Michael Eugene Porter—a Professor at the Institute for Strategy and Competitiveness, Harvard Business School—is widely acclaimed for his unmatched prowess in competitive strategy, strategic planning, global economic development, and the application of competitive principles and strategic approaches. Renowned as the father of modern day strategy, Dr. Porter is an author of 18 books and a number of articles.
His scholarly writings on management and competitiveness are ranked as the most influential pieces of work till date. Dr. Michael Porter is widely known for his Porter’s Five Forces framework, which is a useful tool to evaluate the competitiveness of an organization with respect to its rivals. Competition is part and parcel of every industry, and for the existence of an enterprise it is important to know its rivals and how their product / service offerings and marketing strategies affect the market. It is a common foundational framework used in Strategy Development.
The Five Forces framework emphasizes on 5 critical elements that determine the attractiveness of a business against its rivals in the industry:
- Threat of New Entrants
- Supplier Power
- Buyer Power
- Threat of Substitution
- Competitive Rivalry
Threat of New Entrants
This element examines the simplicity or complexity of an industry for the competitors to jump in. High-return industries are more appealing to new entrants. A market with easy access for new entrants poses greater risk—of market share diminishing—for established businesses. New entrants in an industry are able to dent the profitability of established players unless the incumbents retaliate strongly and make the entry of new firms challenging.
A serious threat to entry also relies on the existing barriers in the industry. If the market entry barriers are high and there is an expected sharp response from the entrenched competitors, the newcomers will think twice before entering the market. Another important factor for new entrants is the requirement for large capital for branding, advertising and creating product demand, which limits their entry in a niche market. Aspiring market entrants should thoroughly analyze and understand all the critical barriers to entry before entering an industry—such as economies of scale, product differentiation, capital investment, access to distribution channels, and government policies and regulations.
There 6 prevalent types of barriers to entry:
- Economics of scale
- Product differentiation
- Capital requirements
- Cost disadvantages (independent of size)
- Access to distribution channels
- Government / regulatory policy
Suppliers are a powerful force that influences the competitiveness of an industry. They create immense pressure on market players by slashing the quality of goods and by increasing prices, thereby squeezing the margins of manufacturers. For instance, by jacking up the price of soft drink concentrate, suppliers erode profitability of bottling companies. The bottlers, in turn, don’t have much leverage to raise their own prices because of intense competition from fruit drinks, powdered mixes, and other beverages.
The power of a supplier group amplifies if it’s dominated by a few firm, has differentiated and unique products; and has built up switching costs that buyers face when changing suppliers, for making investments in specialized equipment, or in learning how to operate a supplier’s equipment. The supplier group also thrives when there isn’t much competition for sale to the industry, or when the industry is not its major customer, as this saves the supplier from selling at a bargain and investing in R&D and lobbying for the industry.
Buyer or customer groups also impact the competitiveness of an industry landscape by exercising their power to bring the prices down, insist on higher quality, or demand more service. A buyer group is powerful if it buys in large volumes in an industry characterized by heavy fixed costs and buys undifferentiated or standard products. Buyers have the ability to put one supplier against another and find alternative suppliers.
The power of a buyer group increases if it’s a low profit business—providing it the reason to be price sensitive and insist on lower purchasing costs—, if the industry’s product is insignificant to the quality of the buyers’ products or services, or if the product that suppliers provide does not save much for the buyer. Buyers can also use the threat of self-manufacturing as a bargaining lever against the suppliers.
Threat of Substitution
Substitute product or service offerings restrict the capacity of an industry by placing an upper limit on prices it can charge. The industry’s earnings and profits will continue to suffer lest it can enhance the quality of products or create differentiation through, for instance, aggressive marketing.
If substitute products offer more competitive price-performance trade-off, then the industry’s profitability gets limited or goes down. For instance, the erosion of profits for the sugar industry due to substitution of sugar with commercialized high-fructose corn syrup.
Internal Rivalry, existing at the center of Porter’s Five Forces framework, represents the competition between existing players often leads to rivals using manipulative tactics like price competition, new product launch, and advertising wars. Companies can use strategic shifts to improve their competitive position—e.g., raising buyers’ switching costs, increasing differentiation, and focusing on low fixed costs areas.
Interested in learning more about the other critical elements of the Porter’s Five Forces and their role in in determining the state of competition and profit potential of an industry? You can download an editable PowerPoint on Porter’s Five Forces here on the Flevy documents marketplace.
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What is strategy without execution? Merely theory.
A successful business requires both a well developed strategy and the ability to execute on that strategy. Many companies develop robust strategies, but fail at operationalizing their strategies into implementable steps.
Flevy has just released a free primer on the topic Strategy Development and Strategy Execution. It is a 54-slide deck that discusses 12 frameworks, spanning both strategy development and execution.
