Are you dominating your market or industry and ready to scale – or if you are way off the mark, do you know how to correct your direction?
Michael Porter, the American academic known for his theories on economics, business strategy and social causes, says there are five competitive forces that can be used to analyse a company’s competitive environment.
In his book, Competitive Strategy: Techniques for Analyzing Industries and Competitors published way back in 1980, Porter outlined a business model that explains why some industries are able to sustain different levels of profitability.
Porter’s ‘Five Forces’ are frequently used to measure competition intensity, attractiveness, and profitability of an industry or market. They are…
- Competition in the industry
- Potential of new entrants to the industry
- Power of suppliers
- Power of customers
- Threat of substitute products.
As Porter says, “every industry will have a different set of economic fundamentals, but the five forces will help you identify what creates profitability in the industry.”
We’ve learned from Porter that the key to success in dominating your industry is a strategic position that is unique and valuable. You need to be undertaking a different set of activities and establishing a difference that you can preserve in the marketplace.
To make this happen, it is essential you are clear on how to meet the real needs of your Core Customer in a way that sets you apart from your competitors.
The differentiation may be the way you engage with your customers or it may be a unique way in which you produce the product or service – something that delivers excellent quality at industry-beating margins.
Ask yourself and your senior team these questions…
What is it that the market truly values from its suppliers? The fewer suppliers to an industry, the more a company depends on a supplier. As a result, the supplier has more power and can drive up input costs and push for other advantages in trade.
Can you identify ‘white space’ – an attribute valued by your customers (and your competitors’ customers) but is being underserviced? What can you do to increase your competitive advantage? What is distinct about your company? What can you do differently?
Do you have the Core Competencies to capitalise on these opportunities? Is this explicit in your 3-Year Plan?