As a strategist to mid-sized companies, my job is to get senior management to understand the forces buffeting at their business. This week's blog will focus on the 5 Forces which is still the best framework for understanding what is going on around the business and how to shape the best competitive position. My guru of choice was and is Michael Porter and when I wrote my best seller
The Power of Strategy back in the mid 1990's, I had applied his model across many businesses, small and large, and diiscovered its power.
the job of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.
As different from one another as industries might appear on the surface, the underlying drivers of profitability are the same. The global auto industry, for instance, appears to have nothing in common with the worldwide market for art masterpieces or the heavily regulated health-care delivery industry in Europe. But to understand industry competition and profitability in each of those three cases, one must analyze the industry’s underlying structure in terms of the five forces.
