number of distinct industries. (For example: IBM, HP, Microsoft, Oracle and Fujitsu each compete in over 100 industries.)
Alan S. Michaels
co-founder http://www.eCompetitors.com
Hey Alan,
Very fair point. As someone working in a global software company [SAP AG], I fully understand your point about companies competing in numerous industries. Further, I agree that Porter’s five forces framework is primarily used for assessing industry forces and business strategy within an industry vs. across numerous industries at one time. However, despite this shortcoming, it is truly a classic strategic framework that I strongly encourage everyone working to study, even if only at the highest levels.
Thanks Nina,
And in case I wasn’t clear – we love Porter’s work – and that’s why we’ve spent the last seven years leveraging his five-forces methodology as we continuously analyze and update the top 10,000 global industries.
And now that I see you work at SAP, we have SAP competing in 87 industries.
Besides using Porter’s ideas for conducting an industry analysis, we also use Porter’s “Multipoint Competitor” concept to analysis companies like SAP, Oracle, IBM, Microsoft, etc., side by side at the line-of-business level (also known as the Porter “industry” level).
Cheers,
Alan S. Michaels
co-founder http://www.eCompetitors.com
Hey Alan,
Very interesting work you do and I am certain that Porter’s methodology [both five-forces and multipoint competitor] would come in handy for those industry level comparisons/analyses. It is also interesting to note that my company, SAP, competes in 87 industries per your comment. Thanks for sharing.
Hi Nina, Can you explain how Porter’s Model relates to Corporate Event/Meeting Planning? Thanks!
Hi Adrienne,
I am not sure the exact nature of your question. Are you referring to a business that does event/meeting planning? If so, as Porter’s model suggests, it would be best to look at this business in the context of Porter’s five forces and comparatively evaluate the specifics of this business in each of these areas so as to determine it prospects for successful competition.
Great blog, wish I had found it sooner. I have been debating the need for large corporates to relax their corporate policies where required to allow their business units that compete in industries that are more competitive than the industry of the core business, as these businesses are often hampered in their ability to respond to their commecial reality by these corporate policies.
I would love to here your comments
Thanks Ian! I think that business units must be permitted to compete as strongly as possible within their industry. After all, why own a business unit if it is not competitive or precluded from competing? Sometimes, I guess, business units are owned for more strategic purposes, but generally, I am in favor of seeing all business units compete to their fullest.