- Download it here: http://flevy.com/strategy-frameworks
Topics covered include: Porter’s Five Forces, Consolidation-Endgame Curve, Hoshin Kanri, Product Lifecycle, Consumer Adoption Curve, Balanced Scorecard, Blue Ocean Strategy, BCG Matrix, SWOT, PEST, Marketing Mix, and Organizational Hurdles.
You may also be interested in Flevy’s business toolkits focused on these topics:
You browse their other business toolkits here: http://flevy.com/business-toolkits
In previous articles, we have covered various PowerPoint template/diagram compilations that focus on business frameworks and management models. Here are some examples:
This latest may be the biggest of them all — 100 Business Excellence Frameworks. The total document spans close to 400 slides.
Here is the full list of business excellence frameworks/methodologies covered:
- 3 Cs Strategy Triangle
- 4 Ps Marketing Mix
- 5S Principles
- 8D Problem Solving
- Activity Based Costing
- ADKAR Change Model
- Agile Model
- AHRI Model of Excellence
- Ansoff’s Growth Matrix
- APQC Benchmarking Methodology
- ASTD Competency Model
- Australian Business Excellence Framework
- Balanced Scorecard
- Baldrige Performance Excellence Model
- BCG Matrix
- Beer & Nohria’s E & O Theories
- Blue Ocean Strategy
- Branding Pentagram
- Bridges’ Transition Model
- Business Process Redesign
- Capability Maturity Model Integration (CMMI)
- Cause & Effect Diagram
- COBIT 5
- Cost of Quality
- Covey’s Seven Habits
- Covey’s Time Management Matrix
- Crosby’s Law of 10
- Curry’s Pyramid
- De Bono’s Six Thinking Hats
- Deming Cycle
- Drucker’s Management By Objectives
- DuPont Analysis
- EFQM Business Excellence Model
- Eight Types of Waste
- Emotional Competence Framework
- Five Principles of Lean
- Four Stages of Contribution Model
- Gemba Framework
- Greiner’s Growth Model
- Harmon’s Process-Strategy Matrix for Outsourcing
- Harvard Model of Strategic HRM
- Heinrich’s Rule on Safety
- High-Impact Learning Organization
- Hofstede’s Cultural Dimensions
- Hoshin Kanri Strategy Deployment
- House of Gemba
- IMPA HR Competency Model
- ISO 9001 Quality Management
- ISO/IEC 15504 (SPICE)
- ISO/IEC 27001 Information Security Management Systems
- IT Infrastructure Library (ITIL v3)
- Kotter’s Eight Phases of Change
- Kraljic’s Purchasing Model
- Lean Leadership & Kaizen Model
- Lean Levers
- Lean Management Model (TPS)
- Lean Maturity Model
- Lencioni’s Five Dysfunctions of a Team
- Lewin’s Three Stage Change Model
- MABA Analysis
- McKinsey 7-S Framework
- Mistake Proofing Process
- NAPA Competency Model for HR Professionals
- Nolan’s Stages of Growth for IT Systems
- Ofman’s Core Quadrants
- Organizational Project Management Maturity Model (OPM3)
- PACE Prioritization Matrix
- Payoff Evaluation Matrix
- PDCA Problem Solving Process
- People Capability Maturity Model (PCMM)
- PEST Analysis
- Porter’s Five Forces
- PRINCE2 Project Management
- Project Management Body of Knowledge (PMBOK)
- PricewaterhouseCoopers Outsourcing Model
- Scrum Model
- Senge’s Five Disciplines
- Shingo Model for Lean Transformation
- SHRM Elements for HR Success
- Six Sigma Methodology
- Strategic Business Planning Methodology
- Strategic Dialog
- SWOT Analysis
- Talent Management Framework
- Total Productive Maintenance (TPM)
- Total Quality Management
- TRADE Best Practice Benchmarking Model
- Training Within Industry (TWI)
- Treacy & Wiersema Value Disciplines
- Tuckman’s Model of Team Development Stages
- Ulrich’s Five Rules for Leadership
- Ulrich’s HR Competency Model
- Ulrich’s Matrix on the Four Roles of HR
- Ulrich’s Stages of Employee Connection to the Organization
- Value Chain Model
- Value Stream Mapping
- Value-based Management
- Xerox Benchmarking Model
This deck is a collection of PowerPoint diagrams and templates used to convey 100 different business excellence frameworks comprising key strategy, marketing and sales, finance, operations, IT, organization, change and HR models.
LearnPPT has finally released a new business document. It’s called the Complete Consulting Frameworks Toolkit and that name is not an understatement. The document is currently only available for download on Flevy.
This is a VERY comprehensive document with over 300+ slides–covering 50 common business frameworks and methodologies (listed below in alphabetical order). A detailed summary is provided for each framework. The included frameworks span across Corporate Strategy, Sales, Marketing, Operations, Organization, Change Management, and Finance.
