Archive for the ‘Porter’s Five Forces’ Category
First, you must choose a distinctive value proposition. Which needs will you serve, which customers, at what relative price? Have you staked out a positioning that’s different from rivals?
Second, and far less intuitive, you must choose to tailor your activities to that value proposition. Competitive advantage lies in the activities, in choosing to perform activities differently or to perform different activities than rivals. These ultimately are the choices that result in a company’s ability to charge premium prices or to operate at lower cost. (Remember, we’re talking about quantifiable performance.)
The third test of strategy, making trade-offs, may well be the hardest. It means accepting limits — saying no to some customers, for example, so that you can better serve others. Porter explains why trade-offs are an important source of profitability differences among rivals, and why trade-offs make it difficult for rivals to copy what you do without compromising their own strategies. The essence of strategy, says Porter, is choosing what not to do.
Fit is the fourth test. Great strategies are like complex systems in which all of the parts fit together seamlessly. Each thing you’ve chosen to do amplifies the value of the other things you do. That’s how fit improves the bottom line. It also enhances sustainability. Says Porter, “Fit locks out imitators by creating a chain that is as strong as its strongest link.”
Continuity is strategy’s fifth test. While managers are often berated for changing too slowly and too little, it is also possible to change too much, and in the wrong ways. Faced with the latest New Thing, managers must choose whether to embrace it or not. Continuity of strategy helps companies to make good choices about whether and how to change in the face of turbulence. Good choices will strengthen tailoring, sharpen trade-offs, and enhance fit.
Whether it is competitive advantage, the value chain, five forces, industry structure or differentiation, Michael Porter’s frameworks are the foundation. If you want to understand how companies achieve and sustain competitive success then buy this latest book from Harvard Business School called ‘Understanding Michael Porter: The Essential Guide to Competition and Strategy’
New York’s Westchester County Business Journal, in its weekly business advice column, has just run an article entitled ‘keeping abreast of the competition’. For us, as market research and competitive intelligence experts, we can never read enough articles that encourage organizations large and small to recognize the importance of quality, up-to-date business intelligence.
As anyone who is familiar with Porter’s Five Forces will be well aware, very few, if any, companies operate alone in their given marketplace. Each company’s specific micro environment consists of forces that affect its ability to serve its customers and make a profit.
Competition is out there in the form of direct established rivals, as well as the threat of new entrants to the market or the threat of substitute products.
Any change in any of these forces normally requires a company to re-assess the marketplace, hence the need to regularly review your competitive intelligence. Even the decision of a competitor to get out of your chosen marketplace, for example, should be viewed with a degree of caution rather than unbridled celebration. Why does your competitor no longer wish to be in your market? Do they know something important that you don’t?
Intelligence is, of course, available from a wide range of sources. In its most basic forms there is much you can do yourself: talk to your suppliers, customers and employees; keep abreast of developments by reading industry periodicals or industry reports; scour the internet for news.
Yet much information – especially that of a sensitive nature – can be difficult to come by, and not all companies have the necessary people resources to conduct a thorough and comprehensive competitor analysis. In many cases, they may require the help of an external research consultancy who will be adept at sourcing data – from mystery shopping, to competitor pricing research studies, through to conducting structured interviews with customers, suppliers, distributors, industry experts and even competitors themselves.
There is no doubt that there is a whole world of information out there, and that competitor intelligence at your fingertips enables you to make intelligent future business decisions.
Find out more about how B2B International’s competitive intelligence work can enhance your own knowledge by clicking here.