Marketers need a fresh take on Porter’s strategy classic
US business professor Michael Porter first wrote about his Five Forces over 40 years ago. His framework remains a classic of strategic planning; but given the changes in the business world in the decades since, isn’t it time it was updated?
Porter drew on industrial organization economics to provide a tool for analysing a company or brand’s competitive environment, assessing its intensity and, therefore, its attractiveness. His insight was that organizations needed to look beyond their direct competitors and consider five other forces, which he contended made up a complete picture of the competitive environment.
In Porter’s original, rivalry in market is concerned with the number and strength of your competitors: how differentiated is your offer? Supplier power looks at your suppliers and how they can influence your production capability and pricing. How easy and expensive would it be for you to switch suppliers? Buyer power is the opposite, an assessment of demand and how easy it is for buyers to drive down your prices. Do your customers have like-for-like alternatives they could switch to? How easily, and at what cost? Substitute threat refers to the possibility of your customers finding a different way of doing what you do; the fifth force, new entry threat, recognizes that you are affected by the ability of other organizations to enter your market. How easy is it for someone to get a foothold in your market, and how high are the barriers to entry?
Forty years on, much has changed in the business world. My take on the five forces starts with stealing share – an evolution of rivalry in market, recognizing that today’s reality is hyper-competition. The number and variety of competitors have grown exponentially in many markets, and what’s more, some are ‘frenemies’: friends and enemies in one, both competitors and partners. It’s no longer good enough to merely build market share: you have to also stimulate category growth, to ensure your standing in retailers’ eyes.
Supplier power has also evolved. I dub the new force middlemen with muscle.
The importance of intermediaries has soared, through comparison sites, the new category-killer giants like Amazon, and the increased role of procurement, which has become the third player in many supplier/purchaser relationships.
Buyer power is still an important force, but what is driving choice is changing.
We live in the era of conscientious consumerism. In a world of economic uncertainty and possible environmental catastrophe, people – and organizations – are buying brands that share their values. Token gestures aren’t enough; brand missions are evolving into brand purposes.
When it comes to the original new entrant and substitute threats, we see one of the biggest changes in competitive strategy today: so I have amalgamated those categories under the heading new world disruptors. Recent years have seen huge impact on so many markets. Disruption, redefinition, replacement and, in some cases, augmentation have often come in the form of technology that has facilitated completely new ways of doing things. Think what mobile phones have done to landlines, calendars, alarm clocks, cameras, and console-based gaming. The internet has given birth to opportunities for new direct-to-consumer brands and internet-based alternatives to traditional businesses.
My fifth force is the battle for talent. The most valuable assets for many organizations are their people. Finding, attracting and inspiring people – thus retaining them – can be a true source of competitive advantage. It is a force that every organization must consider.
Porter’s five forces are a classic – but for today’s marketers, it’s time for fresh thinking. May the forces be with you.