Here is the full list of included frameworks and methodologies:
- ABC Analysis
- Adoption Cycle
- Ansoff Market Strategies
- Balanced Scorecard
- BCG Growth-Share Matrix
- Blue Ocean Strategy
- Break-even Analysis
- Business Unit Profitability
- Economics of Scale
- Environmental Analysis
- Experience Curve
- Cluster Analysis
- Company & Competitor Analysis
- Core Competence Analysis
- Cost Structure Analysis
- Customer Experience
- Customer Satisfaction Analysis
- Customer Value Proposition
- Fiaccabrino Selection Process
- Financial Ratios Analysis
- Gap Analysis
- Industry Attractiveness & Business Strength Assessment
- Key Purchase Criteria
- Key Success Factors (KSF)
- Market Sizing & Share
- McKinsey 7-S
- Net Present Value
- PEST Analysis
- Porter Competition Strategies
- Porter’s Five Forces
- Portfolio Strategies
- Price Elasticity
- Product Life Cycle
- Product Substitution
- Relative Cost Positioning
- Rogers’ Five Factors
- Scenario Techniques
- Scoring Models
- Segment Attractiveness
- Segmentation & Targeting
- Six Thinking Hats
- Stakeholder Analysis
- Strengths & Weaknesses Analysis
- Structure-Conduct-Performance (SCP)
- SWOT Analysis
- SWOT Strategies
- Treacy / Wiersema Market Positioning
- Value Chain Analysis
- Venkat Matrix
These frameworks and templates are the same used by top tier consulting firms. With this comprehensive document in your back pocket, you can find a way to address just about any problem that can arise in your organization.
For other, more in-depth business methodology framework and methodology documents, take a look here:
Growth strategy is typically the crux of any organization’s business strategy. Achieving sustainable growth is a challenge faced by all companies, whether you’re just a startup or a gorilla.
There are several main barriers that inhibit continued growth. These include coming up with break-through innovations, execution challenges, and balancing growth at the expense of profitability.
In framing the growth challenge, there are typically 3 “horizons” a company must cross and overcome. The first is to extend and defend it core business. This is critical for near-term performance and, oftentimes, too much of a focus. Successfully growing through this horizon requires very strong operational managers and leadership. The second horizon is to build emerging businesses. The objective is to drive or invest in ventures that leverage or replicate the existing business model and capabilities. Successful navigation through this horizon requires entrepreneurial members and business builders. The final horizon focuses on creating viable options for future growth. This requires input from “visionaries” and unconventional thinkers.
LearnPPT has a comprehensive Growth Strategy toolkit, which discusses these growth challenge and presents several frameworks in addressing, creating, and managing sustainable business growth. You can find the document here:
This toolkit is 31 slides. It presents and compares the traditional approach to growth strategy, such as Porter’s Five Forces, to the newer age Blue Ocean Strategy methodology of creating an uncontested market. In addition, it lays out a framework for undertaking a growth strategy project initiative. (You can find a detailed description of the document at the bottom of this post.)
LearnPPT is a leading online resource for presentation materials. Its range of products range from PowerPoint templates to business strategy frameworks (like the one on pricing strategy). All documents were created for an by top management consulting firms. Since its founding in 2010, the LearnPPT documents have been used by customers in Fortune 500 companies, top MBA programs, and leading management consultancies across over 45 countries.
DETAILED DESCRIPTION OF THE GROWTH STRATEGY TOOLKIT
The Growth Strategy Strategy Toolkit is a 31-slide PowerPoint. It contains both instructional slides about growth strategy frameworks and editable templates. This document is divided into 4 sections:
- Growth Challenge (6 slides)
- Traditional Strategy Thinking (5 slides)
- Modern Strategy Thinking (11 slides)
- Growth Strategy Project (5 slides)
In this first section, we explain how all companies are faced with the challenge of achieving sustainable growth. Specific growth challenges and situations are identified and explained. We show how a successful company must navigate across 3 growth “horizons,” which involve both optimizing the existing core business and creating new ones. Specific barriers and paths to growth are enumerated.
Traditional Strategy Thinking
This section discusses the focus and thinking of traditional growth strategy frameworks, such as Porter’s Five Forces and the GE-McKinsey Matrix. There is a deep dive into Porter’s Five Forces, including template slide for presenting a Porter’s Five Forces analysis summary.
Modern Strategy Thinking
This third section is the largest section of the document. It includes a detailed comparison between Traditional Growth Strategy Thinking versus Modern Growth Strategy Thinking across the areas of industry, strategy, market, resources, among other components. The focus is on teaching the Blue Ocean Strategy framework, include the related topics of portfolio positioning, value identification, and value curves. Specific examples are provided, along with template slide for presenting a Value Curve analysis summary.
Growth Strategy Project
This final project teaches how to conduct an actual growth strategy project. A three-phase approach to strategy development is introduced. Specific work streams, activities, and deliverables are identified for each phase of the project. This is the same approach to conducting a growth strategy engagement used by many strategy consulting firms.