If you’re looking to dig deeper than a S.W.O.T. analysis for assessing the condition of your organization, consider the work of Dr. Michael E. Porter.
In 1979 this Harvard Business School professor created Porter’s Five Forces – a framework commonly used for industry analysis and business strategy development. Like the S.W.O.T. analysis, this tool considers both internal and external sources, but it applies the data to gauge the competitive intensity of an industry and assess the attractiveness, or profitability potential, of a market. Remember, business is about profits and any “force” that works to reduce profits is what you want to focus on.
The framework looks at (5) five key areas, consider your organization as you read these descriptions:
- Threat of Entry: Evaluates the ease or difficulty for competitors to enter into an industry and compete for market share. In general, the more competitors in an industry, the less profitable each firm will be as price competition heats up.
- Power of Buyers: Assesses the consumer’s (or retailer’s) ability to bargain with and apply pressure to a company within a given market. Everyone wants higher quality and a lower price. Ah, the never-ending love-hate relationship.
- Power of Suppliers: Considers that businesses that rely on external sources for supplies, services or labour to function are subject to the power held by these external providers, who could charge excessively high prices or refuse to work with them.
- Threat of Substitutes: Examines the number of organizations within an industry that offer a similar product or service and the price and quality of this potential substitute. Typically the more substitutes available, the more likely a consumer will be to switch. Think fast food joints and why you choose Wendy’s over Subway or how you can pack a lunch and not eat out at all.
- Competitive Rivalry: Analyzes the findings from the previous four forces to determine the overall intensity of rivalry within an industry. Competition forces prices down only if everyone is producing the same thing and in the same way.
Porter’s theory urges organizations not to become the best in their industry, but rather, to become increasingly different than others in the value they bring to a customer. Differentiation is what creates long-term value and is at the heart of all good marketing strategies.
As you and your organization work on assessing and addressing these areas you’ll be more prepared to create the kind of marketing strategies that are capable at winning big instead of simply just perpetuating the status quo. If you’re not happy with your current marketing efforts then you need to get down and dirty with the strategic components of your organization – better understanding Porter’s Five Forces is a great way to get the momentum you need in order to make important changes.